As the impact of coronavirus is now being felt on development projects across the UK, contracting parties are having to consider the potential impact on existing construction contracts, including on timescales and cost. We have considered below the relevant provisions of one of the most commonly used standard forms; the JCT Design and Build, 2016 Edition. It is worth bearing in mind that standard forms are widely amended so care should be taken to check the actual provisions of each contract.
Termination
One major impact of the outbreak of coronavirus may be that it gives rise to a right for parties to terminate construction contracts which are in the form of the JCT Design and Build, 2016 Edition. If the carrying out of the whole or substantially the whole of the works are suspended for a continuous period of 2 months (or such other period as is specified in the Contract Particulars) as a result of either force majeure or the UK government exercising a statutory power directly affecting the execution of the Works, either party may notify the other that it will terminate unless the works recommence within 7 days. We have considered below the meaning of each of these events in further detail.
The consequence of such a ‘no fault’ termination will be that the parties will no longer be obliged to perform the remainder of their obligations under the contract and the contractor will be entitled to be paid the total value of work and design executed before the date of the termination, any loss and expense due to that date, reasonable costs of removing plant etc. from site, and the cost of materials or goods properly ordered. It will not be entitled to any direct losses suffered by the contractor due to the termination. It is conceivable that some contractors and employers may seek to take advantage of the any period of suspension if they no longer wish to perform their obligations under the contract.
Extensions of time and loss and expense
The JCT Design and Build, 2016 Edition provides an entitlement to an extension of time for contractors in the event that the UK government exercises a statutory power directly affecting the execution of the Works. We consider that the guidance and legislation issued by the UK government to date (as at 25 March 2020) is unlikely to be sufficient to satisfy this ‘Relevant Event’ however a number of the measures already imposed by governments of other impacted countries would do so. This should therefore be kept under review as any restrictions are imposed by the UK government.
The other ‘Relevant Event’ of note under the JCT Design and Build, 2016 Edition is ‘force majeure’. This is a term used in French law which has been incorporated into English contracts and is said to cover all “circumstances [which are] independent of the will of man, and which it is not in his power to control”. Importantly, there is no settled definition in English Law and it is undefined in the JCT standard form. ‘Force majeure’ is rarely used by contractors claiming an extension of time as most of the circumstances which would ordinarily fall within the term are also covered by one of the other Relevant Events under the JCT. There is currently no authority confirming whether coronavirus is or is not an event of ‘force majeure’ giving rise to an extension of time, however it is anticipated that many claims will be made on this basis in the coming months and the question will inevitably be determined by a Court in due course.
The JCT Design and Build, 2016 Edition is clear however that no loss and expense flows from either force majeure or the UK government exercising a statutory power directly affecting the execution of the Works. For contractors this means that whilst they may well be entitled to relief from liquidated damages in the coming months they will be contractually responsible for all of the additional costs of possessing the site and completing the works once any restrictions are lifted. This allocation of risk will undoubtedly form a key consideration for contractors considering their commercial and legal options.
Finally it is worth bearing in mind that the employer will still need to comply with its obligations under the contract and any failure to do so (including to provide instructions, information and access as required) may give rise to a claim for both an extension of time and loss and expense on the basis of an impediment, prevention or default of the Employer.
Recommendations:
- Engage with other contracting parties at any early stage;
- Check the period of suspension specified in the Contract Particulars;
- Review which events give rise to an entitlement to additional time and/or cost under your contracts;
- Familiarise yourself (and comply) with any notice requirements;
- Be mindful of other contractual obligations such as to “constantly use best endeavours” to avoid delays;
- Maintain detailed records on progress and events causing delays (including related to any sub-contactors);
- Check any relevant insurance policies (particularly in respect of site security);
- Where possible in new contracts agree and provide for the risk allocation of delays and costs resulting from the non-availability of labour or materials due to Coronavirus; and
- Agree provisions for service of notices that take account of the new landscape i.e. consider expressly providing for service by email.