COVID-19: Remobilising the construction sector

The New Zealand Government has announced that New Zealand will move to Alert Level 3 (AL3), effective from 11.59pm on 27 April. For the construction sector, this means that ‘non-essential’ projects are able to remobilise to site and resume performance of their works – subject to compliance with health and safety and physical distancing rules.

We have prepared this note to assist the sector in its remobilisation activities and to identify those matters that parties should be considering as they navigate their way through the challenges that the Government’s restrictive actions have had, and will continue to have, and the industry-specific standard and protocols recently published by Construction Health and Safety New Zealand (CHASNZ).

Remobilisation

As organisations plan for remobilisation, we see a number of preliminary considerations:

  • Lifting suspensions: Some Engineers may have suspended Contract Works during the Alert Level 4 (AL4) lockdown (e.g. under NZS3910, GC 6.7.1) or parties may have agreed to a suspension (e.g. under NZS3910, GC 6.7.5). Notices may be necessary to lift that suspension.
  • Availability of the workforce: Where employers have had to stand down their workforce or make redundancies as a result of the AL4 lockdown, they will need to consider how and when to lift the furlough and/or engage any additional people required.
  • Supply chain: The AL4 lockdown is causing significant solvency risk on Contractors and their supply chains. Contractors should be checking on the financial health of their supply chain and planning for situations of insolvencies and impacts on the availability of labour or materials.
  • International restrictions: The current border restrictions in New Zealand and internationally requires projects that rely on overseas labour or materials to be assessed for the extent to which such resources are still available. Where there are resource constraints, the Principal and the Contractor may need to consider substitute materials or workforce arrangements, and/or look to re-sequence works if possible. The time and cost implications of such re-arrangements will need to be worked through by the parties.
  • Health and Safety: New Zealand’s health and safety legislative framework has not changed. However, to achieve compliance with such laws under COVID-19 alert level restrictions, further measures will be required by all parties. As part of remobilisation planning, parties should be working with each other and the project supply chain to determine the way in which works can be remobilised, and then delivered, to achieve safe and healthy outcomes. Refer further to the following Health and Safety section below.
  • Travel arrangements: The CHASNZ Standard and Protocols (discussed in the following section) require employers to understand how workers will travel to and from site once they reopen. Employers must also communicate the site transportation protocol to all workers. Employers need to be engaging with their workforce on such matters, and ensuring that their subcontractors do too.

Health and Safety

From a health and safety perspective, there a number of matters that the construction sector should be considering as part of their remobilisation and delivery planning. These include:

  • Health and Safety at Work Act 2015: Fundamentally, New Zealand’s legislative framework in relation to Health and Safety, including the HSWA, its regulations and approved codes of practice have not changed. PCBU’s duties therefore remain. However, the prevalence of COVID-19 and the Government’s directives as to conducting business within the Alert Level constraints will require different approaches from construction organisations in order to achieve compliance with this framework.
  • Health and Safety Plan: Contractors should be reviewing their site-specific health and safety plans and updating these in light of the Government’s AL3 restrictions. This may require Engineer review and acceptance under the contract requirements. Principals should also consider the extent to which they should be reviewing their health and safety plans.
  • Construction Sector Standard and Protocols: CHASNZ has promulgated standard and protocols to assist the construction sector to operate safely under Alert Levels 2 and 3. There are protocols for vertical and horizontal construction as well as for residential. Principals and Contractors alike should have regard to these industry standards and protocols in review and implementation of their health and safety plans.
  • Personal Protective Equipment (PPE): PCBUs must make arrangements for workers to have access to the correct PPE and that workers understand when use of additional PPE may be required on site. Additional facilities and amenities may be required on site to enable compliance with restrictions and health and safety requirements. If there are issues with the supply of PPE ordinarily used by workers, PCBUs can consider whether there are alternative types of PPE or alternative control measures, but risks must be properly controlled. WorkSafe is on record saying that it will not tolerate PCBUs using COVID-19 as an excuse to endanger workers or other people.

Contract structure

Undoubtedly, the way in which works are able to be performed on-site will change. Parties will need to engage in a collaborative manner if they are to best mitigate against the effects of the AL4 lockdown and the continuing restrictive requirements associated with other alert levels. Some arrangements may need to be reflected in amendments to the contract terms:

  • Re-sequencing and new ways of works: Parties should look at ways of work that enable progress of the works on site under the new restrictions. This may involve more off-site fabrication or partial fabrication of materials, or different trades working in different parts of the site at different times, or re-sequencing of works to enable compliance and or efficiencies of operation to mitigate any loss of productivity effect.
  • Staging of works or new separable portions: Where commercially beneficial and practical, parties may look at staged handovers of parts of the works and/or the introduction of new separable portions – enabling the Principal to take the benefit of early access or occupancy and for the Contractor to achieve an early release of retentions.
  • Acceleration: Acceleration options may also be available to off-set loss in productivity arising from the restrictions and additional on-site requirements. This could be facilitated by additional weekend and/or night shifts (subject to allowance in or amendment to consented hours of work).
  • Consent conditions: Shift works may be constrained by resource and/or building consent conditions. Conditions of particular relevance are likely to be noise limits, limits on hours of operation on site, and restrictions on traffic movements around sites (some of which may limit the ability to accelerate works). There is an opportunity to proactively engage with local authorities around these aspects.
  • Other work constraints: For those projects being delivered in operating environments (e.g. extension works to existing buildings), there is a good opportunity for Principals to relax any working constraints imposed on Contractors (e.g. site working hours), particularly in circumstances where those environments are themselves subject to continuing lockdown constraints (e.g. shopping centres) or with reduced use (e.g. road works).
  • Programme: The Contractor’s contractual obligations to update its programme to account for the effects of the AL4 lockdown, and further delays and disruptions caused by the continuing restrictive measures, should be remembered. This would include those updates required to reflect arrangements agreed as above.

Cashflow considerations

Cashflow is the lifeblood of the construction sector. While payment claims for works performed in March would likely have been paid during the AL4 lockdown period, the May 2020 payment runs will likely see minimal cash flowing through the industry. Where Principals are in a position to agree to alternative cashflow arrangements, there are various mechanisms that can be considered. The Ministry of Business, Innovation and Employment’s (MBIE) ‘guidance note’ for public sector agencies dealing with contractual implications associated with the AL4 Lockdown provides some good examples – see our commentary on this note here.

The mechanisms we expect to be of most relevance to the construction sector are:

  • Advances: Principals – and Contractors (for payments to subcontractors and suppliers) – may be able to make advances for materials or works. Principals could also look to advance payments on account of variations and claims that Contractors may have, in advance of the claim being determined or valued. Private sector Principals or their funders may require ‘advance payment bonds’ as security for such payments. For public sector agencies NZTA has produced a form of ‘advanced entitlement payment agreement’.
  • Payment cycles: Principals – and Contractors (for payments to subcontractors and suppliers) – could move from monthly payment cycles to fortnightly or even weekly payments. This will require greater contract administration for all parties but can be done in pragmatic ways with on account payments against formal monthly payment processes. Alternatively or additionally, parties may look at introducing payment milestones against achievement of milestones in the progress of the works to incentivise project centric approaches and thinking by the delivery team.
  • Release of Bonds / Retentions: Depending upon the stage the works are at Principals – and Contractors (for payments to subcontractors and suppliers) – may consider varying their contracts to allow for reduction of retentions or performance bonds.
  • Contractors must pass on benefit: It is imperative that Contractors pass on the benefit of any such measures to their supply chain. Principals and their Engineers should consider how they wish to ensure that this is occurring – this may include requiring Contractor-declarations with payment claims; audit rights available to the Principal/Engineer; or Principal payments direct to subcontractors where the contract allows for this.

Other considerations

  • Being “claims ready”: Parties have likely already exchanged many notices in relation to COVID-19 including the AL4 lockdown, and Contractors may have already submitted claims in relation to these circumstances. Parties will need to be ready to deal with those claims (including any unfavourable determinations by the contract administrator) – particularly where tight timeframes are involved such as time-bars or time restrictions under their contract or under the Construction Contracts Act 2002. See our initial commentary on this here.
  • Financiers: Financed projects have an added layer of complexity. For example, Principals will have ongoing disclosure obligations under their finance documents. The Principal (through the finance documents) and/or Contractors (through tripartite deeds) will likely need to involve the financiers in any decisions that change underlying contractual obligations (e.g. advanced payments, new separable portions, variations, re-sequencing or acceleration, or extended completion dates); in relation to the resolution of claims; and otherwise due to the effects of COVID-19 on the cost and timing of the project.
  • Insurances: Parties are likely to have already engaged with their insurers/brokers in relation to any specific requirements of their policies (such as their contract works policy) relating to the AL4 lockdown. This should continue. It may be necessary to seek extensions to policies to deal with the delay caused by the AL4 lockdown and further Alert Levels, or additional cover for increases in costs of the works and there may be disclosure obligations in relation to changes to the contractual framework (e.g. new separable portions, variations, staged handover).
  • Warranty considerations: Contractors that have already received materials or work from suppliers and subtrades should consider the warranties provided by those suppliers/subtrades. It may be that the clock has already started on warranties – it will be important for Contractors to consider whether extensions to those warranties are required to accommodate for delays already encountered and that may further be incurred.
  • Mitigation: We have previously commented on the importance of parties mitigating against the effects of COVID-19 and the AL4 lockdown. This should continue.

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