First it was Brexit and now it is COVID-19 that fills the TV screens, newspapers and social media. But what does it mean for the Construction Sector? Well, if I could give a definitive answer to that question I would be very rich and self-isolating on my own personal desert island but instead I am answering daily calls and emails from clients, working remotely from deepest Shropshire.
What I can say, in respect of what it means for construction contracts, is as follows:
(1) Building sites have or are now closing down
This is a response to Government announcements for the need to avoid leaving one's home unless it is absolutely necessary, i.e. for food, health reasons or work (where this cannot be done from home). It is also, one suspects, due to confusion as to whether or not construction workers are 'key workers' who should be going to/from work on a daily basis.
On face value, it is questionable that a construction worker is key to supporting the country's fight to tackle COVID-19. That does not mean that some construction activities are not key, for example, repair and maintenance activities for schools (while open), hospitals, roads and rail etc. However, construction sites for commercial office developments and/or private housing would not appear to be key to the COVID-19 fight.
In addition, employers want to 'do the right thing' in terms of employee welfare and the consequent risk of legal liability if they don't.
(2) Physical distancing is difficult to do on site
Clearly, the vast majority of construction work cannot be done from home. However, the idea that construction workers can keep and maintain a distance of 2m (6ft in old money) while working on-site seems rather hopeful.
On large sites, such as at Hinckley Point C and Crossrail, it will be possible to implement daily checks and make adjustments to travel to/from the site to reduce or control the spread of COVID-19, but that is not the same as preventing it. In any event, such measures are unlikely to work for smaller projects and ones located in urban centres, i.e. most constructions sites are not physically 'isolated' as is Hinckley Point C.
This means the vast majority of construction sites are likely to close down for the time being or experience a significant reduction in site activity.
(3) Construction projects will be delayed but who bears this risk?
The fact that projects will be delayed seems pretty obvious, but who will pay for this? In simple terms, the answer depends on the particular facts of each project and also the terms of the parties' contract.
With regard to the industry standard JCT forms, many legal commentators are saying Contractors are entitled to time but no money. This is on the basis that COVID-19 is an event of force majeure and a Relevant Event (see clause 2.26.14 of the JCT DB 2016 form). Everyone knows what force majeure is or say they do, but whether one considers this principle of French (not English) law includes a COVID-19 pandemic or not, one must not overlook the fact that the JCT forms, by example, place the burden on the Contractor to seek an EOT. Therefore COVID-19 or not, the parties will have to treat a claim for an EOT in the same manner as any other EOT claim.
When sites re-open there will be a period of 'discussion' before an EOT is awarded in full, in part or not at all. As I say, each case will have to be looked at on its own merits and the wording of the parties' contract.
(4) What about the cost of the delay?
If you are on the JCT forms the cost lies where it lies, i.e. the Employer is not entitled to liquidated damages or LADs and the Contractor is not entitled to be paid loss and/or expense. This is because delay to the Works caused by force majeure is not a Relevant Matter. Put simply, it is a case of time but no money.
How this flows down the contract chain to sub-contractors, sub-sub-contractors and below will depend on what their contracts say (or don't say) about the current situation.
(5) Coronavirus Bill
This emergency legislation is passing through Parliament and if, as some are reporting, it gives the Government the power to declare a 'lock down' of, amongst other things, construction sites, the JCT forms would allow an EOT on this basis (see Relevant Event 2.26.12 (statutory power) of the JCT DB 2016 form). However, this too would not give rise to an entitlement to be paid loss and/or expense because delay to the Works caused by the exercise of a statutory power is not a Relevant Matter.
(6) When does this have to be dealt with?
The impact of the COVID-19 pandemic is immediate but there is no requirement, for example under the JCT forms, for the Employer to award an EOT. This is because the forms give the Employer a period of 12 weeks from receiving the required particulars of the alleged delay to reach a decision. In any event, until the existing situation improves it seems impossible for any party to know what the impact on the completion of a project is likely to be. Indeed, I suspect most EOT claims will be resolved after the proverbial 'dust has settled' and with the benefit of hindsight.
For those parties working on forms of contract where EOTs are to be assessed as the Works progress, the task of deciding what the true impact has been or will be is going to be a challenge.
(7) COVID-19 means building contracts are 'frustrated'?
The idea that parties can 'walk away' from their contracts because they have become frustrated due to COVID-19 is unlikely to succeed. This is because the building contract is (save in limited circumstances) unlikely to be physically or commercially impossible to fulfill. Yes, the project might be delayed and it may or may not end up costing more but that is not the same as it being either physically, or commercially impossible to fulfill. In any event, in the vast majority of cases the parties' contract will provide how the risk of delays associated with the COVID-19 pandemic are to allocated as between the parties.
(8) Adjudicators will see an upturn in yearly income
Sadly, the adjudication claims industry is likely to be busy from the summer onwards when parties cannot agree on what their construction contracts say about the entitlement to time and money. We might even see a case come before the judiciary as to what force majeure means.
Large projects such as Hinckley Point C may, subject to further Government restrictions, continue to work through the COVID-19 pandemic but the majority of construction sites are likely, for very good reason, to close. There will, in due course, be a collective sigh of relief when this current crisis is over but, at some point, the parties will have to decide who is responsible for the delay to the project and any additional cost. As things stand, the most likely outcome is that the Contractor will be entitled to time but no money, however, each case must be considered on its own merits.
I am optimistic that, in the vast majority of cases, the parties will agree what the time and cost consequences are, and we can all avoid the 'wild west' of the adjudication claims industry.
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