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COVID 19  Suspension of contract works: Winter is coming

By Finn Collins

COVID 19 Suspension of contract works: Winter is coming

We are all now pulling those contracts from the bottom drawer. However, for good reason we have yet to see default notices being issued on an industrial scale. Firstly, it’s too early. Secondly, softer considerations are vitally important at this stage. There's a longer term view than just dealing with the emergency knee-jerk reaction of the disruption to businesses.

But pandemics will probably be given much more attention in future contracts.

Here are some of my notes following several calls from clients over the past 48 hours.

What are essential services?

The official government website states: “Any entity involved in building and construction required immediately to maintain human health and safety at home or work”.  Views on this could be:

  • if I was a roofer I would read this as saying that I am entitled to finish a roof to ensure a house or building is weather tight.

  • if I was a timber flooring contractor I would assume that this means I can finish a partially installed floor to prevent the owners or their children falling over and injuring themselves.

Whatever your situation is you will need to have a very good reason for continuing to work after the lock down.

What will happen to my March payment claims?

A 4-week lock-down does not allow a payer to believe they have more time to pay you. Contractual obligations to pay have not been suspended. Neither does the lock-down magically give a payer an extension to whatever working day period is applicable to make payment or to issue a payment schedule.

The definition of ‘working day’ under the Construction Contracts Act is limited to statutory holidays and a short period over Christmas.  That means you should continue to issue your payment claims in accordance with any dates in your contract. 

If you cannot claim payment until achievement of certain milestones then you may have a problem. If a milestone has not yet been achieved then, unless your contract has had government lockdowns in mind, then it’s unlikely you will have any right to prematurely issue a payment claim and to be paid. That may mean being very nice to your client and explaining that you need their agreement to pay for work and materials to date for a particular milestone or looking carefully elsewhere in your contract for assistance.

On commercial projects the government lock-down means a careful analysis of contractual risk and strict adherence with procedural requirements, such as contractual notices.  Any softer considerations in play now are likely to evaporate when it comes to a final account wash up in say 6 to 12 months’ time, which means keeping a wary eye on your contractual rights and obligations. 

To avoid variations it is likely that contract administrators will be hesitant to give formal notices of suspension under the contract terms, especially under NZS3910:2013, where the effect of doing so will have cost implications to the Principal. However, that may be unavoidable because contractors can fairly say they did not assume the costs and time risk of a pandemic.

Here is a summary of the two key types of head contracts in use on commercial projects in respect of suspension due to the COVID-19 lock-down.  Treat this table with some caution.  These standard forms of head contract are often heavily amended.

These contracts also assume that the contract administrator is suspending the works; not the government – so we can expect some disputes about whether a government lock down constitutes a variation. For our part, we consider there is strong merit in claiming a variation. This means you should log your entitlement now by giving notice of a variation due to the government lock-down.

COVID-19 CONSTRUCTION CONTRACT RISK MATRIX

 

Suspension
Termination
Time
Costs

NZS3910:2013

Clause 6.7: The Engineer can instruct the Contractor in writing to suspend the whole of the works for such time as he or she thinks fit. During suspension the Contractor must secure the contract works and leave the site in a safe and tidy condition.

If suspension remains in effect for more than 3 months and the Engineer does not permit, following a request, to allow the works to continue the Contractor can treat the contract as being at an end.

Suspension if directed by the Engineer is a Variation. It will also logically enable an extension of time.

We anticipate that the costs of time related costs, typically on-site and off-site overheads, temporary works costs such as scaffolding and disestablishing and reestablishing costs are likely to be recoverable.  This is not an exhaustive list.

NZIA SCC 2018

Clause 16.4: The Architect  can suspend the works. As with NZS3910 the Contractor must leave the site in a safe and tidy condition.

If suspension remains in effect for more than 60 working days and the Architect does not permit, following a request, to allow the works to continue the Contractor can treat the contract as being at an end.

Suspension if directed by the Architect is a Variation. It will also logically enable an extension of time.

Clause 16.4.3 expressly states that the Contractor can claim any additional costs which the Contractor reasonably incurs. The additional costs must be claimed and valued as a variation. Again we would expect time related costs to be claimed and the costs of shutting down and then reestablishing.

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