Alex Walmsley, solicitor in Harrison Drury’s property and construction litigation team offers guidance for contractors and sub-contractors during a period of uncertainty for the construction sector as the government looks to restart the economy.
Last updated May 13, 2020
Shortly after the lockdown was announced by the government due to the coronavirus pandemic, we posted a blog on the potential effects the shutdown may have on the construction industry. We also highlighted concerns over the validity of existing contracts as well as how construction businesses could protect their commercial positioning during the crisis.
Since the duration of the lockdown, it has transpired that a total shutdown of the construction industry did not occur. The government did not expressly order the construction industry to down tools and many construction sites remained open. The only requirement was that these open sites complied with the Site Operating Procedures published by the Construction Leadership Council. Nevertheless, some construction firms did take the decision to close sites for an indefinite period.
This remained the status quo until Boris Johnson’s speech on Sunday May 10, in which he singled out the construction industry and ‘actively encouraged’ firms in this sector to go back to work, as part of the first steps to get the economy going again.
The government’s announcement will be welcomed by all the construction firms already back up and running, as many have seen their supply chains dwindling, making it increasingly challenging to comply with contractual obligations.
The way forward is clearer now, at least for construction firms, but the revised instructions from the government now pose a different set of questions and practical issues for the industry.
Below is a revised summary of these issues for consideration:
What does ‘going back to work’ mean for the construction industry?
Despite the opening-up of sites, the lockdown will continue to have a significant impact on the construction industry. In particular, there will be delays and problems in managing supply chains with contractors that are still in lockdown.
Issues with supply chains and utility providers will improve over time, but there will still be delays due to a backlog of orders and slower progress onsite due to social distancing requirements. Therefore, even if sites are open for business, there will be continual delays and challenges to meet expected and contracted completion dates on the vast majority of construction projects.
One welcome relief is that the reopening of sites should remove any risk of termination or frustration of contracts due to COVID-19. Provisions for mutual termination do exists within the Joint Contracts Tribunal (JCT) suite of contracts, which entitles parties to terminate the works, or substantially the whole of works, if they are suspended for a continuous period of two months, due to a force majeure event.
Given the lockdown for the construction industry has ended after just over seven weeks, this should eliminate the risk of parties ability to terminate on the above basis. Likewise, contractors will likely no longer be able to remain offsite relying on COVID19 as a force majeure event. It is likely that from Wednesday May 13, 2020, contractors who have suspended work will now be in default and will be at risk on delay damages or liquidated damages.
Important considerations moving forward
Most construction projects will have been delayed to some extent, even if the site has remained open throughout the lockdown. It is important to consider the effect of a delay on the project and whether the delay will require a contractor to apply for an extension of time and claim for the costs. This would largely turn on the reason of the delay being a Relevant Event or Compensation Event, dependent on whether the contract is a JCT or Notification of Extenuating Circumstances (NEC) form.
It is widely agreed that COVID-19 would qualify as a force majeure Relevant Event under a JCT and Prevention under NEC, however the proper notification procedures will need to have been followed in order to rely on these mechanisms for extensions of time and costs. It will be imperative that parties can show that COVID-19 caused the delay to rely on such a clause and therefore parties should keep a record of all delays and the reasons.
It is important to note that in JCT contracts, whilst one can claim for delay citing a force majeure Relevant Event, there is no provision for claiming for the additional costs of such delay under the Relevant Matters. These will need to be dealt with as variations and agreed with employers.
Parties will need to demonstrate that they have taken reasonable steps to mitigate the effects of any particular issue, or they may be barred from making any claim, for example, for additional time or for price increases.
It is imperative that any contractor looking to evidence a delay or rise in costs, documents this thoroughly to evidence these losses when making a claim for a variation or extension of time.
Things to document include time sheets, staff sick leave and any supply chain delays. It is also essential that parties keep each other up to date by submitting revised programmes and details of further costs, thus identifying risks at an early stage so parties can resolve these and reduce the potential for disputes down the line.
Considerations for future contracts
Any parties in the process of negotiating construction contracts for future projects should seek legal advice to avoid any issues arising in the future, and should note that they may not be able to rely on certain protections that are currently available to those who entered into contracts prior to the outbreak of COVID-19. Parties entering into new contracts now, are doing so with the knowledge of the risks of the pandemic and so these risks may be deemed as ‘foreseeable’ for the purposes of relying on force majeure and frustration.
Parties should ensure that future contracts have clear provisions for amendments so that there are no issues further down the line should a variation be required. The same applies to specification of materials. This should be drafted as widely as possible to allow for substitutions should they be necessary. It may be prudent for parties to agree an additional Compensation Event or Relevant Event specifically referencing COVID-19 to avoid issues in the event of a further lockdown that may be the result of a second or third peak in COVID-19 outbreaks in the future.
It is now more essential than ever before that parties looking to enter into construction contracts seek legal advice from the outset, in order to minimise the risk to all parties. Likewise, if parties are not familiar with the correct procedures to follow in order to minimise liability for delay and additional costs to a project, they should seek advice to ensure the correct contractual mechanisms have been followed.
The emerging landscape for construction companies and workers
The government is releasing daily updates regarding coronavirus and its guidance to protect people and support businesses in the UK, therefore its current directives may change.
If you require further information or assistance in preparing employees to return to construction sites, or to discuss any potential issues you may have with regards to your existing construction contracts or to prepare new contracts, please contact Harrison Drury’s property and construction litigation team on 01772 258321.