With the construction industry now learning to cope with the impact of COVID-19, what will be the impact on commercial Clients/Employers/Developers and how should they respond to and deal with their contractors going forward?
The health and safety implications resulting from COVID-19 will need to be managed by the Principal Contractor on each construction site. The implications will vary from site to site and will no doubt be affected by matters such as location, e.g. city centre or isolated, type of project, e.g. local tradesman or nationally based companies and nature of the works, e.g. trades that can work in isolation or operatives needing to work in close proximity to each other.
The Principal Contractor is best placed to address these matters both in practical terms and contractually. Assuming the Developer was already compliant with his health and safety obligations prior to COVID-19, it would be unwise for any Developer to interfere with construction operations going forward, beyond ensuring, through his (CDM) Planning Supervisor, that good practise is being followed.
This is against the background that the Government has confirmed that construction sites should continue to operate during the current COVID-19 pandemic. The Secretary of State for Business Energy & Industrial Strategy, also confirmed that the Site Operating Procedures published by the Construction Leadership Council (https://www.constructionleadershipcouncil.co.uk/) is aligned with Public Health England’s guidance that must be implemented in the workplace.
The most common contractual concerns Developers have in relation to COVID-19 are when will my project be completed and who will be liable for any COVID-19 related delays to completion, e.g. should an extension to the date for completion be granted?
As with any contractual concerns the first place to look will be the construction contract between the parties. These will inevitably vary from project to project. The contract may be one of the many standard forms, possibly amended or a completely bespoke form of contract. However, the potential solution, as ever, will turn on the facts and circumstances of the specific project.
One area that will be considered could be whether an extension of time would result from the imposition by the Government of a statutory power. The argument against this is likely to be that, as noted above, the Government has stated that the construction industry should continue subject to implementing the CLC’s guidance on Site Operating Procedures.
Assuming the Developer has not instructed their contractor to stop work or amend the way the work is carried out, then the most relevant extension of time provision is likely to be force majeure. If there is no such provision, it may be that the entire risk of any delay could fall on the contractor.
Where there is a force majeure provision, the position is still far from clear cut. Whilst the definition is generally considered to cover unforeseeable circumstances that prevent a party from fulfilling a contract, the question is does COVID-19 prevent the contractor from carrying out the works or does it just make construction more difficult, time consuming and expensive? Thus, force majeure could be argued as not being relevant in the contractual context.
The onus will fall on contractors to demonstrate their case for an extension of time utilising detailed records of progress and the delay caused. Unless the site has been closed, this is likely to be a disruption issue which is usually hard to demonstrate at the best of times.
The points highlighted above are just as likely to impact on potential future COVID-19 related delays. Where a delay resulting from COVID-19 has already been identified on a project, it is likely that going forward, COVID-19 will result in an on-going impact, to some degree, until project completion. The Developer will then need to consider what this further delay is likely to be, who will incur the liability for this delay and how confident are the parties of their contractual and practical positions.
Even if both parties accept COVID-19 is an event permitting an extension to the completion date, it would be very unlikely this would provide the contractor with any entitlement to recover loss and/or expense. In effect the loss would lie where it falls, i.e. the Developer would be unable to recover his damages and the contractor would be unable to recover his loss and expense.
Of course, COVID-19 is unlikely to be the sole cause for any delay to the date for completion. There could be the Developer’s own risk events such as late information or changes to the scope of works or the Contractor’s risk events, such as failure of sub-contractor performance, overly optimistic programme durations and the like.
Whilst the ever-evolving case law on this area will provide some guidance, as mentioned before, as ever, this will turn on the facts and circumstances of the specific project. The old mantra of records, records and records could not be truer. Developers should never take such records for granted and should be ensuring their consultants are keeping copious records. This is something which may be hard where consultants in lock down are unable to visit site even though construction operations are continuing.
The Way Forward
Given the degree of uncertainty at present, perhaps it may be better for the Developer to agree (as soon as possible) a new completion date (in a written document/agreement). This new completion date could always be extended should the COVID-19 rules related to construction sites be tightened, providing some comfort to the contractor. Such an agreement would still provide far greater certainty to both parties.
Whilst such an agreement may result in some concessions being made by the Developer, this may be repaid by greater certainty going forward and a reduction in the risk of claims for future COVID-19 related delays. The risk for Developers is, for the next few months, most delays may be attributed to COVID-19 regardless of the actual reason, which may be very hard to identify. Any agreement would greatly minimise this risk.
Any agreement between the parties could perhaps include a reduction in damages, perhaps just for the first few weeks of delay, with the rate increasing as any potential delay increases. This reduction in the risk of damages, may assist with agreeing a shorter programme period with your contractor.
Alternatively, if an agreement cannot be reached, can the parties at least agree the new method of working, level of resources to be utilised, etc. At least there would then be some check/benchmark as to whether the Contractor is using best endeavours. Otherwise, identifying the true reason for any further delay could become very messy.
We would also recommend obtaining weekly reports including labour and plant returns for the whole project duration. Additionally, weekly progress photographs from fixed agreed locations and weekly progress reports, would be helpful in dealing with any future claims.
As part of the weekly update, early warnings should be flagged up by the Contractor, i.e. problem with weather, trades, changes/variations, material deliveries, etc and mitigation measures proposed by the contractor (if possible). Of course, this should happen as a matter of course, but all too often, these are ignored until late in the project when a claim is submitted. As mentioned above, do not just rely on the Contractor to provide this information, ensure (as far as possible) your consultants are reviewing and checking this information. Otherwise, if you do receive a claim it may then be hard to object to contemporaneous information.
In conclusion, be aware of the risks, ensure records are being maintained and if possible, give serious consideration to promptly concluding a settlement agreement with your contractor for the fixing of a new completion date.
As always should you need any assistance in matters of contract, programme or financial management, please contact us at Edge Consult.