Amending JCT and NEC building contracts to allow for COVID-19
Back in May 2020 (which seems longer ago than the calendar tells me), I wrote about the CLC’s guidance for dealing with construction disputes arising out of COVID-19. I welcomed the guidance but issued a note of caution.
Anecdotally, much of the industry seems to be dealing with allocating the losses from coronavirus reasonably well and without too many formal disputes. Our Clients and referrers have broadly experienced parties agreeing that COVID-19 gave time but not money. In some cases, developers have come to a compromise on the money and have agreed an increase to the contract sum/price.
As commercially uncomfortable as “time but no money” may be for many, the pragmatic construction industry seems, generally, to be preferring that approach to formal disputes. Those disputes that do arise will no doubt be loudly spoken about but let’s for now celebrate that on many projects, collaboration and commercialism are winning through.
Contractors and the supply chain have also done a sterling job to achieve unexpectedly high efficiencies on projects, although with no (or limited) entitlement to loss and expense, the motivation to do so is certainly there.
As lockdown eases and the economy starts to shake out, many projects that paused during the procurement phase are now gearing up for start on site. Contracts negotiated months ago are being dusted off and contracts managers are considering whether any “COVID amendments” are needed.
The CLC has, once again, issued some timely guidance. In fact, it has gone further and issued draft amendments that it says can be used with a JCT Design & Build contract, and a second set for NEC3 or NEC4 ECC.
Their premise is simple: does COVID-19 give the contractor time, time and money, or time and a percentage of money? Once the parties have agreed the answer to that question, simply plug in the relevant amendment to the contract.
For many projects, there is a chance that the CLC drafting will suffice, but like always I must advise some caution.
Firstly, the parties need to properly understand the CLC’s definition of “Pandemic Event” as it is perhaps wider than a developer may expect (or contractor, in the case of a sub-contract). Part (iii) of the definition refers to “guidance” and the contractor’s ability to “reasonably adequately resource the Works”. Arguably this is designed to assist the contractor if one member of the workforce at the site tests positive for COVID-19, sparking a need for the rest of the site team to self-isolate. In these circumstances, what are the obligations on the contractor to find alternative labour?
Secondly, if you had intended using an entirely unamended off-the-shelf contract, then these amendments by themselves may not cover every which way that COVID-19 can impact on the project and how the contract helps the parties to deal with issues during the works. Contractors should be aware that these amendments do not allow compensation for an increase in the cost of materials (or labour) independent of a delay.
Thirdly, if you already use a ‘standard’ schedule of amendments, please beware slotting additional amendments in without considering the intricacies of how these new amendments could impact on other clauses.
As new construction activity picks up, but against the backdrop of uncertainty both in terms of the economic picture and the public health situation, parties will become more risk averse and will naturally be more cautious about accepting the terms of the contract put in front of them without close scrutiny and specialist advice. If you require any assistance, please do not hesitate to contact us.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.