Coronavirus: Delay, disruption, loss and expense for the construction industry attributable to COVID-19

The spread of Covid-19 within the UK and Ireland will impact significantly on construction activities during the course of the coming weeks in the form of delay and disruption to on-site activities and project supply chains. Such disruption could be enhanced if the Government decides to impose travel or similar restrictions.

It follows that a cost will be incurred by projects and ultimately that will have to be borne by one or other of the main contracting parties or sub-contractors, so it is critical that parties with potential liability for the delays, disruption and associated liquidated or delay damages take steps to protect their interests. Equally, parties should take steps to protect their entitlement to recover additional time or loss and expense.

Each construction contract will differ, but in general terms the following type of provisions may bite:

• A force majeure provision is included in many contracts and it relates to the occurrence of an event which is outside the reasonable control of a party prevented from performing its contractual obligations. There is no general concept of force majeure in common law and standard contracts such as the JCT and NEC suites do not provide a definition of same. The judgment in Lebeaupin v Crispin [1920] considered that the term “force majeure” was “used with reference to all the circumstances independent of the will of man, and which it is not in his power to control… Thus war, inundations, and epidemics, are causes of force majeure …” . This decision suggests it is very likely that Covid-19 would be considered to be an event of force majeure.
• The test for whether a force majeure event has occurred will require three issues to be considered:
  • Is the event beyond the control of the affected part?
  • Is the affected party’s ability to perform its contract hindered or prevented by the event?
  • Has the affected party taken all reasonable steps to avoid or mitigate the event or its consequences?
• A force majeure provision such as clause 2.26.4 of the JCT DB 2016 contract may entitle a contracting party to obtain relief in the form of an extension of time in which to complete its contract works; in this form of contract, force majeure is specified as a Relevant Event.
• Force majeure may not entitle a party to recover loss and expense which it incurs due to Covid-19. In the JCT DB 2016 contract, force majeure is not defined as a Relevant Matter giving rise to such an entitlement.
• Other standard contracts may contain provisions stating that relief is available if an event has occurred which prevents the contract works being carried out, which neither party could have prevented and which the affected party would have judged as having such a small chance of occurring it would have been unreasonable to take it into account when executing the contract.
• The exercise of any statutory power by government or any local or public authority is a Relevant Event in the JCT DB 2016 contract which could provide relief to an affected party. This could cover scenarios where travel or other restrictions are imposed which impact on the ability of the affected party and its sub-contractors or suppliers to perform the contract works.
• Construction operations may have insurance in place which will respond if business is disrupted by Covid-19. This should be checked and an intention to claim notified to the insurers concerned.
• Most contracts will contain notice provisions requiring the affected party to serve notice on becoming aware of an event which is likely to impact adversely on the time needed to complete the construction works or the cost of same. At this stage such notices should have been served.
• Some contracts will contain provisions providing that if works have been suspended for a specified length of time, notice can be served by either party terminating the contract. For example, the JCT DB 2016 standard contract, at clause 8.11, provides that suspension is permissible for force majeure or as a result of the exercise by the UK Government or any Local or Public Authority of a statutory power which directly affects the execution of contract works.

Practical Recommendations

• Review every active contract to consider what action needs to be taken and identify provisions which may assist in the current situation.
• Issue warning notices to the other party and, if required, instigate “rolling-notices” if further developments impact upon the delay or cost implications already notified.
• Comply with obligations to either avoid or mitigate the consequences of any delay or disruption.
• Insist on sub-contractors supplying information on possible delay issues.
• Maintain detailed records about your workforce and why they are unable to work (i.e. self-isolation, infected or lockdown due to imposed restrictions).
• Maintain similar records about the workforce of sub-contractors if possible. This information may be required to support future claims.
• Convene risk meetings with the other parties to identify and agree, if possible, what reasonable measures can be taken to litigate delay or disruption.
• Take proactive steps to ascertain if critical materials or supplies for incorporation in the works are being or are likely to be delayed and maintain an audit trail to prove all possible steps are being taken to mitigate such delays.
• Check whether your insurers have any relevant policy guidance requirements.
• Review any contracts or sub-contracts which are being negotiated and incorporate suitable amendments to protect your interests in light of what is currently known about Covid-19.

If you require further guidance on the impact of coronavirus on your project, please contact Ronan using the details below.