The Government’s lockdown announcement on 23 March 2020 was not a requirement for all constructions sites to cease operations. Some sites closed, others did not and now we have some sites opening, others not. The position under the building contract may not be straight forward. The impact of Covid-19 is likely to be felt no matter what your project is doing.
Time and money
Keys issues for Employers, Contractors and Subcontractors will be delays caused by shortages in goods, materials, and labour. Taking the JCT forms of contract there appears two key ’Relevant Events’:
- The exercise by the Government of a statutory power – requires the exercise of a statutory power directly affecting the works. The Site Operating Procedures are guidelines and not statutory requirements allowing works to continue.
- Force Majeure – there is no settled definition under English law and the unamended JCT contracts do not define it or give examples. Your contract may have been amended. It is generally accepted that Force Majeure covers circumstances which are not within the party’s control. In terms of loss and expense, in the unamended JCT contracts Force Majeure is not a ‘Relevant Matter’ and the contractor takes the risk of loss and expense due to the impact of Covid-19.
Under the NEC forms of contract, the position is that a contractor may be entitled to both an extension of time and compensation if an event occurs which stops the works, provided notices and timelines are adhered to.
Suspension of the works?
The current position in England is that construction can continue provided it can be carried out in accordance with the Site Operating Procedures guidance published by the Construction Leadership Council – version 3 at the moment.
We have a number of Contractors that, with agreement, suspended works as a result of Covid-19. However, things have moved on since 23 March with revised and updated Site Operating Procedures and suppliers slowly bringing back manufacture.
The unamended JCT forms of contract have a mutual terminated provision allowing either party on notice to terminate the Contract where suspension has been continuous for a period of two months. We are fast approaching that period if the works were suspended on 23 March 2020.
So can the works be carried out following the Site Operating Procedures guidance and thus arguably the works should not remain suspended, or not, with a continued suspension of the works potentially being a repudiatory breach of contract?
Alternatively, can the parties agree a continued suspending of the works, a reduced output and productivity, for a considered approach to dealing with an extension of time?
Future contracts and risk allocation
Contracts that are currently being negotiated or not quite settled require the parties to address the issues of Covid-19 and allocate risks. In contracts under negotiation, both Employers and Contractors must address the issue directly and allocate the risk between them. Typically, we are seeing the parties agreeing a risk share with the Employer assuming the time risk, and the Contractor assuming the cost risk. We are also seeing requests for amendments to ‘Relevant Event’ to accommodate a Covid-19 specific event, albeit few are considering what exactly a Covid-19 event covers (does it cover a mutation for instance?– ‘Covid-19.1’ – or a second or third wave); does it cover all and every possible impact; or is it restricted to say labour only?
If not addressed the arguably foreseeable Covid-19 event is unlikely to be an event of Force Majeure with the Contractor required to avoid or mitigate the consequences of that event.
With current contracts there will be a need to now consider getting back to site, certainly with reference to an unamended JCT form of contract and the risk of termination of contract. A decision needs to be made to tidy up and agree any extension of time and loss of initial productivity or agree an approach to dealing with any extension of time and termination. As always this needs to put into writing.
Those contracts in the near and immediate future will need consideration of the known Covid-19 pandemic and allocation of associated risks.
For further information on JCT and future contracts contact Guy Thomas on guy.thomas@dtmlegal.com
