Navigating the Construction Shutdown with Deloitte, Hamilton Locke and Australian Constructors Association

Deloitte, Hamilton Locke and the Australian Constructors Association hosted an online panel discussion on the impacts of the Delta strain of the COVID-19 pandemic, shut downs of sites and gradual ‘soft’ re-commencement across New South Wales. Attendees from across the projects spectrum from international contractors through to local contractors, subcontractors, consultants and financiers attended the session together with various industry professionals.

The speed of changes across the projects landscape has been unprecedented. Hamilton Locke, Deloitte and the Australian Constructors Association thank the attendees at today’s session and will continue to maintain a dialogue with industry participants as developments arise.

Nick Edwards, one of Hamilton Locke’s Restructuring and Insolvency Partners, chaired a lively panel which canvassed a number of ongoing issues for contractors and other industry participants.

Jason Tracy, Partner, Deloitte, opened the discussion with an overview of the current state of play on site in NSW with a number of the restrictions in affected local government areas being lifted from 11 August 2021.

Jon Davies, CEO of the Australian Constructors Association, highlighted the impact of the shut down on projects across NSW, making clear that:

  • from the Association’s perspective, the construction industry is and remains one of the safest in terms of adopting and enforcing COVID safe work methods;
  • the Association has appreciated the NSW Government’s decision to re-open sites with additional safeguards, including trials of rapid antigen testing.

Veno Panicker, Hamilton Locke’s Construction and Infrastructure partner observed that the pragmatic approach of State government principals on projects reflected significant progress. The need for consistency in how those bodies managed the risks associated with the shutdown and progressive re-opening of sites would give much needed certainty for head contractors (and in turn other participants down the contractual chain). Despite strict contractual risk allocation, it appeared that on most government projects, extensions of time for the shutdown and some proportion of the delay and prolongation costs for that period were being assessed on public projects. This was a very important driver to ensure investor confidence as well as avoiding such costs being passed down the contract chain. Having fifty percent of personnel did not equate to fifty percent of productivity.

The collaborative approach by State government – a departure from some of the harsher risk allocations which they contracted for – was a welcome and necessary support for the industry. Jon noted that in addition to recent guidance notes from Infrastructure NSW, efforts were ongoing to develop a protocol for delay and disruption costs going forward on projects.

Jason highlighted the importance of an early evaluation of contractors experiencing distress – mindful that the protections for companies and directors which were available during the first wave of the pandemic have not been reinstated. An overview of safe harbour measures when required and the importance of a transparent dialogue with financiers and interested parties was also canvassed as part of the strategies and options available to companies suffering during this period.

James Simpson, Hamilton Locke’s Workplace and Employment partner grappled with some issues which have been at the forefront of recent media – including whether vaccinations can be mandatory on site and potential liability for parties that failed to adhere to strict COVID. James also addressed rights to stand down workers and how this was to be managed through the partial resumption of sites.   He reinforced that the best approach for employers is to regularly and comprehensively communicate with employees on developments relating to their ability to work, the various options available when they can’t attend work, and provide as much helpful information to employees to assist them with getting vaccinated as quickly as possible.

The consensus was that vaccination was clearly a vital cog in the pathway back to more productive sites going forward. Initiatives such as rapid antigen testing were to continue and likely will have broader uptake as sites ramp back up.

The discussion looked at some of the realities of the current major projects landscape and lessons learned from the pandemic in other jurisdictions. Both Veno and Jon noted that contractors’ margins on projects were slim – and there would be a need for further financial support in due course. All were appreciative of the present approach by state government principals focused on ensuring cash flow down the contractual chain and assisting with the present short term issues with the likelihood of some form of ‘pain share’ as to prolongation costs going forward. Veno considered that the industry driven advocacy, at least in terms of infrastructure, meant that legislating things such as relief from liquidated damages over the closure or mandating the approach to be taken was unnecessary – though had success in Singapore and other jurisdictions.

All agreed that the need for clarity as to the approach of State government project sponsors was critical – as was consistency in those approaches. This would assist both contractors and financiers in navigating what will be a turbulent period. A more medium term or aspirational objective was a more consistent use of genuinely collaborative contract models, such as NEC4 – which better reflect pain share/gain share structures that better allocate risks (as distinct from the traditional top down approach).

The position in the infrastructure space was in clear contrast to other sectors, such as residential and commercial construction projects – where legislative intervention was needed. Veno provided the example of a number of developers with high rise off the plan sale contracts with imminent sunset dates as but one example where a mandatory extension of such deadlines will be a life saver for many industry participants.

Thanks again to all that attended. Hamilton Locke, Deloitte and the Australian Constructors Association are committed to the construction industry and appreciate the interactive and mature dialogue of some very difficult challenges faced by the industry.

If you have any questions regarding the topics discuss, please do not hesitate to reach out to our presenters Veno Panicker, James Simpson, Nick Edwards, Jason Tracy and Jon Davies.