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Risk in Context

Victorian Government Restrictions on Construction

Posted by Elodie Amann August 19, 2020

On the 3rd of August the Victorian Premier Daniel Andrews announced a new range of restrictions on businesses in an effort to contain the spread of COVID-19. As part of this announcement new restrictions were put in place for Victorian construction sites, which have moved to pilot light levels as of 15th August. The description from Premier Andrews on what this means is below:

“Our construction sector, the lifeblood of our economy, will also move to pilot light levels. This will allow the industry to keep ticking — while also making sure we limit the number of people onsite. For major construction sites, that means the absolute minimum required for safety — but no more than 25 per cent of the normal workforce onsite.

Small-scale construction will be limited to a maximum of five people onsite… These workplaces that are continuing to operate will also have additional requirements including extra PPE, staggering shifts, staggering breaks, health declarations and more support for sick workers to ensure they stay home.” (More details here).

With the limit of workers onsite and the staggering of shifts it is highly likely that many projects will experience unmitigated delays that will push out completion dates. There are various commercial and financial implications with project delays, not the least of these cost blow outs and potential liquidated damages disputes, which contractors need to be aware of and prepare for.

Some of the common questions that arise are:

  1. What are the parties’ contractual obligations under such circumstances
  2. Who is responsible for delays and cost-overruns? and
  3. What remedies and other recourses are available to the parties, such as under the construction contract and insurance policies, in order to minimise any impact of delays on the business?

These are all important questions and you can find further comments on addressing the issues in a previous post here.

Notwithstanding the commercial and financial implications, there is much Contractors should consider doing now to mitigate the impacts of the further restrictions, namely:

  • Depending on the terms of the particular construction contract, it may be appropriate for the Contractor to issue a notice of delay to the Principal, and flag that the project team expects practical completion to be delayed as a result of the new measures put in place. Under the contract, Contractors often have a limited time to advise the Principal. This can be a precautionary measure which might later help relieve the Contractor from liability for Liquidated Damages. 

  • Investigate the application of any ‘Extension of Time’ (EOT) clause in the contract. An EOT clause may provide a mechanism for the Contractor to delay the completion of the project with prior approval from the Principal.

  • If the contract has a force majeure clause, it may apply to reduce the Contractor’s exposure to Liquidated Damages. 

  • Develop a Mitigation Plan. This will help demonstrate that all available measures have been considered to deliver the project on time or as early as possible. Before incurring costs to mitigate delay, as a measure of precaution, we suggest the Principal and Contractor work together to address the issue and seek to agree on a Mitigation Plan, and otherwise record every piece of information in relation to the delay and mitigation such as in a formal letter, new baseline programme and details of the additional cost incurred. If a Liquidated Damages claim is later made, both parties will likely refer back to that information to assist them in addressing it. 

Of course, each Contractor’s particular circumstances will differ. We recommend that those circumstances, and the terms of the particular contract, are considered by the Contractor in consultation with a legal advisor before taking any action.

Marsh’s Project Delay Specialists regularly support clients with these issues by providing independent delay investigation and avoidance advice around:

  1. Quantifying the extent of the delay and predicting the new anticipated completion date. 
  2. Assisting with lodging the EOT application.
  3. Project delay advisory including addressing and developing a Mitigation Plan to assist with achieving project completion with minimum delay. 
  4. Liquidated Damages advisory to identify causation, and assist parties in Liquidated Damages negotiations and disputes.

If you are experiencing a project delay, please do not hesitate to reach out to your Marsh representative or contact us for a complimentary initial project delay consultation to discuss the impact to your project, provide preliminary advice on some of the issues and opportunities to consider, and how Marsh can help. 

LCPA number: 20/495

Please note: This blog is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. The information contained in this blog is based on sources we believe reliable but we make no representation or warranty as to its accuracy. Any modelling, analytics, or projections are subject to inherent uncertainty, and may be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. Except as may be set out in an agreement between you and Marsh, Marsh is not required to update the information and shall have no liability to you or any other party arising out of the information. 

Related to:  Australia , Construction

Elodie Amann

Senior Consultant, Pacific Construction Consulting

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