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News and Opinion from Edward Harte LLP

Covid-19 and construction contracts

As the Covid-19 pandemic continues to spread around the globe many businesses are feeling the effects and consequences of the Government’s lockdown. Whilst many construction sites are still open there are various factors that will put increasing pressure on construction operations that need to be taken into account. Some of these factors include: –

  1. Management and labour self-isolating or quarantined and being unable to work;
  2. Minimising the risk to personnel continuing to work including PPE, social distancing and health and safety and how best to manage the impact on site;
  3. Problems with the supply chain including lack of plant and materials;
  4. Delay and disruption if a site is shut down and the economic effect on the business.

It is therefore inevitable that even where construction sites are still open, there will be significant impact on all level of operations. The question will be raised- who is responsible for the delay and loss and expense that will affect all parties to a construction contract.

What does the contract say?

The express wording of the contract will determine where the liability lies for delays and disruption to progress on site.

There is no prescribed principle of force majeure and so reliance on a force majeure event will be entirely dependant on whether the contract makes provision for it. The purpose of a force majeure clause is to let the non-performing party “off the hook” from any adverse effects. However, this will be limited to the express wording of the contract.

In many of the standard forms of contract including JCT, FIDIC and NEC there will/may be standard wording for force majeure and these will need to be carefully reviewed to ascertain whether an epidemic, pandemic and subsequent lockdown by the Government are within the ambit of the clause.

Whether or not there is an applicable force majeure clause within the contract there may be other contractual provisions that will apply. Things to consider are: –

  1. Has the Employer/Contractor given an instruction to shut down the site? If so, this could constitute an act of prevention and an application for an extension of time and possibly loss and expense will need to be made.
  • Has the Employer given notice to postpone all or part of the works? Again, if such a provision is relied upon there could be a claim for an extension of time and loss and expense.
  • Health and Safety of employees may also be a consideration where contractors or subcontractors are expected to work in a potentially dangerous situation.
  • If there is no contractual programme then contractual obligations must be performed in a reasonable time. What constitutes a reasonable time will turn on the facts- how the Covid-19 crisis has impacted completion of those obligations and steps taken by the contractor/subcontractor to reduce any delay.

A party seeking to claim an extension of time or loss and expense will still be required to follow the contract in order to make a valid claim.

What steps should be taken?

If performance under the contract is adversely affected then it is vital that steps are taken immediately to protect your position.

  1. Review the contract and any amendments- the first step is to check the contract and review any amendments to the standard wording. It is likely that there will be notice requirements in any standard form of contract. Make sure that notice is given for any anticipated delay. Also ensure that notice is served as required by the contract.
  • Mitigation- if you are unable to continue on site due to lack of supplies it is your obligation to seek an alternative supplier in order to continue. If you have exhausted all avenues and no alternatives can be found then you can evidence the steps that have been taken to mitigate loss. If obligations can be performed even on a partial basis then, subject to Government advice and Health and Safety it is best to continue where possible.
  • Protection of works- if you are instructed to cease work on site consideration should be given to ensure that works are protected (where required) and water tight to avoid claims down the line.
  • Payment- if possible, carry out a site review and submit an application for payment on the next due date. Cash flow will be vital. It will also provide a clear picture of the point where works ceased, the cost of the work completed at that date and the work left to do.
  • Extension of Time & Loss and Expense- keep adequate records, detailed programming and separate costs that are incurred exclusively for the delay caused by Covid-19 from other general costs. Comply with any notice requirements and keep on top of the Government advice.
  • Insurance- advise your insurer as the situation develops.

What if the contract is silent on force majeure?

If the contract does not contain a force majeure clause or other provision that may apply to the current circumstances and you are unable to perform your obligations under the contract you may be in breach of the contract, which could put you at risk of a claim for damages and termination.

Therefore, the most important step to take is read your contract and ascertain your position prior to making any further decisions.

For assistance and advice please contact our construction law team. Please email ciacovou@edward-harte.co.uk