Coronavirus and its impact on the construction sector

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.

Last updated March 25, 2020

Coronavirus COVID-19 is already having a significant impact on the construction sector in a number of ways, particularly causing delays to projects, disruption on site and issues with supply chains.

With an announcement expected soon from the government, for the cessation of all non-essential construction work with immediate effect, the construction sector may, in many respects, come to a standstill.

A number of contractors have already taken the decision to close sites across the UK in order to ensure the safety of employees on site and to remain in line with the government’s recent guidance on social distancing.

An order for all non-essential construction to cease will of course throw up even more issues for contractors.

Naturally, this disruption will be followed by some cost that will be incurred as a result of this delay and disruption and costs will inevitably be borne by one party within the contractual chain which is commonplace on complex construction projects, be that the main contractor or sub-contractors.

This can come in the form of liquidated damages claims or more general damages claims for delay and disruption to a project.

In addition, there stands to be significant issues for developers should contractors become insolvent before they have discharged liabilities to sub-contractors further down the chain, it could be that these costs then fall with the developer.

Important considerations for contractual parties

It is essential that parties with exposure to such potential liability take all necessary steps to protect themselves. Likewise, parties who suffer loss as a result of this disruption should take steps to protect their ability to recover losses incurred or to make a claim to recover the time to complete contractual works.

Here is a number of considerations and recommendations to follow:

• Check whether your contract provides express relief if any local, regional or central government exercises statutory powers which directly affects the execution of works, as COVID-19 may be applicable, depending on the terms of the contract.
• Do not assume that a ‘force majeure’ provision will afford the ability to claim for additional time or increases to a contract sum. As yet, there is no authority that can be relied upon to say that coronavirus is an event which falls under force majeure. It is inevitable that this will be determined by a court in due course.
• Contractors should maintain detailed records about their workforce and why they are unable to work (i.e. self-isolation, infected and suffering from the virus, or in lock-down due to imposed restrictions) and similar records should be kept by sub-contractors. Likewise, contractors should be advised to insert appropriate obligations into their sub-contracts requiring this information to be provided in order to support up-stream claims.
• Ensure that, in the event that one party is temporarily shutting down for a period, that the correct notices have been served in accordance with the individual contract requirements and the correct insurance is in place for the period off site, it is also important to ensure that the site is secured as the liability will remain for whomever holds that responsibility.
• Take proactive steps to ascertain if critical materials or supplies for incorporation in the works are being or are likely to be delayed and maintain an audit trail to prove all possible steps are being taken to mitigate such delays.
• Check whether your insurers have any relevant policy guidance requirements.

The Coronavirus Jobs Retention Scheme (CJRS)

In the event that the government enforces the closure of all non-essential construction works it will be important to ensure that the correct measures are taken by contractors quickly, in order ensure to remain liquid.

The government has provided assistance to employers who, through no fault of their own, have found themselves with staff that have become surplus to requirements as a result of the coronavirus outbreak.

The Coronavirus Jobs Retention Scheme (CJRS) was announced by the government on Friday March 20, 2020. CJRS is a government scheme whereby employers, who have been forced to lay off workers as a result of the coronavirus, will be able to ‘furlough’ workers during the affected period.

HMRC will reimburse employers 80 per cent of the wage costs of a furloughed worker, up to £2,500 per month.

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 with furloughing employees, or to discuss any potential issues you may with regards to your existing construction contracts, please contact Alex Walmsley on 01772 429 210.