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.
At the time of publication, most state, territory and federal governments continue to acknowledge construction services as 'essential' which can continue, subject to some limitations and public health guidance. The general advice provided in this note may no longer apply if federal or state governments declared construction services as 'non-essential'. We recommend that the parties seek legal advice on the complexities of navigating the uncertainties of construction in the pandemic environment.
If accessing the publicly available version of this note please also refer to the Acumen Disclaimer.
Assessing delays under ABIC
How should I administer COVID-19 related extension of time claims with and without costs?
The starting point is to always read your contract and the accompanying documentation or guidance, such as the ABIC User Guide. In ABIC contracts, the relevant sections are sections L (Adjustment of time) and H (Claims to adjust the contract). Under a typical architect-administered construction contract, the builder is free to submit a claim for time (with or without costs), ultimately, it is for the architect to impartially and correctly decide how and whether to assess a claim for extensions of time and the architect must follow the provisions of the contract. However, this may not always be straight forward and a declared global pandemic throws up more variables and grey areas for the architect administering claims for delays and disruptions related to the current pandemic.
If an architect assesses a claim for a cause of delay (whether with or without costs) that doesn’t strictly follow the contract, the architect may be accused of incorrectly accepting a claim that benefits the builder at the expense of the owner. If you incorrectly assess and accept a claim that the contract doesn’t properly allow, this adds costs to the contract price for the owner. There is a risk of not only upsetting the owner, but also a risk of a PI claim for the ‘loss’ that is the sum of the incorrectly assessed claim.
The circumstances and specifics of any claim made by the builder and how the architect might assess those claims will vary from project to project.
If you are administering COVID-19 related claims or actions under an ABIC contract, you should be especially familiar with sections L (Adjustment of time), H (Claims to adjust the contract) and, relatedly, section Q (Termination – Frustration).
There is more detail on administering claims for delays (either time costs or only time) and termination rights in the User Guide for your contract.
The pandemic environment presents new challenges for administering contracts. It may be appropriate for parties to consider, discuss and negotiate new or separate arrangements that deal with the contractual allocation of risks and costs of pandemic-related delays and appropriate conditions, exceptions and limits (time, cost or liability). The parties should get legal advice about how to do this.
If unsure what to do, we strongly recommend the architect get legal advice about how to correctly administer a COVID-19 related claim for delays or variations under the specific contract and to recommend to the owner and builder that they also seek legal advice.
If the builder’s labour force is impacted by COVID-19 contagion or we are all directed to go into isolation to contain the spread of COVID-19, is the builder entitled to an extension of time (EOT)?
This will depend on the specific wording in your contract about the identified causes of delay that give the builder an entitlement to claim an extension of time (EOT) for time or time and costs. Construction contracts might use words like 'industrial unrest' to specifically allow claims extensions of time claims for delays caused by that kind of event. Strictly speaking, such wording tends to refer to industrial action throughout the construction industry (like strikes, or protected actions), hence the use of the word 'unrest' rather than merely a 'disruption' or the more generic 'unavailability' of the labour force on a single project or site.
Other contracts may use broader wording that is more favourable to the builder and allows an EOT claim for delays as a result of impacts to the builder’s labour force, but where they are outside the builder’s control. Also be familiar with any contractual obligations on the builder to take reasonable steps to manage or limit the impact of the delay on the project. This is a typical provision that balances the allocation of the risks and costs of delays between the owner and the builder. Where there are practical and reasonable steps that are within the builder’s control – such as sourcing the necessary labour and trades for the project – then the builder should take those steps to reduce the delay to the project.
In a scenario where the health impacts of a pandemic or government directions to manage the spread mean that labour and trades cannot attend site, it still depends on the wording of the contract whether this cause of delay would support an EOT claim either for time or costs.
If you are unsure about whether a term in your contract would support a pandemic-related delay, the parties should seek legal advice.
See ABIC clauses L1.1, L1.2 and L2.1 and section H and the corresponding sections of the User Guide.
I’m not sure if the cause of delay claimed by the builder is permitted under the contract for an extension of time (EOT). What do I do?
The general rule for interpreting contracts is that if the wording of the contract sets out a comprehensive list of the causes of delay that will support an extension of time (EOT) claim, then any cause of delay that isn’t listed won’t be available to support an EOT. A construction may also include broad wording that works as a catch-all for events that disrupt or delay the builder’s progress of the works and would permit an EOT.
Always bear in mind that the circumstances and specifics of a particular claim and cause of delay will vary. You should strictly follow the relevant delay and EOT provisions of the contract. If the cause of delay specified in a builder’s claim for an EOT isn’t supported by one of the causes of delay listed and permitted by the contract, you should not accept the claim.
If unsure what to do, we strongly recommend that the architect always get legal advice about how correctly to administer a COVID-19 related claim for delays or variations under the specific contract and to recommend to the owner and builder that they also seek legal advice.
Also bear in mind that if the pandemic environment sufficiently disrupts the progress of the works, the builder may also look to the rest of the contract and consider its options other than an extension of delay (time or costs). If so, the builder may be getting legal advice and you should suggest to your client that they should be getting legal advice also.
In almost all construction projects, the better mutual outcome is for all parties to engage co-operatively and reasonably and seek solutions or compromises that keep the contract in place and the project in progress, even if this means some compromise on which party bears some risks and costs or some delays to the expected programme and estimated practical completion date. This goes to the core and intent of every project.
One of the clauses seems really broad and could allow an extension of time for 'any circumstances'. Could that clause be used to allow for COVID-19 related delays?
A construction might contain broad wording that works as a catch-all for events that disrupt or delay the builder’s progress of the works and would permit an extension of time (EOT). These broad catch-all clauses are more likely to be found in builder-friendly contracts.
If in doubt, look closely at the specific wording of the contract, the schedule items and read any supporting document, such as the user guide for your contract. For example, the ABIC MW User Guide says:
'The contractor is not entitled to an adjustment of the date for practical completion unless the delay has exceeded the provisional allowance stated in item 25 or item 26 of schedule 1 for that delay.'
As a general rule, if there isn’t a broad catch-all clause that could apply and if the parties haven’t specifically anticipated and listed pandemic (or similar) as a cause of delay for an EOT, then the delay provisions in the contract may not support an EOT claim for delays caused by or connected with a pandemic.
As always, the specific wording of the contract will determine whether a pandemic-related delay supports claim for EOT with or without costs. If in doubt, the architect or the parties should seek legal advice.
See ABIC clause L1.1, the corresponding items in schedule 1 and the corresponding sections of the User Guide.
Does the owner bear the costs if the builder is faced with pandemic-related delays? Should some of those costs fall to the builder or is there something the builder can do?
Whatever cause of delay might affect a project, under a well-written construction contract the builder will have an obligation to take active steps that are reasonable to minimise the impact of the delay on the progress of the works. This obligation might be written in the contract but is also an obligation as a general legal principle of contract.
What those reasonable steps are will depend on the circumstances of the project, the builder, the site and the wider environment (such as pandemics and government directions). In assessing the amount of any extension of time (EOT) claim for causes of delay, the architect should take into account any reasonable steps the builder did take, or ought to have taken, in the circumstances to minimise the scope of the delay and the associated costs to the project. As a general rule, if there were reasonable steps the builder could take and didn’t, then the architect should consider whether to reject all or part of an EOT claim or to make an adjustment to the EOT claim to reflect this.
Be aware that the contract may give the builder the right to dispute an architect’s decision to reject all or part of a claim, or any adjustments to the claim the architect decides. So, it’s prudent to provide clear and supported reasons if you are rejecting or making adjustments to the claim.
See ABIC section H, clause L1.2 and the corresponding sections of the User Guide.
The ABIC contractor’s form for claiming EOTs (MW-42 or SW-42) prompt the builder to provide details of the claim, as does the Architect’s form for adjustments of time (MW-14 or SW-14).
What about new projects – what could we include in the construction contract now that COVID-19 is a pandemic?
If you are preparing a construction contract for a new project now that COVID-19 has been declared a pandemic, all parties should consider whether this risk of disruptive events is a foreseeable cause of delay that should be factored into the contract for the purposes of giving the builder an entitlement for time costs, or time but not costs. If so, this would give the builder the basis to claim for an adjustment of time costs, or just time but not costs, where the specified pandemic-related causes of delay occur.
If the parties to a contract are considering giving the builder an entitlement to claim for pandemic-related time costs, as a general guide they may wish to negotiate and agree on identified causes of delay where:
- the cause of delay will or might delay the works; and
- it is fair to allow the builder to claim for the costs of that delay if they occur.
In effect this is a specific Force Majeure clause and should be expertly drafted to clearly set out the rights of the parties that are triggered and the conditions and limitations on those rights (such as specified notice periods, time or cost limits or estimated allowances for such delays). See further information below.
See ABIC Major Works clause L1.1m and L2.1 and items 24 and 26 of schedule 1.
The equivalent sections in the Simple Works contract are clause L2.1b and item 21 of schedule 1, but there is no equivalent to item 24. This is one of the differences between the Major and Simple Works contract forms.
The workforce of one of the sub-contractors has been impacted by COVID-19, which is causing delays for the builder. Can the builder claim an extension of time (EOT) for this delay?
It will depend on the wording of the contract. Such a clause may have specific words that suggest it only applies in specific circumstances. Bear in mind that the contract may also make a distinction where it is the owner who has engaged the sub-contractor as separate contractors. The intention behind this clause was to capture scenarios where the owner’s contractor failed to do something or did something that could not have been reasonable expected and that this caused interference or delay to the builder or head contractor.
In the scenario where the owner’s separate contractor was responsible for delivering key plant or materials to site; that supply was impacted or delayed because of COVID-19; and this caused delay in the program, the contract wording may support a builder’s claim for time or time with costs. As always it is for the architect to assess each claim on a case-by-case basis, in accordance with the contract.
See Major Works clause G14 and L1.1.
Other Options under ABIC
I keep hearing about the term ‘Force Majeure’. What does it mean and what effect does it have?
A Force Majeure is a term that refers to a category of contractual provisions which set out an agreed set of trigger events that give the parties additional contractual rights. These trigger events are identified because they are beyond the control of the parties to the contract and present a material risk to the contract or whether a party can perform it. These events would materially impact the subject of the contract or will interfere with one or both parties’ ability to perform the contract as promised, because they make performing the contract delayed, difficult or impossible. Force Majeure refers to significant natural and human events, typically such as severe weather, war, terrorism and pandemic.
A Force Majeure clause is a way of managing contract risk from external events by giving the parties additional contractual rights if an intervening event arises. The consequence of an Force Majeure clause triggering could be to give a party a full or qualified right to terminate the contract and excludes a party from being guilty of breach of contract if they can’t perform their promises because of that external trigger.
However, COVID-19 or even a declared pandemic may not be an available trigger under every contract and in all circumstances. Each contract must be reviewed on its terms and the parties should seek legal advice.
In the event of a protracted pandemic-related delay or worst-case pandemic scenario, the parties could consider their rights and options, including terminating the contract for ‘frustration’. Frustration is a concept at law, but both parties may agree if the contract has been frustrated to justify terminating it. See further information on terminating for frustration below.
See ABIC clause Q19 and refer to the User Guide for your contract.
This contract doesn’t have a Force Majeure clause in it, but the project has been severely disrupted by the pandemic. Is there anything else I can use?
If the contract doesn’t have a Force Majeure clause, there is a similar concept of ‘Frustration’ of contract which may apply to the pandemic scenario. Frustration has a particular meaning and criteria at law, but it’s not the same as Force Majeure and it doesn’t need to be written into contracts. A contract can be frustrated by external events, or by the conduct (or lack of conduct) of a party to the contract.
The question of whether a contract has correctly been frustrated is something to leave to lawyers and the courts to determine and there are risks if any party claims frustration has taken place. Whether a particular event or circumstance supports a claim of frustration is not always clear cut. An incorrect allegation of frustration can be met with a counter-claim by the other party for breach of contract and damages. If any party to a contract alleges frustration, all parties should be seeking legal advice.
However, the parties are free to mutually agree that a contract has been ‘frustrated’ by certain events or actions. This might include scenarios where the pandemic is a frustration event under the owner’s funding arrangements and the finance facility agreement. If so, they can both safely agree to set aside the promises in the contract without liability to the other for not meeting them. For example: in the face of a declared pandemic, the parties may agree that the pandemic is a ‘frustrating’ event that impacts on the feasibility of delivering the project and that it is in both their interests to mutually agree to end the contract. This should be clearly and fully recorded in writing and the parties should be getting legal advice on how best to do so.
If the parties agree to mutually terminate for frustration, an architect administering should ensure that all clauses in the contract are followed that relate to: time limits, giving notices, frustration and termination rights, assessing the final claim and issuing the final certificate and releasing security.
In ABIC, the sections relevant to termination are sections C (Security), H (Claims to adjust the contract), J (Variation to the works), L (Adjustment of time), M (Completion of the works), N (Payment) and Q (Termination).
When should the client/owner consider terminating a contract for frustration or Force Majeure?
Importantly, architects should avoid advising their clients on when to consider terminating a contract – although you could certainly inform the owner if the contract contains a ‘frustration’ or ‘Force Majeure’ clause and generally what rights it gives the parties if triggered by a relevant event. Be aware that whether an event or a cause of delay is also a frustration event at law, or a Force Majeure trigger in a contract, isn’t always black and white and there is a risk of getting this wrong.
If the client relies on and acts on your advice on a frustration or Force Majeure event, which is disputed by the builder, this may result in a PI claim.
Any architects whose clients place them under pressure to advise in detail on legal concepts like Force Majeure or frustration should remind the client that the architect’s professional indemnity insurance covers architectural services only. If the architect were to give in to pressure to provide legal advice, any resulting claims or losses would be uninsured.
It is equally open to the builder to consider and get their own legal advice about whether this pandemic is a frustration or Force Majeure event under the contract and the same considerations apply to the builder.
While a viral pandemic is likely to be disruptive and a cause of delays to the works for a period, though as the labour force recovers and supply chains resume, there is scope for the works to resume also. You should be mindful that this is more correctly a delay event, not a frustration event. It is less likely that a viral pandemic would be so fatal to the project, that the fundamental purpose of the construction contract was made sufficiently non-viable or pointless to be frustrated at law.
The best action to take as the architect administering the contract is to know the relevant clauses in your contract and to tell your client to seek legal advice on their rights and options. If your client has sought legal advice and they have decided to exercise their right under a frustration or Force Majeure clause in the contract, ensure you have that instruction from your client in writing. Then, ensure you administer the contract according to its terms and that both the owner and the builder have met their respective obligations under the contract, including giving notices and applicable time limits.
How do we respond to questions from an owner who is concerned about the viability of their project?
All parties should be aware that the challenging circumstances of a pandemic can also have consequences for either party’s solvency. The legal and practical considerations and risks here are different to frustration or Force Majeure and are more complex. If either party is financially stressed and heading towards insolvency, all parties should be seeking legal advice. All ABIC contracts contain provisions that guide the parties on their rights and the procedures if either party triggers an ‘insolvency event’ (which is a defined list of events). The architect should be familiar with the provisions of section Q and, critically, be aware of the warning in the User Guide that legislative changes in the Corporations Act can operate to limit or prevent parties from terminating the construction contract on the grounds of insolvency.
This is a complicated section of the law and all the more reason that the architect should administer the termination provisions only with expert legal advice. Recommend to your client they get legal advice about their specific circumstances and to also speak to their finance provider.
See ABIC section Q and section S (Definitions) and the User Guide for your contract.
Are the pandemic-related directives of federal or state governments a change in laws under the contract?
Many construction contracts make allowance for new laws or changes in laws and related regulations, official decisions or requirements which impact the project or the carrying out of the works.
A contract may refer to these provisions as ‘relevant legislation’ or ‘legislative requirements’ and this can include to building codes, regulations and industry guidelines. These provisions can also extend directions or decisions by an authority.
A well-written contract will also have a ‘choice of law’ ‘governing law’ or ‘jurisdiction’ clause which typically says that only the laws of the state or territory where the site is located, apply. In Australia, building legislation and OHS/WHS legislation is state-based – so it is questionable what powers the federal government has to regulate construction activity, including what happens on sites. This kind of ‘governing law’ provision can also have the effect that federal legislation or directives from a federal authority, might not impact the project and that the state/territory legislation or relevant authority takes priority.
The wording of the contract will determine whether there is a relevant ‘change in laws’ and what rights or requirements trigger if there is an applicable change in laws. Typically, construction contracts are written in a way that changes in laws or requirements of an authority includes the building or planning authority, council, infrastructure authorities or essential services (water, gas, electricity) suppliers. Depending on the wording and definitions in the contract, the ‘change of laws’ provision might not include the directions of a public health authority, or other emergency powers granted to a particular person or authority in a pandemic event.
Some contracts might give the builder an entitlement to claim an extension of time (EOT) or with costs if there is a change in laws that impacts the works. It is then for the superintendent to assess whether the change justifies the claimed EOT or a variation or whether it justifies a change in the contract price. Other contracts may simply require the builder to give notice to the superintendent or architect and it is then for the architect to consider the notice and issue an instruction. In turn, issuing that instruction might give the builder an entitlement to an EOT with or without costs.
Typically, for a change in laws to trigger rights under the contract, it would actually have to impact the works in some way. There is often specific wording that requires the change to affect the works in a way that is ‘direct’ or ‘material’ or ‘substantial’ and the architect will need to exercise their professional judgement about whether the contract wording is satisfied by the changes in law that the builder has identified. Be familiar with the relevant provisions of your contract, however, you are not expected to exercise the reasonable skill of a lawyer in interpreting the contract. If it is not clear whether there has been an applicable change in laws under your contract, the parties should get legal advice.
If the architect receives from the builder a query, notice or claim for a change in law, you should always comply with the timeframes for responding and you may need time to seek and obtain a legal opinion on the application of the change in laws provision. This might prompt you to issue an interim instruction or decision and then follow with a final instruction or decision once that advice is received.
Also bear in mind your professional obligations to the client under the client-architect agreement, as well as any standard expected of you when administering the contract, such as when you must act fairly and impartially. Regular and direct communication between all parties will help managing expectations, contract timeframes and a fair outcome for the parties.
This pandemic environment does raise grey areas about whether a contractual provision may apply, for example, how to properly interpret what impact a pandemic-related government directive has on the project. This can be complex, so if there is any doubt, the parties should be seeking legal advice.
If your client is prepared to be lenient on the builder and to allow a claim a pandemic-related change in laws where it might not be black and white under the contract, ensure you have that instruction in writing from your client, as well as a copy of any legal advice that your client or the builder is relying on.
See ABIC Section S (Definitions) for *relevant legislation, clauses R9, R10, L1.1c, section H.
Are there any particular considerations for contracts that are novated, in circumstances of the COVID-19 pandemic?
Not especially. The usual contractual, legal, commercial, risk and practical considerations continue to be relevant and including frustration, Force Majeure and insolvency. Always read and be familiar with your consultancy contracts and if you are unsure about your rights, obligations and options seek legal advice.