The widespread effects of COVID-19 are set to drastically alter the UK’s construction industry says Kate Onions
Following the Government’s announcements and advice from the Health Secretary that those who cannot do their jobs from home should go to work “to keep the country running”, the position remains that contractors should continue with works until they are unable or prevented from doing so. In order to aid this, Public Health England (PHE) has recently updated its guidance on social distancing to include sections on construction, tradespeople and working in people’s homes.
However, during this difficult and unusual time, all parties on a construction project are bound to have concerns around their obligations. So, what should they be doing to protect themselves going forward?
Where do a main contractor’s responsibilities lie at this time?
In the absence of any instruction from the Government or Public Authority – meaning they can down tools and lock up their sites – many contractors are continuing to work and manage their workforce on site.
Primarily, the contractor’s concerns lie with site security and progress. Therefore, difficult conversations about the potentially significant changes to the programme and what this means for the project may be required.
At a time where finances are tight, it is essential for main contractors to keep on top of any applications that have been made, and ensure any necessary payment or pay less notices are issued, to minimise the risk of receiving any ‘smash and grab’ adjudications from their sub-contract supply chain.
What clauses or provisions within a contract can be invoked to tackle delays arising from COVID-19?
With contracts, the devil is always in the detail, so it is important to scout out any clauses, which may help in difficult times. For most employers and contractors, this means assessing whether a delay has arisen due to any factor which entitles the contractor to push back the date for completion of works.
It is worth checking the contract for a ‘force majeure’ clause, as this may excuse one or both contracting parties from temporarily performing their obligations. However, this will only apply if the disrupting event was beyond the reasonable control of the party relying on the clause, at the time the contract was entered into. The wording of the provision is key, however, so must be carefully checked.
Parties should also keep in mind that – on the whole – a force majeure provision can only be invoked if the situation has entirely prevented them from performing contractual obligations (on a temporary basis), not just made them more difficult or costly to undertake.
What happens if a project gets put on hold?
Contractors may be cautiously optimistic, regarding their ability to recoup their loss of time. However, with any delay to a project, there are two aspects: the first relating to time (in a JCT context known as a Relevant Event) and the second, relating to loss and expense (again, in a JCT context known as a Relevant Matter).
Should a project be placed on hold, due to force majeure or exercise by the Government or Public Authority of powers, the contractor may only be entitled to an extension of time (meaning they wouldn’t be penalised or have to pay an employer for each week’s delay on completion of the project) but not to loss and/or expense. However, contract terms must be checked carefully and documentation updated.
Where parties are negotiating an amendment to the contract longstop date, it should be considered that any variation – no matter how simple – will also require a cashflow and proposed programme for completion as part of the revised documentation.
Where contractors are looking to extend the time to complete a project, it’s essential that they put in valid notices, served in line with the terms of the contract, otherwise, they run the risk of losing their entitlement to this extension.
Can a contractor be compensated for loss and expense?
As explained briefly above, while force majeure or exercise by the Government or Public Authority of its powers – within the context of the contract may be Relevant Events – entitling a contractor to an extension of time, the contractor won’t be compensated for loss and expense.
However, the Chancellor has now answered industry calls. Companies with annual turnover up to £500m are now able to apply for government-backed loans to deal with short-term disruptions related to the coronavirus pandemic. In an ideal world, the contracts between employers and main contractors will work in parallel with main contractors and subcontractors so this cash can trickle down.
Where all stakeholders are concerned, taking an overly aggressive or legal approach to a sensitive situation is unlikely to work. Instead, maintaining open channels of communication, both with the subcontractor supply chain and employer, is probably the best plan.
Can a contract be terminated?
If a construction site is shut-down for longer than the agreed period in the contract and the project is on the road to nowhere, then (subject to terms of the contract) either party could serve a notice giving the other party notice to terminate the contractor’s employment. However, serving notice in this way can lead to disputes around whether or not the party was entitled to terminate.
A word of caution: anyone considering entering into a construction contract should first assess the risks around doing so at such a turbulent time. While just weeks ago this epidemic arguably wasn’t reasonably foreseeable, it is now and may not be covered by the ‘force majeure’ clause in any new contracts, or provisions dealing with the exercise of powers by the Government or Public Authorities.
How can all parties ensure they are in the best position going forward?
Responsible contractors should be keeping an ear open to Government advice. For example, if there is a lockdown on all construction sites, this must be adhered to or contractors may run the risk of fines and other penalties.
It is also essential for employers and contractors to dust off their contracts and, where anything isn’t immediately clear, seek professional advice on the next steps that should be taken.
Aside from knowing their contracts inside out, contractors and subcontractors must ensure they apply for any payments they are entitled to and ensure all notices for extensions of time are put in in a timely manner.
At a difficult and uncertain time for construction, parties throughout the supply chain should be keeping on top of processes and maintaining clear channels of communication, in order to safeguard the future of the industry.
Kate Onions is head of construction disputes at law firm Shakespeare Martineau.