We have already explained here how the coronavirus (also known as Covid-19) might affect contractual obligations and how a party might rely on a force majeure clause but what about the construction industry specifically?
There is likely to be significant disruption and delay to construction projects due to the Covid-19 outbreak, which will be exacerbated if the Government imposes any form of lockdown preventing workers from attending on site. Parties to construction contracts need to know who will be liable for project delays (and any liquidated damages) and whether they can rely on other clauses such as force majeure, extension of time and loss and expense.
This article focuses on the commonly-used 2016 JCT Design and Build contract (JCT). Employers, contractors and sub-contractors should act quickly to protect their position and consider the following practical points:
- What does the contract say? If you are a contractor you may be entitled to an extension of time (and avoid having to pay liquidated damages) if you can establish a “Relevant Event”. Relevant Events which are likely to be relevant to the Covid-19 outbreak are: (i) the exercise of a statutory power by the government which “directly affects the execution of the Works” (such as imposing a lockdown) and/or (ii) force majeure. Under the JCT it is unlikely a contractor will be able to claim for loss and expense arising out of Covid-19 as neither of the Relevant Events are considered “Relevant Matters” for this purpose.
- Has the correct notice been given? Under the JCT a contractor seeking an extension of time must give notice in accordance with the contractual provisions once it becomes aware of an event which is likely to delay the construction works. In either or both of the Relevant Events referred to above a contractor must show the Relevant Event caused the delay in question.
- What is being done to mitigate the delay? Under the JCT a contractor must always use “their best endeavours to prevent delay”. Failure to do so may mean an extension of time is not granted.
- What is the state of your records? In any dispute a party that is well prepared will always have a strategic advantage, particularly if its records (relevant documents and evidence) are up-to-date and in good order. What is the delay? What is the cause of the delay? What have you done to mitigate it? If your workers cannot attend site, why?
- The nuclear option: termination? Under the (unamended) JCT if the works are suspended for two months due to the Relevant Events referred to above, the contractor may choose to terminate the contract. This option should not be exercised without taking legal advice on the potentially serious consequences of doing so.
- Employers beware: the strict payment obligations – in particular the requirement for payment and payless notices – on parties to construction contracts have not changed because of Covid-19. However, if contract administrators and other professionals are working remotely or unable to work at all then necessarily it may become more difficult to meet these obligations. This could, in turn, result in a spike in “smash and grab” adjudications by contractors looking for a quick (and easy) injection of cash.
If you have any queries relating to how Covid-19 will affect your business then please contact our construction team on firstname.lastname@example.org or 01753 279057 and we will be happy to help.