As COVID-19 is taking a greater grip on the way we are living in the UK, it is becoming more inevitable that non-essential construction projects will be suspended. Even in the absence of a specific instruction from the Government, some developers and main contractors have already decided to cease site operations.
The most immediate question we are being asked (unsurprisingly) from all sectors of the supply chain, is about entitlement to extensions of time and loss and expense. The short (and perhaps irritatingly legal) answer to that question is it depends on the particular terms of the contract. There is no one size fits all shortcut. However, the JCT terms are relatively harmonised across the various forms of contract, as are NEC contracts. We have been looking at these a little more than usual recently, so thought it might be of interest to share some of the information with you. This note is restricted to the JCT terms. Keep your eyes open for our next instalment about the NEC terms.
As a starting point it would be worth reviewing the terms of your various contracts to assess where the risk lies in certain circumstances. For example, if you are a contractor and site personnel and subcontractors are unable to operate on site, is there a contractual mechanism to help you? It may be there is a force majeure clause in the contract? Depending on the circumstances you may be able to rely on that clause for some relief.
Suspension prior to enforced lockdown
In the present circumstances where there is no specific Government instruction to close sites, any instruction from a developer (or in a subcontract a contractor) to close a site, would probably be “impediment, prevention or default” by the developer. This would be both a Relevant Event and a Relevant Matter, giving an entitlement to an extension of time and loss and expense. Such entitlement is likely to be dependent on the correct notices being issued to the developer within the timescales stated in the contract. For example in the JCT DB 2016 contract, clause 4.20.1 provides for a notice to be given “as soon as the likely effect of a Relevant Matter on regular progress… becomes… reasonably apparent to him.” Such a notice is a condition precedent to entitlement to loss and expense. In other words if a notice is not given the contractor would lose his entitlement to loss and expense. The obvious point is, make sure you send all necessary contractual notices.
Suspension due to enforced lockdown
If the Government exercises statutory powers to close sites, this is likely to constitute “the exercise after the Base Date by the United Kingdom Government… of any statutory power… which directly affects the execution of the Works.” This would entitle a contractor to an extension of time, but not loss and expense.
Suspension of the works where the Government exercises statutory powers to close sites also potentially triggers a right (under main contracts only) for either party to the contract to terminate the contract if the suspension continues beyond a period specified in the contract. The standard period of suspension is 2 months. This is dealt with at clause 8.11 of JCT DB 2016. While it might be a nuclear option, terminating and fully demobilising (including removing all site facilities etc.) might be an additional negotiation tool when discussing with a developer, retrospectively, the sharing of risk.
Loss of labour force and/or material supplies
Another issue that appears to be emerging is the shortage of staff due to illness, or material supplies drying up. In these circumstances, you as contractors may be effectively unable to meaningfully continue on site. The JCT terms are not particularly helpful here. It is possible, although not at all certain, that a force majeure has occurred. The trouble is that force majeure has no legal meaning. Accordingly any total cessation of site activity by a contractor could be a breach of contract. At the most though, a contractor may be entitled to an extension of time, but not loss and expense.
Alternatively it may be that these circumstances arose because of “the exercise after the Base Date by the United Kingdom Government… of any statutory power… which directly affects the execution of the Works.” The question here will be whether the statutory powers exercised so far have directly affected the execution of the works. It is arguable they have, but there is some uncertainty. Again though, the most a contractor will be entitled to is an extension of time, but not loss and expense.
As a final thought, if in these turbulent times you are still negotiating future contracts, it would make complete sense to introduce a COVID-19 clause. It is becoming clear that the terms of standard form contracts are insufficient. Thus the parties should at least have an open debate and decide who will take the risk for site suspensions and other delays arising from the virus.
The above information is intended to be a snap shot of the issues we have been advising on recently.