To assist local government authorities in responding to COVID-19 the State Government recently amended the Local Government Regulations (Local Government (Administration) Amendment Regulations 2020 and the Local Government Regulations Amendment Regulations 2020). The Regulations have been amended as follows:
- Allowing electronic attendance at Council meetings during a public health emergency or state of emergency;
- Removing the requirement to give the local public notice of a change of use of money in a reserve account during a state of emergency where the change is considered required to address the state of emergency and the decision is recorded in minutes of the meeting; refinancing a loan where the refinancing is not a major variation; and borrowing moneys during a state of emergency where moneys are considered required to address the state of emergency and the decision is recorded in minutes of the meeting;
- Increasing the threshold value of contracts required to be advertised for public tender from $150,000 to $250,000; and
- Providing that public tenders are not required where the supply of goods or services is associated with a state of emergency (being contracts entered into during a state of emergency that the local government authority considers are required to respond to the state of emergency).
We consider these amendments will assist local government authorities in procuring services expeditiously during the pandemic, and could also be used to assist local government authorities to expedite projects to stimulate the local economy. As a result of the changes, local government authorities may wish to consider seeking advice on any proposed contracts they do not intend to publicly tender under the amended Regulations.
On 15 April 2020, the State Government also announced its intention to introduce a Bill to Parliament to amend the Local Government Act 1995 (WA) to 'support local governments as they respond to the COVID-19 outbreak'. We will analyse the proposed changes in our next update.
Legal trends in tendering and contracting as a result of COVID-19
We have noticed an increase in the number of contractual claims and notices being issued by parties seeking relief from the impacts of COVID-19, particularly in the context of supply chain and workforce disruptions.
While the impact of COVID-19 on existing contracts and tenders should be reviewed on a case-by-case basis, the following provisions require careful consideration:
Extension of Time
Construction contracts almost always include an obligation for works to be completed by a fixed date. Most construction contracts permit the Contractor to submit an Extension of Time Claim (EOT Claim) for a certain causes of delay prescribed in the contract. Usually, the Contractor must comply with a prescribed process before an extension will be granted and any extension may be reduced where a Contractor has been delayed by another event. We recommend local government authorities undertake the following review of existing, high-value contracts:
- Review the EOT provisions;
- Form a view as to whether the qualifying causes of delay contemplate COVID-19-related delays; and
- Ensure any and all EOT claims are assessed strictly in accordance with the contract (including, for example, any time-bars).
In respect of contracts not yet executed, we recommend local government authorities (acting as Principals) ensure contracts include narrow qualifying causes of delay which contemplate Federal and State government initiated shutdowns. For example, an EOT clause could provide for:
'Any action taken by the State or Federal Government in accordance with its legislative powers in connection with a declared ‘State of Emergency’ which has a direct impact on the Works or the Site which the Contractor could not reasonably have foreseen as at the date of this Contract exercising good industry practice.'
Local government authorities may wish to consider seeking legal advice in respect of these issues, particularly in respect of:
- Existing high-value contracts (either where the contract sum is for a high value or the works are significant to the local community, for example, waste collection);
- Existing contracts where the Contractor was delayed prior to COVID-19; and
- Ongoing high-value tenders.
Suspending or terminating for Force Majeure
A Force Majeure clause typically sets out the contracting parties' respective rights, obligations and reliefs upon the occurrence of a specified event that prevents performance of the contract. In respect of COVID-19, it will be necessary to determine:
- Whether or not COVID-19 falls within the definition of a Force Majeure event under the contract;
- Whether COVID-19 has, in fact, prevented the performance of the contract;
- Whether the party seeking to rely on the clause has fulfilled its mitigation, reporting and notice obligations in accordance with the requirements of the contract; and
- The consequences of the Force Majeure event (for example, is the contract suspended wholly or only in respect of the impacted obligations?).
In the current situation, we recommend local government authorities review the terms of existing contracts to confirm whether there is a Force Majeure clause and, if there is, if it would apply to COVID-19.
Suspending or terminating for Frustration
In addition to Force Majeure, a contractor may be able to rely on the doctrine of frustration to argue that a contract has been discharged due to COVID-19.
A contract can be discharged by frustration when, without default by either party, some supervening and unforeseen event fundamentally changes the nature of the outstanding contractual rights and obligations from what the contracting parties could reasonably have contemplated at the time the contract was entered into.
At this stage, we are of the view that it would be difficult for a Contractor to establish that COVID-19 has frustrated a contract – unless, for example, the contract is wholly dependent on goods or labour that are no longer available due to Government restrictions. However, this view may change over time. We will continue to provide insights and updates digitally.
Suspending or terminating for convenience
Finally, local government authorities should be aware of the circumstances, and consequences, of termination for convenience. Termination for convenience clauses are commonly included in construction contracts and permit the parties to terminate at any time and for any reason.
To ensure local government authorities' contractual rights are protected, each contract should be considered on a case-by-case when reviewing any claims by Contractors. For this reason, we recommend local government authorities undertake a review of their existing contracts now.