Due to the increasing rates of COVID-19 cases infectious in the community, the New South Wales (NSW) Government has announced the urgent shutdown of all construction sites across the Greater Sydney, Blue Mountains, Central Coast, Wollongong and Shellharbour areas (Shutdown Area) from Monday 19 July 2021 to at least 30 July 2021 (Shutdown Period).
The Shutdown Period gives rise to a number of issues for construction industry participants. Some of the immediate issues that require attention include:
- extensions of time, delay and disruption issues;
- suspension, force majeure and site safety arrangements;
- engagement with stakeholders and supply chains;
- payment obligations, cash flow and solvency risks; and
- employment issues.
Having a strategy moving through the Shutdown Period in relation to these matters is critical.
What you need to know
- (Site shutdown) - from 12:01am on 19 July 2021, all construction work in the Shutdown Area must “pause”. Only “urgent works” are permitted.
- (Site / safety) - arrangements should be made as soon as possible to ensure all construction sites in the Shutdown Area are made safe and secure, staff are informed and deliveries are postponed, redirected or stopped.
- (Permitted work) - work outside the Shutdown Area is permitted to continue. All workers travelling 50 kilometers or more from the Shutdown Area to construction sites outside the Shutdown Area must get COVID-19 surveillance tested every seven (7) days. You do not need to isolate whilst waiting for the result of a surveillance test.
- (Contracts) - all construction industry participants who work in the Shutdown Area should immediately conduct a review of their contracts and seek appropriate relief (time and cost) where permitted. Consideration also needs to be given to any force majeure arrangements, suspension and demobilisation costs and the payment obligations under the contract.
- (Workforce) - directors and management of impacted businesses should consider seeking advice about how to manage their workforce. Options may include redeployment to alternate roles, paid or unpaid leave, negotiating reduced hours or stand down directions.
- (Benefits) - effected businesses should apply for the NSW COVID-19 disaster relief payment to assist in minimising the financial impact of the Shutdown Period. This payment is up to $15,000 per week for eligible businesses.
Immediate site issues
From 12:01am on 19 July 2021, all construction work in the Shutdown Area must cease except “urgent works”.
The NSW Government have indicated that the following are deemed to be “urgent works”:
- works to ensure the safety or security of the construction site;
- works to deal with environmental risks;
- works to maintain and ensure the integrity of critical equipment or assets, including partially completed works; and
- works that would otherwise deteriorate or to receive the delivery of supplies that would otherwise deteriorate.
Separately, it is important to note that securing any site is important from a work, health and safety perspective (particularly if you are appointed the “principal contractor” for the site).
Construction industry participants will also need to appropriately engage with stakeholders and supply chains with respect to site issues and which works must pause and which works can continue.
The Shutdown Period gives rise to a number of contractual issues for all construction industry participants (this includes contractors, sub-constructions, head-contractors, owners and project managers operating in the Shutdown Area). These issues are briefly explored below.
Extensions of time and delay costs
The Shutdown Period give rise to time and cost issues under construction contracts. Construction industry participants need to ensure they are claiming any extensions of time (EOT) and permitted delay costs under their construction contract(s). Notices need to comply with the time requirements under the relevant construction contract. It is important to do this as soon as possible as some contracts include time bars for the submission of notices in relation to time and cost claims.
Principals will also need to ensure that they assess and manage EOT claims and any cost claims appropriately under their contract(s).
Suspension and site safety costs
The Shutdown Period may give rise to suspension and demobilisation/site safety costs under the relevant construction contract. Construction industry participants will need to review their contract to see if they are entitled to suspend works as a result of the shutdown and also whether they are able to claim any demobilisation/site safety costs under the construction contract due to the shutdown.
Principals will also need to appropriately manage any suspension and demobilisation/site safety costs claims in accordance with their contract(s).
Force majeure arrangements
A force majeure clause will relieve parties (whether temporarily or permanently) of their obligations to perform their contractual obligations where a disruptive event occurs which was not foreseeable and beyond the control of either party.
Where the contract contains a force majeure clause, principals and contractors will need to consider whether any of the force majeure events capture the current COVID-19 shutdown.
Payment, cash flow and solvency
Despite the construction industry being on “pause”, payment obligations for construction industry participants under contract and the NSW Building and Construction Industry Security of Payment Act 1999 (SOPA) for work completed prior to the Shutdown Period does not.
Principals, head contractors, subcontractors and consultants should be reviewing their contracts to ensure they are aware of their obligations in relation to payment. This includes obligations relating to both submitting payment claims and responding to payment claims. During the Shutdown Period, construction industry participants should ensure there is adequate staff for receiving, paying and/or responding to payment claims.
Construction industry participants will also need to be extra vigilant with payment claims as the shutdown may give rise to extra payment claims on projects. Separately, construction industry participants will also need to carefully manage any solvency issues with their supply chain.
What you need to do next
Moving forward, construction industry participants will need to carry out the following:
- need to appropriately demobilise and secure construction sites;
- ensure that only “urgent works” are being carried out in the Shutdown Period;
- in the case of contractors, review construction contracts to ensure compliance and to otherwise claim any appropriate EOT and delay costs;
- in the case of principals, appropriately respond to any contractors claims arising from the shut down;
- be on the lookout for any payment claims under SOPA;
- appropriately engage with stakeholders and supply chains; and
- carefully manage employment issues stemming from the shutdown