New Zealand has fared as well as can be expected in the post-Covid environment.

The entire country (to all intents and purposes) rigidly adhered to the lock-down protocols imposed, (swiftly and decisively it must be said) by the Labour government. It appears we are now enjoying the fruit of those labours.

So, what has changed?

Well, a few things. First let’s look at the standard provisions of contract, notwithstanding Force Majeure provisions standard forms of contract generally provide for relief against the provision of Liquidated and Ascertained Damages, LADs, in the event of some unforeseen event. Some forms list examples of such events, riots. Floods, civil insurgence, unforeseen ground conditions, and the general catch-all, circumstance that could not reasonably be foreseen by a contractor at the time of tendering.

What does that mean in reality? Looking at Christchurch, we’ve had over a dozen earthquake in excess of 5 on the Richter scale since the major quakes of 2010 and 2011. Is that now an unforeseeable event? As a client I’d be saying ‘no’. Insurance should now be covering those type of events as a matter of principle. But digging a bit deeper, it’s actually not that simple. Earthquake impacts on building depend on several parameters. One is the depth, two is the amplitude (think Sine wave), three is the direction it come from and four is the duration.  Building are typically (Sydney Opera house aside) rectilinear. How the building is braced, where the lift cores are, how it is structurally formed, are all variables, consequent upon location/position and purpose.

So now ask yourself the question that will raise its head between a contractor seeking cover and the insurer.

“Ok Mr. Contractor, I understand you’d like to take out earthquake insurance as part of your contract works cover.”

“That is spot on Mr. Insurer.”

“How much cover do you want?”

“I don’t really know.”

“You don’t know?”


“Well, have a guess.”

“Five million dollars.”

“OK, what’s the value of the contract.”

“Five million.”

“You want cover for total destruction of the project, presumably on the day you complete.”

“Um, I think so.”

“We can do that, but it’ll cost you.”

“I’ll add it to the tender price.”

“Yes, but then you might not win it. Not really good for either of us.”

“Yeah, that’s true. What do you think?”

“I’ve no idea. It’s your call. We’ll adjust the premium accordingly but don’t want to undercook it though or we’ll conclude you’re underinsured and you’ll get only the indemnity value.”

“What’s indemnity value?”

“Bugger all.”

You get the gist. It’s not easy. It’s a slightly fallacious presumption because fire insurance presumes exactly that, total destruction, but there is a standard expectation that most new code-compliant buildings or partially constructed works, will withstand a reasonable earthquake without total destruction.

This is slightly off topic as the main point is, it is not unforeseeable.

And now we’ve had a pandemic.

That too is no longer unforeseeable (if it ever thus was) there have been plenty in the past and the problem with contracts is, whilst they envisage and state the events that ought to be covered and those which may reasonably be classified as force majeure, they patently fail to assess the consequences of tose  events.

Who could have foreseen a four week lockdown being the consequence of a pandemic? What insurance cover could possibly have catered for the natural ramifications of that which included a change in law.

Insurers have no greater crystal-ball gazing ability than the rest of us and talk of future contracts attempting to cater for similar events is short sighted.

All that said, how are we faring? Well, that depends on where you are but in NZ the government has implemented some key measures that undoubtedly have helped to sustain the construction and property industry here.

The wage subsidy obviously helps. The Reserve Bank mandated low interest rates (2.5% ish is not uncommon) has had a huge impact on the housing market.

Returning Kiwis (safe haven) are buoying house sales, the loss of jobs sadly buoys the investment property market and quantitative easing, oils the wheels of loss of tax revenue.

In typical Keynsian economics’ fashion, the government is seeking to spend its way around any possible recession, it being too early to tell if that will work but it does generate jobs and stimulate the economy.

Despite the government advice that LVRs will be lowered, that is not a reality that has materialised and frankly if it wasn’t for private equity and finance, property development would be a dinosaur. Stress testing loan applications at around 300% of the actual lending rate is ludicrous and banks have become as risk averse an F1 driver racing blind!

As part of the property investment and development fraternity (or sorority) here, it is clear we’ve come out of Covid relatively unscathed. Hospitality and tourism not so much and there is no doubt, those early, decisive measures, have helped.

How we fare in the future, well that remains to be seen. Who knows. . .   it’s a bit like trying to insure for an earthquake!

By Joe Colgan

Joe is a property developer currently active in the Auckland and Christchurch markets with extensive experience in townhouse and apartment developments.

He has a background in project management having worked on large scale developments in Abu Dhabi and Dubai (>$6Bn) coupled with heavy civil engineering experience on infrastructure, road and railway work in NZ, the UK and Saudi Arabia.  

He is a member of the Institution of Civil Engineers, a project management professional (PMP) and a post graduate diploma in engineering management.

He further has a post graduate diploma in construction law and contract and has significant ‘claims’ experience, providing legal training on contract law, the NEC form of contract and undertaken expert witness work on construction disputes and tenancy disputes.

Despite the disappointment he has heartily congratulated colleagues on Liverpool’s capture of the Premiership which is no mean feat for a Manchester United supporter.