NZS3910:2013 Covid-19 Conditions

The Principal, the Contractor and the Engineer had to navigate through the general and specific conditions of their NZS3910:2013 contracts in regards to variations, extensions of time and payment claims for the Covid-19 lockdown period.

Some contracts entered into in 2020 and 2021 may already include clauses that deal with the consequences of the Covid-19 outbreak and with different alert levels. The wording of these clauses is important and the parties want to make sure, prior to entering into the contract, that they are fully aware of their obligations under the clauses and that their meaning is clear and not open to different interpretations.  

If the contract does not have any specific conditions regarding Covid-19 or cessation of works, then the following general conditions may be relevant:

Suspension

The Covid-19 lockdown is a circumstance rendering "necessary” the suspension of the whole or part of the Contract Works by the Engineer under clause 6.7.1. The suspension will be treated as a Variation under clause 6.7.3 and the Contractor is entitled to an extension of time under clause 10.3.1(a) and for a compensation for time-related Costs determined according to clause 9.3.11.

If the Contract Works are hindered by a level lower than alert level 4, but are not ceased and suspension is therefore not necessary, the Contractor may inform the Engineer under clause 9.2.3 that it considers the delay and/or increase in its Cost to be a Variation. But it is up to the Engineer to approve such Variation.

Extension of Time

The application of clause 10.3.1(f) is questionable. Under the clause the Engineer shall grant an extension of time if the Contractor is fairly entitled to an extension by reason of "any circumstances not reasonably foreseeable by an experienced contractor at the time of tendering and not due to the fault of the Contractor".

If tendering took place after the outbreak of Covid-19 in New Zealand in 2020, and especially after the New Zealand nationwide lockdown in April-May 2020, it can be successfully argued that another lockdown was reasonably foreseeable. Although some would argue that the Delta variant was not foreseeable.

Clause 10.3.1(f) only provides an extension of time and compensation under clause 10.3.7 does not apply.

Change in Law

Clause 5.11.10 addresses a change in law occurring after the closing of tenders. The original intent of this clause was to deal with the situation where the Government enacts legislation that directly affects the cost of carrying out construction work (eg a ban on certain product, or change in Building Code). NZS3910:2013 was drafted when a worldwide spread of coronavirus such as Covid-19 was not in sight. Some may therefore argue, that this clause is not applicable.  

However if the tender was closed prior to any of the Covid-19 legislation enacted in 2020, it can be successfully argued that a change in law occurred and the increase in the Contractor's Cost shall be treated as a Variation and extension of time and shall apply accordingly, including the payment for time-related Cost.

In regards to tenders closed later in 2020 or in 2021 it is questionable if every Covid-19 Public Health Response (Alert Level Requirements) Order made by the Minister for Covid-19 Response under Section 11 of the Covid-19 Public Health Response Act 2020 should be considered a new bylaw under clause 5.11.10.  

Conclusion

The NZS3910:2013 does not foresee a worldwide pandemic of an infectious disease such as Covid-19 with specific legislation enacted, lockdowns imposed, disruptions in supply chain and material and labour shortage. The application of the particular clauses of NZS3910:2013 may be cumbersome at best. It is therefore advisable to include specific Covid-19 clauses in any contract based on NZS3910.

Please direct any enquiries to:

James Turner (Partner) - (jturner@mcveaghfleming.co.nz)

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