Australia’s construction industry may have escaped the extensive shut-downs causing woes in other countries across the world yet the potential for COVID-19 to create future issues on home turf remains. The pandemic is undoubtedly adding pressure to existing levels of risk regularly managed by contractors, principals and all those in between, and legal firms are issuing guidelines to raise awareness of how to tackle those that may surface.

Fortunately, the warnings and guidelines are being delivered amid a far more positive climate than even as recently as a month ago when industry heads were issuing dire forecasts. With construction classified as essential under Australia’s COVID-19 regulations, Prime Minister Scott Morrison has since formally announced his support for continuing works and deemed the industry vital to keeping the economy moving. In most recent developments, the NSW government yesterday announced that more than 20 construction planning assessments will be fast-tracked with the aim of creating around 10,000 jobs and injecting $7.5 billion into the economy. Treasurer Dominic Perrottet had previously reiterated the NSW government’s commitment to moving forward with its existing budgeted capital program of $97.3 billion.

This follows the Victorian government’s boost to its own construction sector last week that saw the approval of four new projects worth upwards of $1.5 billion (118 City Road, Southbank, 555 Collins St, 52-60 Collins St and 550 Epsom Road Flemington). Victoria also established a taskforce to keep construction running across the state. In West Australia, the state government has tipped $24.5 million into a support package including $10 million for one-off employee payments of $2000 in order to help retain apprentices.

Help on the horizon

The stimulus packages and support are among measures introduced following industry calls for assistance, given the general economic downturn and sharp drop in new orders since the onset of the global pandemic. The measures contrast to those taken by most other countries including New Zealand. There, the industry was ordered to shut down non-essential works, the definition of “non-essential” leaving in operation only those projects that supported essential services, those that impacted immediate threats to health or life or prevented environmental harm, and critical infrastructure. Health orders shut down hundreds of projects in major US cities and the UK saw a hiccup earlier this month when sites where tradespeople could not maintain a two metre distance were ordered to shut down, only to open again hours later when the directive was deemed unworkable.

International legal firm Jones Day is among those to have examined a broad range of COVID-19 issues including a report on potential risks faced by the building industry. The report - Coronavirus: Potential Implications for Major Construction and Infrastructure Projects in Australia compiled across its Sydney, Brisbane and Perth offices - covers the multiple complexities that could arise and suggestions on how best to deal with them.

Among COVID-19-driven risks identified are:

  • quarantine-induced staff shortages plus design and inspection delays;
  • insolvency of contactors, suppliers, designers and/or others;
  • delays in importation of plant, equipment and materials; and,
  • site closures or access restrictions.

Risk mitigation is also an area that needs careful examination, advises Jones Day. Hypothetically, a situation could arise that sees an entire workforce stood down because a worker is exposed to a person with COVID-19. “Whether such a decision amounts to an event that entitles the contractor to relief under the contract will depend on the terms of the contract and the particular factual circumstances,” the report states.

“The terms of the contract may leave it open for the principal to argue that the decision was unreasonable having regard to the impact of the decision to the project. Conversely, the contractor will likely say that its workplace health and safety obligations necessitated that it make the decision as to the true cause of the impact in respect of the relevant project in assessing the various commercial risks posed by COVID-19 to the project.”

Careful considerations

Legal entities are also urging principals and contractors review the force majeure clauses in contracts – and there is good reason why: “In Australia, force majeure is not recognised at common law or in statute and therefore the words of the contract are paramount and govern the scope and effect of force majeure,” Jones Day states. Likewise, parties need take care when applying the common law doctrine of frustration, which operates where performance of a contract has become radically different from that originally intended, therefore allowing parties to be discharged from future contractual obligations.

Ways in which to proactively manage situations that could arise are outlined, starting with parties to undertake comprehensive, critical reviews in order to identify specific risks to individual projects.

“The impact of COVID-19 is evolving and difficult to predict,” Jones Day’s report states. “However, it is almost inevitable that certain parties will contend that COVID-19 had some impact on their project. “Due to the quickly evolving situation, prudence may dictate that steps be taken by all participants across the mining, construction, infrastructure and property development sectors to proactively manage the impacts of COVID-19 and implement strategies to protect the position of these participants as well as the projects.”

Find the full Jones Day report here:

https://www.jonesday.com/en/insights/2020/03/construction-infrastructure-projects-in-australia