COVID-19: time and money under JCT
Unsurprisingly 2019 novel coronavirus disease (COVID-19) and its impact on construction contracts has been a key concern for our clients recently. Many of those clients use a JCT form of contract, usually with amendments.
The immediate concern for live projects is delays caused by shortages in goods and materials (just try importing Italian marble at the moment) or delays in importing them, as well as potentially a lack of labour. Two relevant events are, well, relevant: the exercise by the government of a statutory power and force majeure.
Taking the first, under the JCT Standard Building Contract, 2016 Edition (or the Design and Build form) a claim in respect of a Relevant Event requires both the exercise of a statutory power and a power that directly affects the execution of the works. Government guidance/recommendations alone are unlikely to suffice. At the time of writing there has not been a formal government intervention in the UK such as those seen in Italy and the US and so the first of these is not in play, as yet!
As for force majeure, there is no settled definition under English law and the JCT contracts do not define it or give examples. Perhaps the next edition of JCT contracts will now do so. That said, force majeure is generally understood to cover circumstances that are not within a contracting party’s control and authority suggests it would cover epidemics. On that basis it is difficult to see how the outbreak would not constitute a force majeure event.
It is common for contracts to exclude a shortage of goods or materials arising from force majeure and under those contracts the contractor has assumed the risk. In our experience of acting for employers and contractors, many employers are considering taking a pragmatic approach and seeking a risk share agreement rather than necessarily enforcing the contractual terms favourable to them. Of course this will require buy-in from funders and end-users. It would be unrealistic to expect an employer to do otherwise.
What about the money? In the unamended JCT, the contractor takes the entire risk of loss and expense due to the impact of COVID-19 on the progress of its works. At least they do in theory. In our experience, employers are including this risk as part of their commercial discussions and seeking relief from delay damages. Again, what do the employers’ funders think? They hold the purse strings after all.
What happens if the works are suspended? In the JCT there is a mutual right of termination where the works or substantially the whole of the works are suspended for a period of two months as a result of force majeure or the exercise of a statutory power, among others. Given the present state of affairs in Italy, it is not inconceivable that construction projects could be so significantly disrupted that these termination provisions could be engaged.
Presumably both parties would like to extend that qualifying period of suspension – another item for the commercial discussions.
In contracts under negotiation, both employers and contractors must address the issue directly and allocate the risk between the parties. Parties do not necessarily have a free hand here. Interestingly, we are seeing funders refuse to lend unless the contractor assumes the risk. If most contractors simply refuse, will we see a re-think?
It is not just that there are obvious benefits in setting out the position clearly: remaining silent could have unintended consequences. The more foreseeable the consequences of an event are, the more difficult it is to demonstrate that the event constitutes force majeure – the rationale being that it would be “reasonable” to expect a contractor to be able take steps to avoid or mitigate the consequences of that event.
There are also other considerations. Is it fair for the entire risk of COVID-19 to sit with one party, whether that be time and/or money? Is a risk share more reasonable? What will the employer’s funder agree to? What is palatable to an end-user?
Also, how do you define COVID-19? What about mutations of it? Including a widely defined event is not always best, even from a contractor’s perspective. The looser the definition the more difficult it may be for a contractor to evidence that the delay is caused by that event.
What about shortage of labour? Parties may want to distinguish between a shortage caused by the numbers of workers being ill or prevented from working due to a government order and pre-emptive measures that a contractor might choose to bring in to avoid the spread of the disease. Is it fair that a contractor who takes sensible precautionary steps for the wider good is to be penalised for doing so?
Employers will want their contractors to be proactive in managing delay as specified materials are sourced or manufactured abroad. A potential option could be to include a positive obligation on a contractor to make design proposals to mitigate the impact, something that could be added to the value engineering provisions or design submission procedure.
Should COVID-19 lead to termination? Should the qualifying suspension period be extended to avoid the risk of termination? This is all the more reason why it is important to properly address the effects of delay at the outset.
We suspect there is much more to come on this topic.
A version of this blog was first published by Practical Law Construction on 17 March 2020
A partnership for progress
The rise of joint ventures in the UK’s life sciences sector.
The Art Net quotes Petra Warrington on how the Charities Act will impact restitution cases
A new law will give national museums significantly more power to deaccession works and make progress on restitution cases.
Swiss/UK secondments – the basics
A short guide to the key requirements to second workers from Switzerland to the UK and from the UK to Switzerland.
The Mail Online quotes David Gregory on the mini budget and changes to the real estate industry
"This is a step in the right direction, but further support for existing occupiers may be needed..."
The Financial Times quotes Paul Stone on Ofcom's probe into competition and big tech in the cloud market
"The probe may act as a catalyst for a full-blown market investigation..."
Back to the office or quietly quitting?
Quiet quitting is where employees choose to do the minimum amount of work.
Limitation & the worthwhile test
When does time start to run for deliberate concealment claims? An insight into a Court of Appeal ruling which answers this question.
Paul Stone provides comment for City AM on the record fine against Google over Android phones
"This decision is a symbolic victory”
City AM quotes Paul Stone on the lawsuit facing Google re: anticompetitive conduct in the digital advertising market
"the lawsuits are a 'mirror image' of ongoing investigations by the CMA..."
FT Ignites Europe quotes Nick Hurley on quiet quitting in the asset management industry
"I cannot see any employers embracing quiet quitting as a concept. Most companies will see it as something to reduce or eliminate"
Jonathan Morley discusses the 'huge growth' in Gloucestershire driven by private capital for SoGlos
"Private investors are watching Gloucestershire closely and willing to invest in its businesses..."
The Grocer quotes Jamie Cartwright on the Celia Marsh inquest and allergen action
“Natasha’s Law responded to a perceived lack of accessible information on ingredients for consumers on the product itself..."
London’s role in the growing UK Life Sciences sector
Mark Kildea, Howard de Walden’s Chief Executive and Cara Imrailo discuss Life Sciences opportunities in London
Property Patter: The Notorious ESG?
ESG is everywhere.
Lesley O'Leary writes for The Law Society Gazette on law firm strategy
‘You need to have a frank discussion about the things that matter to clients’
Melanie Tomlin explains the measure of damages recoverable in defects claims for Building Magazine
Essential law: Defects, part four
The Energy Savings Opportunity Scheme
The aim of the scheme is to help organisations identify energy efficiency savings, to support and increase good energy management.
Aidan Welton writes for P3 Pharmacy on property considerations before selling a pharmacy business
There’s lots to consider ahead of time if you’re planning the sale of your pharmacy business...
Melania Constable writes for Property Week on restructuring in the property sector
It is anticipated this judgment may open the gates to further uptake of RPs in the property sector...
Matt Foster and Dhara Shah write for Family Law Journal on child abduction: theory versus reality
Child abduction: theory versus reality