Construction Industry Affected By Coronavirus Outbreak
How To Protect Your Commercial and Contractual Interests During The Coronavirus Pandemic
Here is a short video about how Specialist Contractors, Trade Contractors and Subcontractors can protect their commercial and contractual interests during this coronavirus covid 19 pandemic.
Please call our helpline on 01773 712116 if you are still not sure, need a second opinion or need our help. Please don’t go it alone and get it wrong. Doing the wrong thing is worse than doing nothing!
Stay home – Stay safe!
Yesterday I sent out my Wise Up Wednesday email as usual, and stressed the importance of taking action to ensure your interests were protected in the light of the coronavirus pandemic.
I cautioned against making a bad situation worse by getting clobbered for delays because you can’t get to site (locked down), or half your team or subcontractors are self isolating.
… and said that doing nothing is not an option, but what I need to stress is that doing the wrong thing is not a good idea either!
When I said that there is no single “one size fits all” answer, and that it all depends on the specific details of your contract. That is exactly what I meant – you cannot adopt a blanket approach to this.
Every contract will be different. Let me repeat that, you must look at each individual contract and tailor what you say, or do accordingly.
Doing The Wrong Thing Is Worse Than Doing Nothing!
Some of the feedback we have had, is that despite our advice people are looking for an easy solution that they can apply.
And whilst this may be being done with the best of intentions, in certain cases saying the wrong thing at the wrong time, may actually give the unscrupulous Contractors an opportunity to say that what you have said amounts to a repudiatory breach of contract.
The consequences could be the immediate termination of your contract and no further payment for literally months!
So, please take the contractual side of things very seriously indeed and please do not think that this is going to be simple and straightforward, or that common sense and fair play will prevail…
… it might, but it might just as easily go very wrong, very quickly!
And Please Be Prepared For A lockdown
Whilst the government have recommended that everyone that can work from home should do so, there is inevitably going to be a lockdown, the science led response means that there has to be at some point.
So, please make sure that you, or someone in your team has access to every contract that you are working on currently, or have money outstanding on.
Because when you need help, the first question we are going to ask you is what does the contract say? And if you can’t answer that question because you can’t get to the office to get it, then it is impossible to advise you!
And if anyone advises you differently, then run a mile from that advice!”
It may be that we can group certain types of contract together, for instance where one Contractor uses their own terms across multiple projects, or unamended standard forms such as JCT, but every contract needs to be carefully checked.
I am convinced that this pandemic is going to have a massive impact on Contractors working on wafer thin margins and their first port of call (as always), is their supply chain. Please do not give them any excuse to not pay you or terminate your contract etc.
Please call our helpline on 01773 712116 if you are still not sure about this and I will explain further with examples.
The Impact of The Coronavirus Pandemic
Sadly, it is almost inevitable that your construction projects are likely to be affected by the coronavirus outbreak.
The nature and scale of any impact cannot be predicted accurately at this point, but labour and supply chain issues are increasingly foreseeable.
What happens if it impacts your project and what should you do to minimise the commercial and contractual risk to the future of your company?
Construction Projects Likely To Be Affected By Coronavirus (COVID-19)
First Things First
The first thing to understand and accept is that there is no single “one size fits all” answer. It all depends on the specific details of your contract. And undoubtedly in some cases the situation will be affected, either adversely or favourably, by the nature of some of the organisations for whom you are working.
Doing Nothing Is Not An Option!
Please do not under any circumstances adopt the mindset that; “we are ok”, “we don’t need to do anything special”, “it will sort itself out”, “ the contract is the last thing we need to think about right now!” Or any other version of burying your head in the sand.
Please take the contractual side of things just as seriously as every other aspect of this problem we are all facing.
The Consequences Of Inaction
You need to know that if you delay the Contractor (or he decides to blame you anyway), you will become liable for not only liquidated damages, but for what I call a thick sandwich of costs!
This sandwich is made up of the Liquidated Damages, the Contractors own costs and any other costs that the Contractor incurs, such as those of all his other Subcontractors!
Check The Contract
As with every other problem that arises, the remedy or answer (or indeed potential lack of it), lies in the contract. And for Specialist Contractors, Trade Contractors and Subcontractors this is compounded by the myriad of contracts out there.
Almost every Contractor has their own version of terms and conditions or bespoke amendments to Standard Forms such as the JCT forms.
However, one thing that will be common to most contracts (until the Contractors draft onerous amendments), is that they will probably lack express terms allocating the risk of infectious disease outbreaks, such as COVID-19. As a result, parties will need to rely on other provisions, such as extension of time and loss and expense clauses, to understand who bears the risk.
The Standard JCT Forms
Let’s look at how an unamended JCT form, in this case the commonly used JCT DBSub/C 2016 Design and Build Sub-Contract deals with such matters. Always remembering that other Standard Forms including NEC, MF/1, FIDIC and others, will take different approaches.
Are You Entitled To An Extension Of Time?
You may be entitled to an extension of time, and to avoid paying damages, if an excusable delay event occurs causing critical delay to the project. The list of excusable delay events (referred to as “Relevant Events”) is set out at clause 2.19 and includes two which may apply during this pandemic.
the exercise after the Base Date by the United Kingdom Government or any Local or Public Authority of any statutory power that is not occasioned by the default of the Sub-Contractor or any Sub-Contractor’s Person but which directly affects the execution of the Works, and
The government has broad statutory powers under public health legislation and the Civil Contingencies Act 2004 which it can activate when an event or situation threatens serious damage to human welfare. It may also introduce other emergency legislation.
It may prohibit travel at specified times or to/from specified places, requisition property or prohibit specified activities. Any such measures could have significant impact on a construction project and qualify as a Relevant Event, but a mere government recommendation may not.
This Relevant Event is useful if a delay event cannot be linked to the exercise of a statutory power. Conceptually, force majeure refers to exceptional and uncontrollable events outside of the parties’ control, but the term is not defined either in the JCT or under English law.
There is a 1920 case that is likely to be useful, citing: “this term is used with reference to all circumstances independent of the will of man, and which it is not in his power to control … thus, … epidemics are cases of force majeure” (Lebeaupin v Crispin).
This case also suggests that force majeure covers more than just instances of uncontrollable natural forces in operation. Administrative interference, such as an embargo, may also be covered. Given the World Health Organisation says we are in “uncharted territory”, delays caused by disease related waves of absences or supply chain issues caused by a foreign government could trigger this clause.
Are We Entitled To Recover Our Costs?
Under most standard forms, a Subcontractor is not entitled to recover loss and expense, such as prolongation compensation, simply because it obtains an extension of time.
Instead, you must separately establish a “Relevant Matter”. The list of Relevant Matters is at clause 4.16 of the standard form JCT DBSub/C 2016.
Unfortunately, an infectious disease outbreak is not listed, nor is the use of statutory power or force majeure. This means that you are entitled to time but not costs, unless, and this is unusual but not impossible, there are other provisions (such as fluctuations) or insurances (such as business interruption) enabling recovery through other routes.
What should I Do Now?
The UK government is keen to reduce the spread of the coronavirus whilst ensuring the country continues to run as normally as possible. Fortunately, one great thing about the electronic age is that it is easy to share useful information and many organisations such as the British Chambers of Commerce have produced great advice such as that which can be found here;
But you must be just as prepared contractually.
Notification –most contracts require you to provide notices “as soon as it becomes reasonably apparent” that the progress is being or is likely to be delayed and follow up with more information.
Even if there is no such requirement it is essential to do so in order to protect your interests.
And there may be a strict deadline that, if missed, bars you from any entitlement, so check now so that you are ready.
Mitigation – you are usually required to constantly use reasonable or maybe even best endeavours to prevent delay, even if the delay event is not your fault.
Instructions – The Contractor might want to instruct resequencing, additional manpower or reduction in scope, and the extent to which you have to comply will be determined by the contract.
Do not be misled by a Contractor’s seemingly casual approach to closing a site or causing delay. Remember that those making such decisions, will not usually be the ones screwing you over later when the financial consequences are being determined!
Evidence – extension of time claims are far from straightforward and the party with the best organised records, evidence of causes of delay, mitigation attempts and decision making always wins the day.
Call Our Helpline Sooner Rather Than Later
Our friendly team are on hand to ensure that you get the help and support you need on Coronavirus issues. Call us on 01773 712116, contact us or email firstname.lastname@example.org.