Best practice in construction contracts in a time of COVID-19 – reflections on the CLC Guidance
Anna Wood, Construction and Engineering Partner, shares her observations on how construction companies can resolve contractual disputes themselves… perhaps with a little expert help.
Towards the end of last week, as many were thinking about the VE Day Bank Holiday weekend, or looking ahead to what was then an anticipated announcement from No10 on Sunday 10 May 2020, the Construction Leadership Council (“CLC”) issued a useful guidance document to help construction companies avoid or resolve disputes arising out of COVID-19.
The 19-page best-practice guide included a number of “template” letters that employers and contractors (including Tier 2 and beyond) could use to start conversations about extension of time/loss and expense, or compensation events.
With a positive and hopeful hat on, I share the CLC’s hope and wish that parties will behave in a fair and reasonable manner, with Contract Administrators, Contractors and Employers coming together to allocate the contractual consequences of COVID-19 in a way that is sensible and sustainable. However, experience tells me that in the world of construction disputes, hope and positivity need to be tempered by a degree of cynicism. Each contracting party has its own interests to look after: its own staff, its own funders and its own shareholders. Whilst perhaps no-one wants to be seen to unreasonably take advantage of COVID-19, directors and managers still primarily owe their duties to their own company.
The CLC’s document sets out a number of topics that parties should meet to discuss (either virtually or 2m apart in the site car park, one assumes). This list broadly reflects what my clients have been discussing with me and with their contracting parties for weeks now, but it is useful to see it in one place as a checklist.
Like most pieces written to offer contractual guidance to construction companies during this pandemic, the CLC document restricts itself to talking about the unamended forms of standard contracts, whilst acknowledging that many projects are subject to bespoke contract amendments. As our clients have found – those amendments often contain small sub-clauses that can significantly shift the balance of risk, one way or the other.
My experience is that clients wanting to make sensible use of funds available for legal fees, will take early legal advice on their bottom-line position under the contract. After all, fore-warned is fore-armed. With well distilled contract analysis to hand, clients should then be able to have without prejudice negotiations directly with the other contracting party. Sending in the lawyers too early can have negative consequences for early settlement. Once commercial managers and directors have reached a headline agreement, it is really important for lawyers to be re-engaged to ensure that the agreement is documented properly.
The CLC document gives sensible guidance about the use of phrases such as “without prejudice” and “subject to contract” to protect parties engaged in direct discussions.
The document is clearly not intended as a “how to” guide for construction companies trying to survive this crisis without professional expertise. The inclusion of templates, whilst helpful in principle, does come with a warning not to use them without careful consideration (trainee solicitors are always taught “let the precedent be your slave not your master”). There is at least one phrase in one of the sample letters that not only set alarm bells ringing for me, but the full lights and sirens.
Perhaps at the moment the primary focus for many is on practical matters: social distancing in corporate minibuses, re-programming works to allow for reduced works on site, working out how to have two men carry a 1.5m long heavy object whilst being 2m apart etc. In due course though, I anticipate that disputes will begin to rear their ugly heads. Ultimately, settlement of disputes relies on the business managers and owners themselves, but having the right information at the right time is the only way these decision makers can be sure they are doing the best thing for their company.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.