This note was reviewed in July 2023, and has been retained for legacy.
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Architects, like many other professionals and business, are feeling the impact of the COVID-19 pandemic. The recent escalation in the global response, as well as measures and directives by Australian governments prompt consideration of how architects should respond. At the time of publication, the general view is that we are in uncharted territory.
The focus of this note is on the construction contract and the considerations for the architect administering COVID-19 related claims and navigating the challenges that arise. This note shouldn’t be considered an exhaustive survey of all the scenarios, causes of delay, potentials for dispute or contractual rights the parties have under their construction contracts in a pandemic environment.
Skilled and healthy labour is a critical component of any construction project. The impact of the COVID-19 pandemic and related government directives can also extend to the ability of contractors and sub-contractors to continue with activity on site. Even while tradespeople and crews are permitted to attend work sites, contractors may adopt restricted building practices and work times to reduce the risk of contact and exposure among their labour force. This may slow the work program.
The supply of materials from key manufacturing centres in Asia and Europe and via global and local supply chains is already being impacted whether due to delayed or discontinued production or shipments. At this stage, there will be impacts and risks to the supply of materials to project sites and this may be compounded by impacts on the availability of the labour force.
This is the other critical component of construction projects. It is anticipated that the public health impacts of COVID-19 and interventions may cause wider economic impacts, unemployment and impacts to businesses small and large. Project owners may begin to feel the strain of a slowing economy and may begin to question the viability of their current or proposed projects in the changing economic environment. This may prompt them to consider what options they have under the construction contract and consultancy agreement for the project.
Inversely, the owner’s financing agreements are contracts like any other and will have certain requirements and conditions that need to be met and continue to be met. The changing public health and economic environment may affect the assumptions and contractual conditions for that funding. If the funding arrangements that are paying for all or part of a project are impacted by the pandemic or an economic downturn, this in turn has consequences for the viability of the project and the construction contract.
Given the level of uncertainty that COVID-19 is causing, the Institute recommends that architects maintain clear and regular communication with clients and stakeholders, including the financier, and to encourage all the parties to provide regular and timely information on developments that can impact the works. It is our experience that good communication is instrumental in minimising disputes. The aim should be to collectively develop a response to the current situation that recognises the known risks and goes some way to anticipate foreseeable future events, risks and sources of dispute.
Potential risks with having to suspend construction mid-build include damage to the structure on site due to weather or vandalism and the costs associated with demobilising and remobilising. A signed contract is a legal promise to meet the obligations in that contract. If the parties can’t be certain enough about the start date or a reasonable completion date or assured of consistent project finance, the parties should seriously consider whether to wait before signing a contract. As always, the architect should be suggesting that the owner get legal advice about whether or how to enter into a construction contract where such uncertainties can be foreseen.
For projects that are underway, it may be prudent for the parties to act collaboratively and reasonably to keep the project progressing, even in the face of pandemic-related delays which may be short or protracted. A disruption as a result of the pandemic environment may simply be a delay and need not be fatal to a project or the construction contract. There may be greater logistical, contractual and financial risks and costs if the builder walks away from a project affected by pandemic-related delays, than working with the project owner to preserve the project and the site works until such time as the works can resume and the project completed.
Architects may be inclined to review the documentation and consider whether to substitute imported materials with local materials that may be less susceptible to supply chain delays or disruptions. Ultimately, it is for the builder to determine the source of and manage the supply of materials to site – this is a risk that typically falls with the builder and not the owner. Before the architect considers substituting materials, they should discuss the impact on the design and budget with the client and negotiate revised fees for this additional scope of service. Architects should also consider whether this will be effective in minimising the risk of delays to construction, which may also result from or be compounded by the limited ability for tradespeople to attend site and carry out the works.
A construction project is an arrangement for a mutual outcome that requires the steady flow of key inputs (materials, labour and capital) and the skilled management and pragmatic co-ordination of complexity by experienced professionals. Of all the types of contractual arrangements, a construction contract administered by an architect exemplifies this. Each challenge that the COVID-19 pandemic presents should be assessed, addressed and administered in this spirit of mutual benefit and pragmatic co-operation and always in accordance with the terms of the construction contract.
Construction projects and the contractual arrangements are complex. As a general recommendation, if any party is unsure about their rights, obligations and options, they should promptly seek legal advice.
This guidance does not discuss the public health or medical aspects of the COVID-19 pandemic. Please continue to refer to and follow the guidance published by Australian health authorities and the directions of state and federal government as applicable.
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