COVID-19 alert levels and the construction industry

The COVID-19 Public Health Response (Alert level 3 and 2) Order 2020 came into force at 11:59pm on 12 August 2020, putting Auckland into alert level 3 and the rest of New Zealand into alert level 2. This is the second time New Zealand has experienced the respective alert levels, with parties more prepared and familiar with the requirements and restrictions. Under both alert levels, building and construction work can commence and continue as an essential service, provided that the required health and safety protocols (found on CHASNZ) are in place.

There are two key issues currently being discussed in the construction industry. One is the requirement of contractors / employees to attend sites regardless of concerns over COVID-19 or misunderstandings as to the restrictions placed by alert levels 2 and 3. The other is the recently released High Court ruling that the first 9 days of the initial alert level 4 lockdown was unlawful. Questions arise as to where this decision leaves claims that were initiated during the “unlawful” stages of the country’s first lockdown.

Contractors not attending sites and employers not granting access to sites

The August change to alert levels saw most construction companies continuing work, with staff attending construction sites as usual. Prime Minister Jacinda Ardern in her address noted that Auckland Transport has 44 construction sites operating under alert level 3 and construction continues across five sites on the largest infrastructure project – the City Rail Link – which employs around 1,200 people. Houses are also continuing to be built in Auckland. Kainga Ora alone has more than 150 projects with more than 3,000 units under construction.

The focus is on relevant health and safety protocols being put in place. For example, the Chief Executive of Fletchers Construction has said that the company is carrying on all works with staff on site and has new measures in place meeting the strict industry protocols required. The director of NZ Living has also said all sites were open with alert level 3 safety protocols in place, including physical distancing between each worker, stating the company was ‘able to operate with the safety measures … as we did through the previous level 3’.[1]

However, it may not be clear to some in the industry that construction works can continue during alert levels 2 and 3. Alternatively, parties may understand that construction works can continue but contractors may not wish to attend sites and comply with alert level protocols or principals may not wish to continue projects.

While the commencement and continuation of construction and building work during a pandemic can be difficult for parties, they are likely to be required to continue work pursuant to their contract, and there are wider policy reasons that prevent the halt of such works. The construction sector will play an important role in kick-starting the New Zealand economy, and the decision to maintain construction work during alert level 3 appears closely linked to this.

Importantly, if parties with contractual obligations stop works on construction sites, there can be serious contractual implications.

Specific clauses of NZS:3910 are directly relevant to this issue.

Contractor refusing to return to site

Clause 5.1.5 states that the contractor is responsible for the safety of all of its site operations, which would include any additional health and safety measures required in an alert level 2 or 3 lockdown. This is reaffirmed by clause 5.7.2(a), which requires the contractor to take all practicable steps to maintain a safe working environment. This suggests that the contractor is responsible for any compliance costs that may arise from the additional health and safety requirements.

Despite these additional costs, the contractor is not entitled to delay or suspend the works by refusing to return to site unless some other variation mechanism in NZS:3910 is triggered. Clause 10.1.2 requires the contractor to proceed with the execution of the contract works with due diligence unless instructed otherwise by the Engineer. Additionally, under clause 13.5.1, no dispute entitles the contractor to suspend works.

If a contractor refuses to return to site based on alert level 3 alone, this could trigger clause 14.2.1(c) of NZS:3910, which provides that the Engineer can issue a notice in writing to the principal, stating that the contractor is wilfully neglecting its obligations under the contract. If this has not been remedied within 10 days, the principal has the right to either terminate the contract or resume possession of the site.

Principal refusing to allow contractor on-site

There are equal repercussions for principals refusing to allow a contractor on site. Clause 5.4.1 states that the contractor is granted possession of the site once works are underway. This entitles the contractor to enter the site and continue works under an alert level 2 or 3 lockdown. Should a principal refuse to grant a contractor entry to site or otherwise shut the site down based on alert levels 2 or 3 alone, this equally has contractual implications. This could include triggering a variation/extension of time.

Alternatively, if the site is shut down for a prolonged period without any indication as to the principal’s intention to reopen, there is a risk that the principal has neglected to carry out their obligations under the contract.

Overall

The general trend in the construction industry seems to be to continue works with all staff on site with the required health and safety protocols in place, as there can be significant financial consequences for delay in construction works. Considering the contractual implications, contractors and principals who do not wish to continue work due to concern of COVID-19, or through a misunderstanding that construction work is not an essential service, must ensure that they are complying with their contractual obligations and construction works status as an essential service.

High Court ruling that the first 9 days of lockdown were ‘unlawful’

A recent decision by the High Court ruled that the first 9 days of the initial alert level 4 lockdown (beginning at 11.59pm on Wednesday, 25 March 2020) was an unlawful exercise of powers by the Director-General.

The High Court found that Order 1 did not impose restrictions on New Zealanders to be confined to their homes and to stop all interactions with others outside an individual’s immediate household or ‘bubble’. Prior to Order 2, there was no legal obligation for compliance with such restrictive measures and this was ultimately a limitation on individuals affirmed rights and freedoms. The High Court made a declaration that the restriction was unlawful and breached the New Zealand Bill of Rights.

The High Court further considered whether the closing of all premises within all districts of New Zealand, except for essential businesses, was lawful. Construction sites were not deemed as essential businesses that could operate during alert level 4. The applicant argued that the Director-General had unlawfully delegated his power to determine the meaning of ‘essential business’ to the Ministry of Business, Innovation and Employment (MBIE) which rendered the command unlawful. The High Court concluded that the definition of ‘essential business’ was set out by Order 1 and was at all times clear and fixed with no unlawful delegation. Therefore, the requirement for all non-essential businesses to shut down during alert level 4 was lawful.

New Zealand’s construction industry is largely unimpacted from this recent decision. Although the restriction of individuals to stay at home and in their ‘bubbles’ was deemed unlawful, the closing down of premises considered non-essential was considered lawful. Therefore, the closing down of construction sites during this period was also lawful and any claims and disputes arising during this time are likely to be unaffected by this decision.

Parties to a construction contract must ensure:

  • they comply with their contractual obligations;
  • that all COVID-19 measures are adhered to during the different alert levels; and
  • they are aware of their legal rights and obligations to avoid disputes arising in the future.

Footnote

[1]https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12355832

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