Government guidance on handling construction contracts will give many construction companies the confidence to continue to employ their people and take a lead role in the economic recovery following the lockdown, says Civil Contractors New Zealand Chief Executive Peter Silcock
Government commitment to a fair and consistent approach to construction contracts impacted by COVID-19 closedown is welcome and will make a huge difference for construction companies.
This has been a time of great confusion. COVID-19 has hit the economy hard, and it’s extremely important to work from a shared understanding of what’s expected in situations where construction projects have shut down operations.
The government confirmed it would consider the COVID-19 lockdown a variation of construction contracts and instructed all public sector leads to consider the need for construction industry cashflow through things like advance payments and early repayment of retentions as well as additional hardship outside of existing contracts.
Keeping the construction sector in good shape and retaining as many businesses as possible was key to economic recovery. Infrastructure projects could provide much-needed economic stimulus and jobs for workers in sectors such as tourism likely to be looking for a new place to work following New Zealand’s border closure.
Despite this, a rapid restart was urgently needed with most contractors surviving off whatever reserves they had as cashflow ground to a halt. Many businesses reported less than 10 per cent of the workforce were able to do any essential services work. Sixty per cent said they would survive less than ten weeks of lockdown under prior arrangements.
While the Guidance for public sector agencies dealing with the contractual implications for construction projects of the COVID-19 lockdown period was specific to government agencies, it is hopeful private clients and initiators of projects would also see it as a sensible approach. Consideration of financial support or benefits must also reach subcontractors, and it was essential payments should continue to all involved.
Civil Contractors New Zealand was working with the wider construction industry to prepare a safe and efficient restart of works once Alert Level Four lockdown was lifted, in alignment with the recovery plan put forward under the Construction Sector Accord.
The contractual details
The government confirmed the lockdown constitutes the making of a statue and/or regulation giving rise to a variation claim under the standard NZS 3910 Contract, which is widely used across the construction industry.
On this basis whether the project engineer has issued a suspension notice under 6.7.1 or not, the Contractor will be entitled to a variation under 5.11.10 as a result of new laws and regulation recently made relating to COVID-19. Any increase in costs arising from a change in law under 5.11.10 is treated as a variation, much the same way as a suspension instructed by the Engineer under 6.7.1 is treated as a variation.