Consultants and COVID-19 — Consequences, considerations and bouncing back
All parties in the construction industry have been in overdrive to understand the impacts of COVID-19 on their businesses. Understandably, one of the first places parties turn to are their own contracts to determine how they may assist. COVID-19 and resulting Government responses appear to fall squarely within the framework of the CCCS standard form agreement, and perhaps to a greater degree than other standard forms used in the industry. But being alive to how these recent events directly impact on contractual rights is only one aspect parties need to be monitoring – indirect actions taken by parties may trigger other rights and obligations under the CCCS.
‘COVID-19’ and ‘lockdown’ – two words that have generated a wave of questions and uncertainty across all industries, with the construction sector being no exception. There has been debate among industry leaders addressing how standard form construction contracts respond to the pandemic and who should appropriately bear the time and cost risk. However, most commentary to date has focussed on the principal/contractor relationship – in particular, NZS3910. This article looks instead at the key considerations for design consultants in the context of the COVID-19 pandemic and lockdown.
Conditions of Contract for Consultancy Services
The most common standard agreement to engage consultants is the ACENZ / Engineering New Zealand (formerly IPENZ) Conditions of Contract for Consultancy Services (CCCS).
We explore below the clauses in the CCCS that may be triggered by COVID-19 and Government’s response to date (Lockdown). In our view, key clauses consultants (and other parties to the CCCS) need to look to are:
- Clause 12.4 – Changes in Legislation; and
- Clause 12.5 – Events beyond Control.
Our review suggests that the CCCS is perhaps more facilitative of changes as a result of COVID-19 than NZS3910. The CCCS includes a force majeure clause which is notably missing from NZS3910 and the change in law provision is expansive.
It is important to remember that the starting point will always be the words of the contract. It is commonplace for standard form agreements to be amended and/or added to, and parties will need to refer to specific project agreements.
Assessing time and cost impacts
From a consultant’s perspective, it will be important to carefully consider how their specific projects may be delayed by the Lockdown and what the cost implications may be.
The direct impact of the Lockdown on current projects will look different for consultants, compared with other industry participants. In contrast with contractors, most consultants will have the ability to carry out parts of their design work remotely (albeit perhaps not as efficiently) and will not be as affected by supply chain disruptions. However, other parts of work will suffer from delays – for example, obtaining consents from territorial authorities and design activities that require site visits. Additional costs may, for example, include ongoing costs that need to be paid during Lockdown (such as storage costs for equipment, specialised software licenses and equipment hire costs) and re-work required due to a stand-down in services.
Consultants, like contractors and principals, will also be under pressure due to the wider economic impact of COVID-19 and uncertainty regarding when pipeline projects will recommence (or commence at all). These are valid concerns that we hope will be eased as the Government considers further construction-sector responses and works through the steps to take the country out of Lockdown.
Changes in Legislation
Clause 12.4 of the CCCS provides:
If, after the date of this Agreement, the cost or duration of the Services alter because of changes or additions to any statute, regulation or by-law, or requirements of any authority that has jurisdiction over any part of the Works or the Services, the agreed changes to cost and duration of the Services will be treated as a Variation.
A consultant will first need to establish that this clause has been triggered by a change in law (while the language includes “or additions to”, this is in essence a “change”). Strictly speaking, the Government’s imposition of the Lockdown is not a change of law. Rather, it is primarily based on the Minister of Health authorising the use of existing powers under s 70 of the Health Act 1956 (Act). However, the use of these powers was exercised only after, by virtue of two Orders of Council, “COVID-19” and “novel coronavirus capable of causing severe respiratory illness” were added to the list of notifiable and quarantinable infectious diseases in Schedule 1 of the Act.
Clause 12.4 of the CCCS shares some similarities with clause 5.11.10 of NZS3910 but is arguably broader and has some notable differences. For example, clause 12.4 incorporates “changes or additions” to any statute, regulation or by-law (whereas NZS3910 speaks only to the “making of…”) and adds the words “or requirements of any authority…” In our view, the Orders of Council constitute a change and addition to the Act, and the exercise of the powers under it are requirements of an authority that has jurisdiction over the works or services.
If a change in law is established, a consultant would need to show that it has had a negative impact on the cost or duration of the relevant project, in order to recover time and cost. In other words, one must show causation. In respect of the powers exercised under s 70 of the Act (in effect, the imposition of the Lockdown) this will be relatively straightforward. It may however be more difficult to show that the Orders in Council by themselves, are the direct cause of the impact to works and/or services. Time will tell as to whether this will be a challenge for parties to overcome.
Events beyond Control
The CCCS contains what is typically referred to as a ‘force majeure’ clause. Clause 12.5 provides:
Should any event occur which:
- is beyond the control of either Party; and
- is neither directly nor indirectly caused by either Party; and
- prevents the performance of the Services (in whole or in part) required under this Agreement,
then those Services will be suspended until such time that it becomes practicable to recommence the Services.
It seems likely that the imposition of the Lockdown (and the COVID-19 pandemic itself), are events that fall within clause 12.5. A consultant claiming under this clause will need to show that the Lockdown and/or COVID-19 has prevented the performance of the consultant’s work in whole or in part. The result is that the impacted portion of the work is suspended, and the consultant will be entitled to additional time to complete those works. Unlike clause 12.4, this clause does not entitle the consultant to costs. However, there is no reason why the two clauses cannot operate in parallel.
In addition to the above, consultants may receive directions from their clients to carry out additional works as a result of COVID-19, therefore triggering a variation under clause 7.1. Some types of client directions we may see are requests for:
- Additional reporting on project or task status during the Lockdown;
- Revised HSE plans considering updated Government advice;
- Reviews and comments on other parties’ HSE and mitigation plans; and
- Value engineering as a result of funding issues.
Throughout this period consultants also need to remember their obligations in respect of notices under clauses 2.12 and 2.13 of the CCCS. It is important to ensure notices are issued on time, include all required content and go to the correct recipient.
It is difficult to predict what the final impact of COVID-19 will be on the construction industry. We remain hopeful that the Lockdown is successful and construction projects can recommence as soon as possible. It is encouraging to see that different parties to construction contracts are willing to adopt collaborative and project-specific approaches. We encourage design consultants to be part of those conversations while keeping in mind their rights under their particular contract (which will be different to contractors’ rights under build-only and design-and-build contracts).
Scott Thompson is a Partner and Kate Muldrew a Senior Solicitor at MinterEllisonRuddWatts.