Covid19 project impacts

Our focus is on architectural risk management.
All architects should communicate with clients to alert them to the potential for project difficulties as a result of Covid19, whether projects are in contemplation, in design phase, or underway on site. In doing so, do not make representations about the expected outcomes: everything is uncertain and subject to review as information develops.

Covid19 effects are a risk that clients will need to accommodate: if you have alerted your client, they are on notice that they have an obligation to mitigate their risk. It is easy to imagine that this will tip some clients and projects into danger territory, and generate argument of how the problems were dealt with. There is the prospect that they defer or abandon the project.

In addition to the logistical issues around project delivery, there are risk management issues for architects: if variations or extensions of time are granted, the principal may later seek to recover consequential damages on the basis that they were not justified, or arose out of the architect’s actions or inaction. It is foreseeable that, in addition to the contractor’s material and manpower difficulties, reduced staffing in the consultant team may be at the root of the delays.

Some legal firms have relevant articles on their websites; the NZIA has published (20/03/20) a Notice to Practitioners on “Managing the Impact of COVID-19 Outbreak on Construction Projects in New Zealand” which considers the matters in some detail; as does their Notice 23/03/20 in relation to Finance and Insurance, together with the embedded link to Aon’s Infectious Disease Response Task Force website.
• In respect of variations, substitutions to circumvent supply chain difficulties can be readily addressed as for any substitutions.
• The cost of variations instructed on the basis of an accepted VPR but yet to be carried out may require to be reviewed on the basis that the circumstances under which they were priced have changed.
• In respect of an extension of time claim, under NZS3910 an extension of time can be claimed under clause 10.3.1(g), which states “Any circumstances not reasonably foreseeable by an experienced contractor at the time of tendering and not due to the fault of the Contractor”, and NZIA SCC 11.5.1.k states “The Contractor may apply to the Architect to extend the time for Practical Completion due to a delay arising from ….. (k) Something else of significance beyond the Contractor’s control.”

Good in-depth record-keeping by contractors and consultants is a must. As is prompt, full, and timely communication. The sensible course of action for a contractor would be to apply for an extension (or repriced VPR) as soon as it becomes necessary to do so, and argue about the niceties of it later. That needs to be understood by the client and consultants.

Architects faced with a Covid19 EOT claim (or repriced VPR) should require the contractor to
• provide clear contemporaneous and verifiable support for the claim – if necessary progressively updated according to circumstances
• wherever possible “ring-fence” it so that it is separated out from payment claims and can be dealt with as a separate issue
• acknowledge and agree that a decision on the claim may be deferred until it can be dealt with on a reasonable and informed basis.

This would be a good time to re-acquaint principals and contractors with the payment claim and response requirements:
• If the contractor submits a progress claim under NZS3910 or NZIA SCC, then the Architect (or Engineer to the contract) is required to apply an independent mind to the assessment of the sum reasonably and fairly due under all the circumstances and in accordance with the provisions of the contract, and to issue a provisional payment schedule accordingly. The Principal may then either pay the assessed sum or direct the Architect to amend the Payment Schedule with a Scheduled Sum set by the Principal and which then must be paid; in this capacity the Architect is acting as the Principal’s agent.
• Any matters of difference can be dealt with at a later date under the dispute provisions in the contract.
• If you are not appointed to administer the contract, you might suggest that the contractor and principal re-read the provisions for payment claims in the Construction Contracts Act ss20, 21, 22.