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Coronavirus and UK construction contracts: where does the risk lie?

This UPDATE follows our previous article on how commonly used UK construction contracts will allocate the time and cost risk of delays caused by coronavirus/COVID-19. 

In this article we focus only on issues of construction contract law for existing contracts. 

The article is written during the morning of Tuesday 24th March 2020 and referring to the latest government information accessible here.

The full guidance makes no specific reference to construction sites and so at the moment there appears to be no mandated closure. 

However, the government have been clear in their advice that everyone should observe social distancing – so staying 2m apart and avoiding being in groups of more than 2 people (unless the group comprises only people from your own household). 

Clearly much construction work takes place outside and there are workers who can maintain social distancing whilst working on site.  However, there are also many, many sites where this will be impractical without significantly reducing the number of people on site.  As was mentioned on Twitter last night, many labourers rely on lifts from colleagues, often travelling as a 3 or a 6 in a van to work – which would immediately breach social distancing guidelines.

There has been no legal ban on construction work and social duties are a matter of interpretation for those involved in each project.  From speaking to construction industry management staff around the country already this morning, we understand that some companies are keeping sites open, some are heading to site today simply to make safe and shut down. 

Maintaining site safety and security

One key point to remember is that if a site is being shut down, the Principal Contractor must take steps to ensure that, in compliance with the CDM Regulations 2015, the site is safe.  Site security must be maintained.  Where you are closing a site, it would seem prudent to operate with the minimum number of staff necessary to make the site safe until it is possible to stop entirely.

Urgent/emergency works

Urgent/emergency works are also something that must be considered carefully.  If properties develop defects (regardless of who may be at fault) that compromise the safety of building users, then we suggest that repair work would be classed as “essential” – e.g., dealing with water leak or structural issues.  However, again the government has issued no clear guidance on this and so the construction sector has no comfort of certainty.

Routine but vital maintenance and testing must also be considered, e.g., CP12 gas certificates.  We will be seeking guidance on this point and will share anything we are able to find. 

Employment law issues

In terms of staffing, the construction sector of course involves a wide variety of roles, carried out by employees and people with self-employed/worker status.  Employment law issues continue to be complex and evolving.  BPE Solicitors’ Employment Law specialists have written separately about this and continue to write frequent updates.

Who bears the cost of delay?

In terms of delay damages, extensions of time and loss and expense, businesses trying to calculate their assets and liabilities will need to understand where risk will lie. 

The key issue under JCT contracts is that not all Relevant Events are Relevant Matters.  Whilst delays caused by coronavirus (whether you close your site or strip your workforce back) may be “force majeure”, this gives the contractor time but not money – so no claim for prelims or site security costs.  If the government exercises a statutory power that slows the work, this would be a Relevant Matter as well as a Relevant Event.  So far, there has only been guidance – we are not aware of any new law

Under NEC4 (looking at the ECC), the guidance on the ‘force majeure’ clause at 60.1(19) suggests that a force majeure event is only a compensation event if it prevents the contractor from finishing on time.  If he could accelerate later then it will not be a compensation event.  It is therefore important to look at the Accepted Programme for guidance.  The Contractor must show that there is “no reasonable means by which he can complete the works on time”. 

Preventing delay

We feel it is worth repeating our previous article highlighting the wording in the larger JCT contracts (e.g., Intermediate, Standard and Design & Build) that states that the Contractor “shall constantly use his best endeavours to prevent delay in the progress of the Works”.  “Best endeavours” is an extremely onerous obligation.  In the latest circumstances, this may mean a contractual obligation to keep working, albeit arguably with fewer staff on site.  When rules around social distancing are relaxed, this obligation could amount to an obligation on the contractor to re-start as soon as possible and could go even further and technically mean that Contractors could be found to be required to accelerate at his own cost.

Concurrent delay

It is also important to acknowledge that many sites will have been in delay before coronavirus became a widespread issue in the UK.  The “usual” rules on concurrent delay will apply to coronavirus and so this public health event will not necessarily “save” a contractor already in delay. 

The difference between frustration and delay – terminating contracts

This leads into a reminder about the difference between frustration and delay.  Whilst it may be impossible for a contractor to complete the works on time, this is not the same as it being impossible for the contractor to complete the works at all.  At the time of writing, we simply do not know how long lock down will last or when things will be “back to normal”.  It is important to remember that, because most building contracts deal well with delay, a delay to the works is not grounds for termination, although prolonged suspension on the part of the Employer may be, under certain JCT contracts.

We appreciate that different parties may actually want to be able to terminate contracts (and contractors may be considering trying to terminate now with a view to avoiding site security overheads but then hoping to re-tender in due course so that the new price reflects the new working costs of completing the project).  These will be such fact-specific circumstances that general guidance is most appropriate but the BPE Solicitors Construction Team would be happy to answer questions by email or telephone. 

Communication is key

With daily government updates and an ever-changing social, economic and legal situation, whatever the form of construction contract (or professional appointment), and whatever the nature of your site or works, communication is key.  It is vital that all parties on projects have sensible and meaningful discussions as soon as possible and continue to communicate often and with clarity.  We would also remind contractors/sub-contractors to check the notification requirements of their contracts and, where prudent to do so, issue a formal notice of delay/risk notice to sit alongside more practical discussions. 

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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