The outbreak of Covid-19 has already had widespread effects to both public life and international business. What effects might Covid-19 have on construction works and contracts, and how can these be mitigated?
Covid-19's effect on construction works
Although the landscape is still unclear and developing, there are a number of potential impacts of Covid-19 on construction projects. Some examples are as follows:
- Materials availability and cost due to illness, working and transportation restrictions
- Delay due to labour shortages caused by illness, working and transportation restrictions
- Delay due to employer staff illness
- Projects being terminated by reason of a prolonged delay
- Government requiring site closure.
Where an unexpected event occurs that is outside of contracting parties' reasonable control, there may be delay and cost consequences. It is important that the parties understand their rights and risks. Some of these are explored below.
Parties should consider whether any of the above scenarios may trigger any of the Relevant Event or Relevant Matter provisions under JCT contracts, amount to a Compensation Event under the NEC suite or a claim under EPC contracts such as those contained in FIDIC. If the answer to that is yes (or even, "maybe") then consideration should be given to making sure the requisite notices are issued.
Most standard form contracts will provide for extensions of time in some of the above scenarios but rights to claim loss and expense will probably require more thought. That said, parties will also need to consider any ongoing duty to mitigate the position, particularly in relation to using best endeavours to prevent delay.
Some more specific issues are discussed below:
A force majeure clause generally provides contracting parties with relief from performing the contractual terms where an exceptional event occurs that is deemed to be beyond the control of the parties, and prevents one or both from fulfilling its obligations under the contract. Under the commonly used JCT contract, for example, potential delay events are set out at clause 2.26 under "Relevant Events" and this clause includes force majeure. If the delay continues, suspension or termination rights may also be triggered. The effect of a force majeure clause depends on its language and whether or not the clause includes for an epidemic or pandemic health crisis (whether expressly or by implication). As such the interpretation under each form of contract should be carefully considered.
Practically, if there is any doubt about the strength of a force majeure argument, it would be sensible for parties to consider whether additional rights and remedies apply as well.
If, as a consequence of Covid-19, a contract becomes impossible to perform, a party may seek to argue that the contract has been frustrated. This essentially discharges the parties from further performance of their obligations. It should be noted here that this argument is difficult to enforce in court.
Employers and Employees
As well as construction challenges, employers and contractors will also face challenges with their workforce. Initially, these are likely to be issues around self-isolation in circumstances where employees have returned from higher risk countries. However, as things develop in the UK, larger scale changes may be required to working arrangements. Employers and contractors should be actively promoting good hygiene practices in the workplace, in accordance with health and safety obligations, as well as needing to be aware of obligations in relation to sick leave, sick pay and holiday entitlement. In a worst case scenario, do you have a contractual right to impose short term working arrangements and/or temporarily lay-off staff?
In light of the above, employers and contractors could consider undertaking a contract review with a focus on clauses such as force majeure (to include for epidemics and pandemics), rights to terminate the contract and provisions relating to delay / loss and expense, in order to ensure positions are fully protected.
If you have any questions on this, do get in touch.