COVID-19 & JCT Construction Contracts
At the date of writing, the UK Government has not enforced a closure on construction sites and many contractors are currently keeping their sites open. Matters are changing on a daily basis and there are significant ramifications on contractors who are continuing to deliver contractually agreed commitments.
Points to be covered in this article
Construction Sites Remaining Open
There are many reasons which may justify the closure of a building site and remaining open gives rise to specific problems, such as, it is impossible for workers to undertake the works without breaching Government advice about social distancing either during travel to and from home to the site and working on the site itself.
There are also problems with staff shortages caused by self-isolation and illness which can make it impossible to carry out the works safely and in accordance with Health and Safety legislation. As a “Principal Contractor” there is a statutory duty to manage Health and Safety during construction works. These Health and Safety obligations are also contractual obligations under the building contract, in addition to owing a duty of care to employees.
Contractual Consequences in a JCT Contract
A contractor may seek to use terms of the building contract to apply for an extension of time and/or loss and expense or to suspend and ultimately terminate its employment.
Extension of Time and Money
Delays on a construction project are not unusual, but the impact of Covid-19 is unique. Where construction contractors are experiencing an inability to perform their obligations because of staff/labour shortages or issues with the supply of materials and plant, the parties will need to consider the terms of their contracts to determine what relief is available.
Unfortunately, a pandemic like Covid-19 is not expressly catered for by any of the “Relevant Events” in a JCT Contract. Also the JCT does not define what amounts to force majeure and therefore the question arises as to whether Covid-19 is a force majeure event.
If the UK Government exercises statutory powers which directly affect the execution of the works (for example by closing a building site) this could constitute a “Relevant Event” in the JCT Contract.
If the UK Government does not exercise any statutory powers affecting the continuation of the works, the contractor may seek to argue that Covid-19 constitutes a “Relevant Event” or force majeure. However, the contractor will need to satisfy two points:
- Have they mitigated; and
- Is force majeure the sole cause?
It is therefore critical for contractors to show that they have sought to mitigate the delay. If the contractor fails to be able to do this, this could result in it losing its entitlement to an extension of time. So for example, if the basis of the delay claim is attributable to a lack of labour force, the employer may question the contractor’s business continuity plan. So for example, had the contractor put in place Health and Safety measures on the site to prevent the spread of infection and were any measures taken to minimise the impact of the virus?
As delay events are usually considered not to incur compensation for the contractor, there is a possibility that the contractor will be granted an extension of time and released from delay damages but they will not be entitled to loss and expense.
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Termination
Longer-term delays may lead to further consequences. Under a JCT Contract it is provided that if works are suspended for an extended period, either party may withdraw from the Contract (the default position being two months). Two events that could result in termination of the Contract are the exercise by the UK Government of its statutory powers and an event of force majeure.
In the event of termination, the contractor will be required to vacate the site and issue a final account to include the value of the works carried out, any relevant losses and expenses, the cost of demobilisation and the cost of materials and goods ordered and legally bound to pay. However, any party seeking to terminate the Contract on the basis of force majeure should do so with extreme caution.
Alternatives to Force Majeure
In a rapidly unfolding situation, it is likely that temporary emergency regulations could be enforced by the UK Government which would require construction sites to shut down.
In such circumstances, there could be the possibility of claiming an extension of time due to the exercise by the UK Government of a statutory power that directly affects the execution of the works. However here, the contractor will need to still mitigate the circumstances and should be careful to ensure that they are taking the correct measures to do this.
In these challenging and rapidly changing times, contractors should open up an early dialogue to find solutions to the problems they are experiencing and try and work with their employer to reach a satisfactory outcome. This may be problematic for some contractors where parties are already dealing with disputes or the project is already in delay.
If you require further information regarding construction matters please contact a member of our House Building and Land Development Team.
