COVID-19: What does Alert Level 4 mean for construction?

On 17 August  2021 at 11:59pm, New Zealand returned to Alert Level 4 for the second time.  In many respects, this feels like a ‘here we go again’ scenario.  However, there are key areas of focus for the construction sector this time around.  While the legal position is always important, the issues associated with this lockdown are largely practical (and at first blush, may not be as expected).

In this update, we provide practical guidance on:

  • What construction projects can operate in Level 4;
  • The legal position under NZS 3910:2013 (and whether this has changed since the first Level 4 lockdown); and
  • Vaccination of employees.

Industry participants should keep these considerations top of mind:

  • The Government is strong that the construction industry needs to adopt a sensible approach. It is imperative that industry players adopt credible positions and comply with Government directives and practical guidance.
  • The contract will be the first port of call when assessing whether the lockdown constitutes a variation, extension of time (EOT), and/or a foreseeable event.
  • Vaccination is key. While employers cannot compel their employees to vaccinate, there are certain sites where unvaccinated workers can be prohibited (for example, in retirement and aged care settings).
  • Principals and Employers should lead on vaccination. They should encourage and provide opportunity for vaccination where possible.  The Government is considering ‘within business’ vaccination programs to facilitate this.

What projects and services can operate in Level 4?

Under the COVID-19 Public Health Response (Alert Level Requirements) Order (No 9) 2021 (Order), businesses must close, unless the business is an ‘alert level 4 business or service’ and is ‘operating in compliance with the alert level 4 requirements’.

What’s changed this time?

In the last Level 4 lockdown, the ‘essential businesses’ list was updated frequently, causing confusion over which businesses were able to continue to operate under Level 4.  This time, the Government has replaced the concept of an ‘essential business’ with a more prescriptive list of ‘alert level 4 businesses or services’ listed in Schedule 2 of the Order itself. Where uncertainty remains, the Order provides an exemption application process.  The Ministry of Business, Innovation and Employment (MBIE) is also providing guidance to businesses seeking to clarify their status.

Can construction continue at Level 4?

The strong message from Government is that the threshold is deliberately high, and parties must act sensibly.

Building, construction, and maintenance services’ is one of the 30 exempted categories, if these services are required for one or both of the following:

  • to address immediate risks to health and safety; and/or
  • for nationally important infrastructure.

Nationally important infrastructure’ means infrastructure that enables or supports supply chains that are needed for one or both of the following:

  • to provide for the current needs of people and communities; and/or
  • to enable or support the recovery of the whole or any part of New Zealand from the effects of COVID-19.

A further exemption applies to any entity with statutory responsibilities for building and resource consenting that is necessary to enable the building, construction, and maintenance services.

This time around, the Government has strived for more certainty around businesses operating.  However, the exempt categories applicable to the construction industry are open to interpretation and may result in confusion.

If you are unclear as to whether you can operate in Level 4, we recommend guidance is sought from MBIE and your legal advisors.  The Government is actively considering practical guidance and will be regularly updating MBIE’s website addressing Alert Level 4 for Building and Construction (located here).

What happens now under NZS 3910:2013

In the last Alert Level 4, construction works were suspended due to the Government’s directive for all non-essential workers to stay at home. In response to this, contractors sought to obtain time and cost relief by claiming an EOT and/or a variation under key provisions in the NZS 3910:2013 General Conditions of Contract.

Common grounds for claiming a Variation and/or EOT was based on change of law and/or unforeseeable circumstances.

Was this lockdown foreseeable?

Restricted movement and lockdowns are now the ‘new normal’.  It is arguably harder to argue that the impacts of COVID-19 are not foreseeable circumstances – particularly where the relevant tender process took place after March 2020.  While COVID-19 clauses are now commonplace in construction contracts (and this lockdown will be a real test of their application), it is useful to revisit the foreseeability provision in the current circumstances.

Parties should bear the following in mind when considering or claiming an EOT:

  • viral mutation may, in itself, be a foreseeable event;
  • the Delta variant is a continuation of the existing virus (albeit with different genome); and
  • the Delta variant has not, at this stage, changed the fundamental nature of the Government’s COVID-19 response, which still centres around lifting and lowering of Alert Levels.

What about a ‘change of law’?

Again, the starting point will the contract itself, as recent contracts will no doubt address what constitutes a variation in relation to COVID-19, and what constitutes a change in law. Generally, under General Condition 5.11.10, if there is a change of law, the contractor will be entitled to a variation and is able to recover any associated increase in costs.

MBIE previously issued a guidance note to help guide the assessment of claims (but is ultimately subject to the terms of the specific construction contract). The MBIE guidance note provides that:

  • The Government’s interpretation of clause 5.11.10 is that moving to Level 4 results in restrictions stemming from regulations or statutes (the Infectious and Notifiable Diseases Order (No 2) 2020 which came into force on 11 March 2020 and added ‘Novel coronavirus capable of causing severe respiratory illness’ to the list of notifiable diseases, which in turn enabled the establishment of the Level 4 directive).
  • As a result, the contractor will be entitled to a variation and in turn recover any associated increase in costs.

It remains to be seen whether this position remains unchanged in the current Level 4 lockdown. Contractors may argue that the new Order was issued under new legislation (namely, the COVID-19 Public Health Response Act 2020 as opposed to the existing Health Act 1956) and therefore does constitute a ‘change in law’ for contracts entered into prior to it coming into effect. On the other hand, principals may argue that the new legislation simply mirrors existing legislation which contains the genesis for imposing the lockdowns – leaving contractors to argue that the giving of orders under either piece of legislation constitutes the ‘change in law’ similar to arguments to date.

We also note that while the Court found certain restrictions imposed on New Zealanders were unlawful, this decision does not impact on the legality of restrictions imposed on businesses during the lockdown; but rather raises questions over individual arrests and prosecutions in the period in question.

Vaccination of employees and health and safety protocols for ongoing projects

Vaccination is arguably the most important focus in this lockdown and moving forward.

The question whether all employers can lawfully compel an existing employee to be vaccinated is not clear cut.  While the COVID-19 Public Health Response (Vaccinations) Order 2021 (Order) provides that certain employees must be vaccinated, MBIE has taken a conservative approach with respect to roles outside of those in the Order.  In particular, MBIE has said that employers cannot require employees to:

  • be vaccinated;
  • disclose their vaccination status; or
  • disclose their reasons for not vaccinating.

However, both MBIE and WorkSafe consider that an employer could require that a specific role be performed by a vaccinated person, provided a health and safety risk assessment has been undertaken to support this requirement.  Any health and safety risk assessment about a role’s necessity to be performed by a vaccinated person will involve considering two factors:

  • the likelihood of a worker being exposed to COVID-19 while performing the role; and
  • the potential consequences of that exposure for others.

While this will be fact-specific, retirement and aged care worksites and construction sites are examples of workplaces where unvaccinated workers can be prohibited from working.

Our Employment team have produced a comprehensive summary on COVID-19 vaccination in the workplace, which is available here. The CHASNZ website (available here) contains all information relating to alert level protocols and is updated regularly.  CHASNZ has also produced comprehensive guidance on operating construction sites for alert level 3, that they maintain remain relevant with updates as per their website, available here.  The overarching message is that vaccination remains at the forefront of the response.

Where to from here?

At the time of this update, it is unclear how long Level 4 will be in effect for.  It is also unknown whether the Government will adopt a regionalised approach to alert levels or maintain a nationwide Level 4 response.

As a Firm, we have produced a substantial amount of information on the impact of COVID-19 on New Zealand businesses.  To access these resources, please click here.

For further guidance, please contact one of our experts.

Special thanks to Janine Stewart, Travis Tomlinson, Scott Thompson, Mark Crosbie, Sarah Sinclair, Stephen Price, Jordan Oldham, Rebecca Cook and Geoffrey White for their contributions to this article. 

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