Specialist Contractors The Impact of The Coronavirus Pandemic (COVID-19)

Construction Industry Affected By Coronavirus Outbreak

* Firstly, I am writing this article at home! * Our team at Streetwisesubbie are at home!

Advice For Specialist Contractors, Trade Contractors and Subcontractors

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?

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.

But 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!

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.

Clause 2.19.15

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

Clause 2.19.17

force majeure.

Statutory Powers

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 construction projects and qualify as a Relevant Event, but a mere government recommendation may not.

Force Majeure

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.

The JCT contracts do not define force majeure.

As no definition of force majeure is provided, the meaning would need to be determined in each individual case on the basis of general legal principles. Therefore, whether or not a specific event constitutes an event of force majeure may be difficult to determine or predict.

You must also keep in mind that under clause 2.18.6.1 of the JCT DBSub/C 2011/2016, you are required to use your best endeavours to prevent delays, and this would include any delay caused by an event of force majeure.

If you have not done so, you will not be entitled to an extension of time even if that event is held to qualify as force majeure under the contract.

You would have to show this in any event, as case law suggests that the party relying on the force majeure event has to show that the event was beyond its control and that it could not have done anything further to mitigate or avoid the consequences (see Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd's Rep 323).

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.

Force majeure is not a ‘Relevant Matter’, so the occurrence of a force majeure event may entitle the contractor to an extension of time, but not to loss and expense.

What About Non-Standard Forms?

As I said above, 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 that is where the problem lies because there are a myriad of different contracts out there all with different terms and conditions.

Unfortunately, force majeure provisions are express terms which will not ordinarily be implied into contracts governed by English law.

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;

https://www.britishchambers.org.uk/page/preparing-and-responding-to-coronavirus

https://www.emc-dnl.co.uk/news/2020/02/24/coronavirus-planning-ahead/

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 or strict rules about the submission of notices that, if missed or not followed correctly, 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 [email protected].

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