Empty construction sites? Managing the impact of Omicron

  • Legal update

    17 February 2022

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The construction sector is working at pace, grappling with already strained resources. What impact will the Omicron outbreak have? In this article we examine risk allocation in NZS3910, and the steps parties can consider to lessen the impact of the outbreak.

All players in the construction industry have hit the ground running and 2022 is shaping up to be another busy year – but not one without challenges.  Strong levels of construction activity are accompanied with concern as the daily COVID-19 case numbers increase.

With the Omicron outbreak accelerating in New Zealand, we expect that an increasing number of workers will be off sick or required to isolate as close contacts of a COVID-19 case.

We only need to look to Australia to see the impact that Omicron has had on supply chains and all businesses including construction.  With broadly similar isolation requirements, a number of Australian states have seen construction projects severely impacted by workers needing to isolate or whole sites needing to shut down with all workers deemed to be close contacts.

In this context it is inevitable that projects in New Zealand will be similarly impacted.  An industry discussion document from the Construction Accord and CHASNZ estimates worker absences at 20-22% at the peak of the outbreak.  As a result, contracting parties will be considering contractual rights and entitlements.

We encourage parties to proactively plan for how they will manage a positive case to minimise the impact on their project.

Isolation rules

The isolation rules, and in particular, who is considered a close contact, could lead to major disruptions on work sites.  In “Phase 2” of the Government’s response plan, the following isolation rules apply:

  • Confirmed cases will have to isolate for 10 days.
  • Household contacts will also need to immediately isolate for 10 days (and get tested on days 3 and 8).
  • Close contacts will have to isolate for seven days from the last time they were exposed to someone with COVID-19 (and get tested on day 5).

Whether someone is considered a close contact depends on a range of factors (such as mask-use, proximity, and the place of exposure).

Phase 2 includes a ‘test to work’ regime for critical businesses but this does not obviously apply to most construction businesses and projects.

There is a further exemption where a close contact, who is both vaccinated and asymptomatic, can maintain a ‘bubble of one’ at work – which may be more applicable to the construction industry but of potentially limited practicality on large projects.

Position under NZS3910

Since March 2020 many construction contracts in New Zealand include a bespoke ‘COVID clause’, some of which are expressed as exclusive entitlements in relation to all things COVID.  The first port of call for parties will always be any bespoke clauses.

However, in the absence of this, it is likely that contractors will be seeking to claim for the time delays and cost consequences of delays caused by large-scale worker absence or sites needing to shut down.  Particularly so where extensive financial support from the Government is unlikely to be available.

The extent to which a claim is available will depend on the circumstances, but the following issues may arise:

  • Whether a contractor can claim a variation for a ‘change of law’, on a similar basis to the arguments well-ventilated in the industry in relation to lockdowns.  Interesting issues are likely to arise about whether any legally imposed isolation requirements have caused workers to be off-site, or whether it is the fact of being sick from COVID-19 which has caused this.
  • Whether the contractor has an obligation to resource the works as required (i.e., as it would with seasonal illnesses).
  • Whether the contractor is entitled to an extension of time for circumstances not reasonably foreseeable by an experienced contractor at the date of tendering.  The extent to which this is available will depend partially on the date of the contract, but in any event is likely to be a second port of call for contractors given there is no entitlement to time-related costs for this extension of time event.
  • Whether the contractor has appropriately mitigated any delay, for example by adopting appropriate health and safety measures on site, use of Rapid Antigen Testing, or possibly by running workers in shifts or bubbles – noting that the latter could have a delay in itself.

It is also likely that the impact on the broader supply chain due to worker absences will impact projects and may be the subject of delay claims.

Operating in the current climate – what should parties be doing now?

Separate from considering contractual rights and entitlements, in a rapidly changing environment it is important that parties are abreast of the Government guidelines and requirements.  This includes the guidelines as to who is a close contact and the implications if there is a positive COVID-19 case on a project (for example, whether and when a site will need to be shut down following a positive case or cases).

Businesses will likely already have COVID-19 health and safety policies in place.  We encourage parties to review these policies and consider whether additional controls are required to respond to Omicron.  CHASNZ has published protocols for operating under the COVID-19 Protection Framework.

It is prudent to be forward-looking and initiate conversations with project personnel.  For example, key questions include what activities are planned for the next few months – can materials be ordered in advance and stored on site, and/or can activities be re-sequenced if necessary?  What contingency planning is in place for staff absences?  Parties who tackle these questions now will be best placed to deal with the outbreak.

Please contact one of our experts if you would like to discuss any of these issues.