Covid has become such a major part of our personal and business lives but so far as construction contracts are concerned, where are we a year on?
In April 2020 we published our guide for the construction industry to the legal issues arising from the pandemic. We would like to be able to report that many of those legal issues have now been clarified, whether by legislation or case law, but unfortunately that is not the case. There is still uncertainty around the ability to claim (or resist) time and money claims under contracts entered into pre-Covid, pursuant to which the works had been progressing during 2020 and may still be ongoing. Our original guidance remains sound but specific advice should be obtained on particular contracts, because much will on the contract terms and the relevant facts in each case .
Construction is one of the industries that has continued working throughout the pandemic, providing that the Government site operation procedures (SOPs – in their 7th edition at the time of writing) were/are adhered to. However, the SOPs themselves, as well as labour issues, transport problems and material shortages are likely to have affected both programme and costs. Government guidance encourages parties to a construction contract to resolve any differences or disagreements over such matters amicably, in a spirit of “we are all in this together” cooperation, but if that is not possible the parties will have to fall back on formal dispute resolution procedures. In our experience, both in relation to existing contracts but also those contracts now being negotiated in the light of Covid (and Brexit), Employers/Clients are more sympathetic to the risk of extension of time claims than they are to loss and expense claims relating to such delays.
One of the most difficult aspects for any extension of time applicant is proving that the delays they allege are caused by Covid as opposed to other factors, so the factual background and contemporary records on both sides are very important; as are the other relevant terms of the contract. If the relevant contract is a JCT one, in order to claim an extension of time it is necessary to establish that the delay is caused by a Relevant Event and that it has had an effect on progress and the Date for Completion. Depending on the circumstances, the obvious “neutral” Relevant Events in an unamended JCT contract upon which a contractor will seek to rely are: changes/variations; the exercise after the Base Date of statutory powers; and/or force majeure. However each has its own difficulties for a claimant: changes/variations are defined in Section 5 of JCT main contracts and the cause of the delay will need to fit within that definition; exercise of statutory powers requires plotting what the ever-changing Government regulations were at and during the time of the delay – strictly speaking Government guidance does not count; force majeure is not defined in the contract and Government legislation has avoided so labelling the pandemic. In any event a contractor will not be able to rely on force majeure to claim an extension of time for a contract entered into when Covid was known about. In principle delays caused by changes/variations give rise to a loss and expense claim. Exercise of statutory powers and force majeure do not.
For the relevant NEC extension of time and compensation event provisions see Part 3 and Appendix – Part 3 of our guide
For contracts currently being negotiated or let, the parties have to opportunity to agree who bears the risk of delay of delays and additional costs caused by Covid (and any mutations) or how that risk will be shared and then including in their express contract terms to deal with the regime that is agreed. Parties to a construction contract are strongly advised to discuss such matters up front prior to entering into the contract and to make sure that the contract clearly reflects what is agreed, in order to avoid costly disputes, currently with uncertain outcomes.