IPWEAQ Maryborough 2021

COVID-19 and Construction Contracts

Joseph Jones

Senior Associate

20 April 2021

2

COVID-19

■We all know what it is right?

■Context and definitions:

□ Medical/scientific style: COVID-19 (Coronavirus)

means any virus of the family Coronaviridae capable of infecting a person, including:

(a) Middle East Respiratory Syndrome Coronavirus (also known as MERS-CoV) which causes Middle East Respiratory Syndrome (also known as MERS);

(b) Severe Acute Respiratory Syndrome Coronavirus (also known as SARS-CoV) which causes Severe Acute Respiratory Syndrome (also known as SARS);

(c) Severe Acute Respiratory Syndrome Coronavirus 2 (also known as SARS-CoV-2) which causes the coronavirus disease commonly referred to as Novel Coronavirus, COVID-19 or 2019 Novel Coronavirus; and

(d) any new or existing strains or mutations of the viruses referred to in paragraphs (a) to (c).

□ Government legislative style:

has the meaning given in s 315 of the Public Health Act 2005 (Qld), namely ‘the public health emergency declared by the Minister on 29 January 2020 under s 319(2), as extended and further extended under s 323

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COVID-19 impacts

■What type of impacts does COVID-19 have on construction at a practical level:

□ Actual illness of workforce

□ Quarantine of workforce

□ Inability or restriction of Site access

□ Site shutdown / lockdown (or industry wide shutdown)

□ Methodology & program impacts (one person per room)

□ Work, Health & Safety (protective equipment, etc.)

□ Insurance (or lack of)

□ Indemnities (personal injury, illness, death, etc.)

□ Legislative compliance (Local)

□ Legislative compliance (Global) (quarantines / restrictions on trade)

□ Policy compliance

□ Short supply (at area specific / world at large / particular supplier)

□ Design impacts (design for COVID) / innovation

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• Pass down of the above risk allocation of Contractor (as relevant to scope)

• Risks may look different at this level (e.g. legal drafting OR scope – has a ‘material impact’)

• Bound to achieve objectives or suffer implications (e.g. LDs, defects, fixed lump sum – absent ‘Excuse’ Clauses or ‘Excuse’ Laws)

• Responsible for the WUC and Work - including workforce (labour, materials, etc.) – including subcontractors & suppliers

• Responsible for the program and methodology

• Legislative / policy compliance (e.g. WHS, particularly if appointed as PC)

• Indemnities

• Provide site access

• Legislative / policy compliance (e.g. WHS, particularly if other PC not appointed)

• Project objectives (residual risk owner)

How does this fit in the scheme of construction contracts (generally)

Council

Contractor

Subcontractor

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Construction Contracts – Outcomes & Excuses

Cost

Quality

Time

■Most require the Contractor

to achieve outcomes:

EOTs Variations

Releases,

exclusions

of liability

■ ‘Excuse’ Clauses:

Frustration /

Prevention

Unjust

enrichment

Waiver /

estoppel

■ ‘Excuse’ Laws:

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Frustration – the ‘mythical creature’

■When is a contract frustrated?

□ unforeseen event

□ not caused by either party

□ incapable of performance OR obligations radically different

– standard of proof is high

□ contract does not deal with the issue (e.g. via an EOT, force

majeure clause, etc.)

■Consequences:

□ automatic termination, for future obligations only

□ survival of clauses

□ no ability to claim damages for non-performance

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‘Excuse’ Laws (generally more limited)

■Frustration case: Ooh! Media Roadside Pty Ltd (formerly Power

Panels Pty Ltd) v Diamond Wheels Pty Ltd [2011] VSCA 116

■A relatively simple set of facts was considered:

□ there was a licence granted to use a site for a ‘permitted use’ of

outdoor advertising

□ a large sign board was erected on the roof of a building in a city

□ the line of sight from a major road to the sign was obscured by a

new building on land which was previously vacant

■The claim was that the contract had been frustrated

■ ‘Foreseeability’ was an issue at play here (contrast Codelfa

Construction Pty Ltd v State Rail Authority of NSW (1982) 150

CLR 29)

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Contrast an ‘Excuse’ Clause

■A case considering a force majeure clause

□ Holcim (Singapore) Pte Ltd v Precise Development Pte Ltd & Anor

1 [2011] SGCA 1 the Court of Appeal in Singapore

■Case was considering the Indonesian sand ban, which meant

Holcim could not supply concrete under a contract

■In connection with the ‘force majeure provision’, the relevant

excerpts of the clause read:

‘The Supplier shall be under no obligation to supply concrete if the

said supply has been disrupted by virtue of … shortage of material …

arising through circumstances beyond the control of the Supplier.’

■The Court determined that Holcim was relieved in the

circumstances

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The Australian Standards – ‘Excuse’ clauses & COVID-19

■Some excuse clauses (AS2124)

□ Clause 8.1 – Discrepancy in the Contract Documents

□ Clause 12 – Latent Conditions

□ Clause 14 – Change in Law

□ Clause 16.3 – Excepted Risks (negligence of Principal, war, invasion, insurrection, usurped power, radiation, use or occupation by the Principal, defects in the design)

□ Clause 17 – Claims in respect of the right of the Principal to construct the work on the Site

□ Clause 27 – Finding of minerals, fossils and relics

□ Clause 28 – Errors in setting out the works

□ Clause 33 – Rate of progress – compliance with directions of the Superintendent

□ Clause 35 – Extensions of time (industrial relations, inclement weather, Principal caused, changes in law, directions by municipal or statutory authorities)

□ Clause 40 – Variations (‘direction’ definition – change to character of the work)

□ Clause 45 – Termination by Frustration

□ Clause 46 – Notice of Intention to Claim (‘direction’ definition)

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What’s not on the list: A clause named ‘Force Majeure’

■ In Australia, Force Majeure is not recognised at common law

□ rather it is a contractual concept – so depends on the clause / contract

■Key elements when considering provisions:

□ Triggers: what constitutes Force Majeure

– Closed List vs Open List (e.g. Act of God, etc.)

– epidemic / pandemic / COVID-19, etc.

– the foreseeability test

□ Exceptions: what does not constitute Force Majeure

□ Effects: effect on the parties’ obligations (suspended / relieved, etc.) – specific obligation or contract as a whole

□ Excluded obligations: obligations or rights that are not affected (e.g. payment obligations)

□ Mitigation and notification: obligations to notify the other party or to mitigate the effects of the Force Majeure event

□ Termination rights: the parties may have the right to terminate in the event of a Force Majeure event (e.g. 90 days)

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What is ‘reasonably foreseeable’

■This has now changed:

□ Jan 2020:

– COVID who?

□ Jan 2021:

– Do I need to wear a mask?

■Today, issues may be around:

□ ‘magnitude’

□ ‘current state of play’

■How to navigate the above for Councils:

□ Tender / quotes = ask the questions

□ COVID-19 management plans, etc.

□ Identification of key risks (need to know has been programmed & priced)

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The hidden ‘force majeure’ in AS contracts

■The EOT regime is in many ways the equivalent (from Contractor side) of ‘force majeure’:

□ Trigger = list of events (or qualifying causes of delay definition per AS4000 suite)

□ Exceptions = what is not on the list (including if overlapping per AS2124 suite)

□ Effects = Contractor gets change to Date for PC (relief from LDs, possibly delay costs)

□ Excluded obligations = Typically other obligations, warranties, etc. remain without impact

□ Mitigation and notification = both concepts are in EOT clauses (per AS2124 - the Superintendent shall have

regard to whether the Contractor has taken all reasonable steps to preclude the occurrence of the cause and minimise

the consequences of the delay)

□ Termination rights = not included (absent frustration provision)

■From the Principal (Superintendent) side: generally have the right to suspend under the Construction

Contract (may or may not be constrained) / (may or may not have cost implications)

■Time for quick SHOW OF HANDS

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The causes are–

(a) events occurring on or before the Date for Practical Completion which are beyond the reasonable control of the

Contractor including but not limited to–

(i) industrial conditions;

(ii) inclement weather;

(b) any of the following events whether occurring before, on or after the Date for Practical Completion–

(i) delays caused by–

- the Principal;

- the Superintendent;

- the Principal's employees, consultants, other contractors or agents;

(ii) actual quantities of work being greater than the quantities in the Bill of Quantities or the quantities determined

by reference to the upper limit of accuracy stated in the Annexure (otherwise than by reason of a variation directed

under Clause 40);

(iii) latent conditions;

(iv) variations directed under Clause 40;

(v) repudiation or abandonment by a Nominated Subcontractor;

(vi) changes in the law;

(vii) directions by municipal, public or statutory authorities but not where the direction arose from the failure of the

Contractor to comply with a requirement referred to in Clause 14.1;

(viii) delays by municipal, public or statutory authorities not caused by the Contractor;

(ix) claims referred to in Clause 17.1(v);

(x) any breach of the Contract by the Principal;

(xi) any other cause which is expressly stated in the Contract to be a cause for extension of time for Practical

Completion.

AS2124 – Clause 35.5 – Open List or Closed List?

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COVID-19 and ‘beyond the reasonable control’

■It is worth having a look at ‘beyond the reasonable

control’ in the context of COVID-19

■Take a supply chain issue for a Contractor:

□ Is marble not being able to be procured from Italy

because a supplier’s factory is in lock down a valid EOT

claim under AS2124?

■Time for quick SHOW OF HANDS

9.3 Contractor's Responsibility

Approval to subcontract shall not relieve the

Contractor from any liability or obligation

under the Contract. Except where the Contract

otherwise provides, the Contractor shall be

liable to the Principal for the acts and

omissions of subcontractors and employees

and agents of subcontractors as if they were

acts or omissions of the Contractor.

■Who between the Principal and Contractor

specified the marble?

■Is this the only place it can be procured

from for the job?

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What is change in law?

■Definitions: ‘narrow’ vs ‘broad’

■Effects of the change under the contract

□ time

□ cost

□ warranties

■Observation:

□ Contractor claims may be more easily made out under this

right of claim where available

□ Federal / State law dealing with COVID-19

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■ Change in law

Or

■ Change in legislative requirements:

□ Acts, Ordinances, regulations, by-laws, local laws, orders, awards and proclamations of the relevant jurisdiction;

□ any notice, direction, order or other requirements issued or imposed by any organisations having jurisdiction in connection with the carrying out of the services, including government agencies

■ Foreign law:

□ does change of a foreign law qualify?

■ Does it include:

□ approvals changing?

– any obligation, condition or requirement of any Approval;

– Approvals (defined broadly)?

□ policies changing?

□ fees, levies, charges changing?

Narrow vs Broad definition

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■What can be recovered on cost / impacts:

□ Limited:

– the increased direct costs (e.g. change to the contract

sum or fee) necessarily incurred

□ Broader:

– any costs including that impact the proposed manner of

performance of the obligations (e.g. the proposed

methodology is impacted)

– a pure delay / disruption

Effect of definition – example

Other common limitations:

• Changes ‘not reasonably

anticipated’

• Obligation to minimise and

mitigate

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Considerations moving forward

■ Drafting of Construction Contracts:

□ many overlapping clauses covering COVID-19

VS

□ single regime for COVID-19

(including Council / Superintendent responses to COVID-19)

■ Alignment of price & program:

□ ask Contractor to ‘make an allowance’

□ excuse clauses (e.g. EOTs & variations) are then only about what is beyond the ‘allowance’:

– reasonably foreseeable?

– can we do better than that alone

■ Ensure appropriate Council flexibility:

□ termination for convenience

□ variations

□ notice to proceed

□ acceleration

19Disclaimer: This presentation covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. This presentation is intended for

information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this presentation.

T +61

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Joseph Jones

Senior Associate

7 3233 8652

jjones@mccullough.com.au

Contact