Contractual implications of the new lockdown
If the new lockdown period in Victoria will cause delays in your project, you should consider whether you are able to claim an extension of time under the relevant provisions of your contract.
Below is a summary of relevant provisions in Master Builders Victoria’s suite of contracts.
Master Builders Victoria Contracts
MBV HC7 New Homes Contract & MBV HIC6 Home Improvement Contracts (Domestic Contracts)
Under Clause 15 the Builder is entitled to an extension of time if the progress of the Works is delayed by, amongst other things:
- Any other cause beyond the reasonable control of the builder.
For your convenience please see our website for a template.
MBV MW2 Minor Works Contract & MBV PS1 Pool 7 Spa Contract (Domestic Contracts)
Under Clause 14 the Builder is entitled to an extension of time if the progress of the Works is delayed by any cause beyond the reasonable control of the Builder.
MBC DCP2 Domestic Cost Plus Contract
Under Clause 17, if, through no fault of the Builder, the progress of the Works is delayed by:
- Any other cause beyond the reasonable control of the builder.
MBV GCC6 General Conditions of Contract & MBV CP1 Commercial Cost Plus Building Contract (Commercial Contracts)
Under Clause 19, the Contractor shall constantly use best endeavours to avoid delay in the completion of the Works by the due date; but shall be entitled to an extension to the Contract period and a corresponding adjustment to the Date for Practical Completion with respect to any delay caused by, arising from, or attributable to any event or events beyond its immediate control.
We note that the above clauses contain terms that are defined in the relevant contracts.
It is the legal team’s opinion that the effects of a COVID-19 government mandated lockdown are beyond the reasonable control or the immediate control of the Builder/Contractor and may entitle them to claim an extension of time. However, if doing so, the Builder/Contractor must notify the other party as soon as possible of any delay in accordance with the contract.
What happens if our project suffers physical damage during a government mandated lockdown?
At the time of writing, the Victorian Government has announced that during the shutdown period there will be ‘a strictly limited exemption for workers to attend the sites to respond to an emergency or perform urgent and essential work to protect health and safety. An amnesty will be put in place so that a limited number of workers can attend construction sites in order to shut them down safely.’ More information regarding this is likely to be published by government soon.
However, if you do have concerns make sure that you speak with your insurance broker to work out whether you are covered. Check your contracts as responsibility for site is usually dealt with by the contract. It is likely that the head contractor will have insurance for the site in general, however, contractors should ensure they have insurance that covers their material and equipment.
Is a government mandated industry shutdown grounds for frustration of a contract?
Frustration is a notoriously high bar to prove. For a contract to be frustrated, a contractual obligation must have become incapable of being performed because the change in circumstances renders it radically different from what had been agreed in the contract. Simply because the contract has become much more expensive to perform or takes longer to complete than was originally anticipated does not necessarily mean the contract is frustrated. Legal advice specific to your circumstances should be sought in relation to frustration and its applicability to your circumstances.
What should I consider when signing a new contract?
Consider requiring security. Now is the time for builders to consider requiring proprietors to sign deed of indemnity for extra financial protection or consider other forms of security. The standard MBV contracts include deeds of indemnity which can be used.
Be more generous in calculating the construction period. The best time to make allowance for delays in construction periods is prior to signing a contract. Different contracts deal with construction periods differently, so please contact us to seek specific advice.
Make sure there is enough profit in the contract price. This consideration may seem obvious, but it must be examined in more detail in times of higher risk. It goes without saying that there is no point in signing a contract that won’t make you money.
Consider including a special condition that gives the builder extension of time rights due to COVID-related delay. We have drafted example special conditions. Please give us a call to discuss and request a copy.
Actions to take
Familiarise yourself with your current contracts, paying particular attention to notification requirements (i.e time bars) around claims for extension of time.
Master Builders Victoria strongly recommends calling the Legal Department on (03) 9411 4555 to seek guidance as each situation will be different and require different actions.
What does this mean for your employees?
What happens to worker entitlements if an employer cannot usefully engage employees because of the Victorian Government’s mandated shutdown?
The Victorian Government’s mandated shutdown of construction sites in metropolitan Melbourne and restricted regional areas may amount to a stand-down for some members.
A stand-down may be implemented where the employee cannot be usefully employed due to a stoppage of work for which the employer cannot be reasonably held responsible.
A period of stand-down is without pay. Before standing employees down without pay, employers should consider whether the following circumstances exist:
- There is a stoppage of work;
- The stoppage means that the employees have no useful work to perform; and
- The employer cannot reasonably be held responsible for the stoppage.
Employers should also consider whether their Enterprise Agreement (EBA) or contract of employment prescribe any additional stand down requirements before standing down employees.
As stand-downs are often a drastic measure, we encourage our members to engage with their employees before implementing any stand-down. If possible, we recommend members consider if any alternative arrangements are possible. This may include agreeing with the employee to take paid leave (for instance, annual leave or banked RDOs). Better outcomes will be achieved through engagement with employees and arriving at mutually acceptable arrangements if possible.
A COVID-19 disaster payment is available to help workers unable to earn an income due to public health orders, click here for more information.
Members can access further information on stand-downs from the Fair Work Ombudsman website here, or from MBV's website here.
The MBV EIR team is also available to discuss individual circumstances with members on (03) 9411 4555.
What should you consider when closing your site?
The MBV team have produced an FAQ regarding site closures during the pandemic, you can access this here.
Some practical steps that may assist you include:
- You should conduct a risk assessment to understand what the potential risks are during the extended site closure (thinking about how it may impact the property, neighbours, trespassers, public, employees and contractors).
- Provide clear information on how long the site is going to be closed and who is responsible for the site during the closure.
- If the site needs to be accessed, ensure people can access it safely and free from obstructions.
- Document everything including information about who and when is accessing the site.
- You can consider implementing additional security measures such as CCTV, alarms, additional locks. etc.
- Check your insurance policies to ascertain whether they cover you during a shutdown period.
- Secure all materials that are on-site.
- Be aware of the weather conditions which may impact the site.
- Take steps to prevent trespassing, vandalism and theft. Consider removing ladders, hiding and removing tools and other equipment, secure all access points, including all hoardings and locks.
- Ensure all scaffolding is safe and secured. Keep in mind that weather conditions, such as high winds may expose you to risks.
- Ensure all excavators and other heavy machinery is secured and is not at risk of collapsing.
- Engage in fire risk assessment to ensure that the site and the surrounding buildings are not exposed to risks. Document everything, especially if you are taking actions to remove and isolate fuels, combustibles, and other sources of ignition.
- Implement a site closure procedure.
- Document everything!
For further assistance or advice on the above topics, members are encouraged to call our team on 03 9411 4555.