On the 11th of March 2020, COVID-19 was declared a Pandemic by the World Health Organisation (WHO). Alarming levels of spread, severity and inaction were among the reasons cited for the change in characterisation.*
In the past two weeks the number of cases outside China have increased 13-fold and the number of affected countries tripled. While the Australian outbreak is still relatively small in numbers, with 127 cases spread over 6 states**, this is predicted to worsen.
This document, from FIA Insurance Partner, Coverforce, lists key risk factors, potential financial impacts with a focus on insurance, to businesses within the Construction sector that may occur as a result of the COVID-19 outbreak.
Considering the risks ahead of time is important. A well-planned understanding of the risk, and response can help protect the future of your business by reducing the impact on your projects, your reputation and those you employ.
Key Risk Factors
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Additional Office Risk – Own Staff
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Salaried / Full time Staff absenteeism due to quarantine periods, post infection Salaried / Full time Staff absenteeism due to fear of infection
Salaried / Full time Staff absenteeism due to complete office shut down
Wages paid / non-productivity of office staff, resulting in construction project delays
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Project Site Risk – Own Staff
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Salaried / Full time Staff absenteeism due to quarantine periods, post infection Salaried / Full time Staff absenteeism due to fear of infection
Salaried / Full time Staff absenteeism due to complete site shut down
Wages paid / non-productivity of site staff, resulting in construction project delays
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Project Site Risk – Sub-Contractors
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Sub-Contractor absenteeism due to quarantine periods, post infection Sub-Contractor absenteeism due to fear of infection
Sub-Contractor absenteeism due to complete site shut down
Non-productivity of Sub-Contractors, resulting in construction project delays
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Consultants / Professionals
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Consultants / Professionals absenteeism due to quarantine periods, post infection
Consultants / Professionals absenteeism due to fear of infection Consultants / Professionals absenteeism due to complete office shut down
Non-productivity of Consultants / Professionals, resulting in construction project delays
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Extension of Time Requests (Delay)
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Unclear or Ambiguous definitions of ‘delay’ in head contracts.
If an EOT is granted, does this cover costs?
If an EOT is granted but costs are not approved, this may have a material impact on cashflow and profitability.
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Supply Chain
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Imported Products. Delay in obtaining or receiving directly imported products
Local Products. Delay in obtaining products from local suppliers, where products are obtained from overseas
Local Products. Delay in obtaining products from local suppliers due to an increase in demand for locally manufactured product
Inability to acquire product, resulting in construction project delays
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Workplace Health & Safety
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Potential Liability to Directors & Officers for inadequate preparation and response
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Financial Impacts
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Contract Works
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Additional costs of insurance If Project Specific policies are in force, where extensions of cover are required
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Public Liability
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Additional costs of insurance If Project Specific policies are in force, where extensions of cover are required
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Project Funding / Financing
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Additional interest and holding costs as a result of extended construction periods
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Surety Bonds
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Additional interest and charges as a result of extended construction periods, and therefor extension of bonds
NOTE: If cashflow deteriorates and companies are unable to meet their debts as they fall due then Directors may be left with no option but to appoint a VA. Surety Bonds will be called and the Surety providers will seek recourse.
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Bank Guarantees
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Additional interest and charges as a result of extended construction periods.
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Extensions of Time (Delay)
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If EOT is granted and a company has the financial means to get through this period, irrespective the available cash will diminish, profitability reduced, or the project will be loss making and therefor the balance sheet will likely take a hit. This will have an impact on the availability of Surety or Bank Guarantee facilities, and a high chance that facility limits may be reduced exasperating a company’s ability to win new work to get through the loss making or low profitability period.
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Liquidated Damages & Contractual Penalties
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Liquidated Damages and Contractual Penalties as a result of extended construction periods.
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Insurance Impacts
Construction Specific Products
- Project Delays / Liquidated Damages / Contractual Penalties are generally not Insured
- Contract Works and Liability Insurers are unlikely to offer policy extensions on single project policies free of charge
- Surety / Bond providers will not offer policy extensions on single project policies free of charge (refer above)
Business Interruption
Many businesses, particularly those who deal with China or rely on Chinese suppliers, are asking whether they will be able to claim for business interruption and revenue losses as a result of the COVID-19 crisis and its associated disruptions to travel, import and export activities.
We can confirm Business Interruption coverage under Property Insurance, where Gross Profit cover is selected does not respond to COVID-19 claims. COVID-19 was listed under the Biosecurity Act 2015 on 24th January 2020, triggering an industry wide exclusion.
Also, on a general note, human infection with COVID-19 will not, of itself, constitute as 'physical damage' which is the triggering requirement for cover under traditional business interruption policies.
Corporate Travel Insurance
A typical Corporate Travel Insurance policy will provide cover for cancellation costs where the travel destination has reached DFAT Advice of Level 4 - Do Not Travel and was not at this level at the time of booking. You can check the current DFAT Advice levels on www.smarttraveller.com.au the Department of Foreign Affairs and Trades website.
Fear of travel is not a covered event under a Travel insurance policy. This includes travel to areas that have known cases of COVID-19 but have not yet reached DFAT Advice Level 4.
The coverage provided on each policy and the position taken by different insurers can vary. If you have concerns it’s a good idea to contact your insurance broker or insurer directly.
Workers Compensation
According to the State Insurance Regulatory Authority (SIRA), COVID-19 infection is covered under Section 4 of the Workers Compensation Act 1987 as a disease injury***, under certain circumstances.
A claim would be successful where the virus is contracted during the course of employment and the employment is found to be the main contributing factor in contracting the disease.
Proof that employment is the main contributing factor is likely to be difficult to determine and each claim would need to be considered on its individual merits and evidence.
Employers are advised to take all appropriate preventative measures to eliminate the risk of employees contracting Coronavirus in the workplace. as with any other workplace health and safety risk.
Where employees are potentially exposed to the virus as part of their employment, employers should provide guidance and assistance to the employee to make a claim for workers’ compensation.
Should you have further enquiries about Workers Compensation or the management of your businesses WHS risk in respect to the Coronavirus, please contact our Coverforce Workplace Services team directly on 02 9098 5500.
Addressing the threat of COVID-19 in Head Contracts
Head Contractors can attend to further define the definition of the Force Majeure clause for future projects to specifically address the threat of COVID-19.
While this amendment will not assist projects already under contract unless agreed by amendment, we would recommend the following is considered in future contracts.
Option 1: Add the following under the Force Majeure clause: -
- any occurrence of any prescribed human infectious or human contagious diseases under the Biosecurity (Consequential Amendments and Transitional Provisions) Act 2015 (Cth)
- any occurrence of any local or international epidemic, pandemic or quarantinable event
- COVID-19 (Coronavirus)
Option 2: Add the following (simplistic version) under the Force Majeure clause:
- any occurrence of any local or international epidemic, pandemic or infectious disease, including COVID-19 (Coronavirus).
Workplace Safety Risk Management Tips
Safework Australia advises an appropriate range of actions by employers could include:
- Regular review of official Government sources for current information and advice
- Updating and promoting your organisations policies and measures for infection control
- Providing clear advice to workers about actions they should take if they become unwell or think they may have the symptoms of coronavirus, in accordance with advice from the Australian Government Department of Health
- Eliminating or minimising international work travel where advised on the Australian Government’s Smart Traveller website
- Providing regular updates to workers around the situation and any changes to organisational policies or procedures
- Providing workers with information and links to relevant services should they require support
Workers also have a duty to take reasonable care for their own health and safety and to not adversely affect the health and safety of others. Workers should be reminded to always practice good hygiene and other measures to protect themselves and other against infection. This includes:
- Washing their hands often, with soap and water
- Carrying hand sanitiser and using it when necessary
- Covering their mouth when coughing or sneezing, but not using their hands to do so
- Seeing a health care professional if they start to feel unwell
- If unwell, avoiding contact with others (including shaking hands or other touching, such as hugging).
Resources for Employers
Further Information
About your insurance
If you are an FIA Member and looking for further information in relation to your insurances, please get in touch by contacting Julie Gidaro on (02) 9376 7895.
About COVID-19
For the latest updates or enquiries in relation to the COVID-19 outbreak you can contact the National Coronavirus Health Information Line on 1800 020 080. Calls can be made 24 hours a day, seven days a week. If you require translating or interpreting services, call 131 450.
References
* https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19---11-march-2020
** https://www.worldometers.info/coronavirus/#countries
*** https://www.sira.nsw.gov.au/news/bulletins/workers-compensation-bulletin-issue-88-march-2020
The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Coverforce directly.
This information has been published as at 12 March 2020 and may change over time as new information is made available
