Coronavirus - what does this mean for the construction industry?

As the Coronavirus (Covid-19) pandemic continues to spread and government advice on social distancing becomes ever-stricter, it is certain that the construction industry will experience significant disruption for some time.

The only things that are currently uncertain are a) how long that disruption will last, b) how widespread it will be, and c) what will the cost of that disruption be to those in the industry?

It is this last question which is likely to be weighing most heavily on all of our minds right now. In the face of potentially significant losses, parties will want to know where the risk lies in respect of existing contracts, and how risk should be allocated in relation to any new contracts. Construction and Litigation expert Sam Bawden advises on the likely effects on construction contracts during this turbulent time.

Existing Contracts

In regard to any construction contracts that are already in place, it is fair to assume that the majority, whether they are standard form or bespoke, will not contain specific clauses which clearly provide for what happens in the event of a global pandemic.

For example, the JCT suite of contracts provide the contractor with the right, subject to notification, to obtain an extension of time where the works are delayed due to “Relevant Events” and to claim loss and expense where the regular progress of the works is materially affected by “Relevant Matters”. However, there is no direct reference in the (unamended) definitions of either Relevant Events or Relevant Matters to a pandemic.

Extensions of Time

Under the JCT contracts, until such time as the government forces construction sites to shut down, the only Relevant Event which might relate to the pandemic is “force majeure.” Unfortunately, English law has not yet provided a comprehensive definition of force majeure and the JCT contracts do not provide their own definition to fill the gap. Whether there has been (or will be) an event of force majeure in relation to any specific unamended JCT contract will inevitably therefore require a detailed examination of the facts and a comparison to precedent cases where an event of force majeure was found to have occurred.

Loss & Expense

Again, unless and until the government forces construction sites to shut down, there is little in the list of Relevant Matters that can be applied in the context of the Covid-19 pandemic. Perhaps the Employer may have instructed Changes as a consequence of the pandemic, but, again, that would require an examination of the facts.

This gives an illustration, by way of an example, of the current position under an unamended JCT contract. The position will inevitably differ under and between amended JCT contracts, other standard form contracts and bespoke contracts.

If you are unsure about your rights and obligations under an existing contract, we recommend that you seek specialist legal advice from experienced construction lawyers as a matter of urgency.

New Contracts

We note that our employer and contractor clients still appear to be negotiating new construction contracts and we have been inundated with messages from our professional services clients who, like Holmes & Hills, are continuing to support their clients through remote working. We hope this is a promising sign that many are acting to mitigate the economic effects of the pandemic.

In that context, those entering into new contracts just need to be mindful of risk allocation in relation to Covid-19. Now that disruption has become far more forseeable than it was even just a few weeks ago, it is likely to be harder to argue that such disruption is caused by, for example, “force majeure” (which is often considered to include an element of unforseeability).

How the relevant risks are allocated will depend on the parties’ respective bargaining powers. However, the key point is that parties now have an opportunity to specifically address this point and provide clarity either way; the last thing that anyone in the industry needs at this stage is costly litigation (or adjudication/arbitration as the case may be) on the question of who should bear the cost of any delay and disruption to the works, caused by what is now a known threat. This can be avoided by express clauses being included in any new contracts; those considering entering into new construction contracts are therefore strongly advised to seek specialist advice on this point from experienced construction solicitors.

Summary

If the government does go as far as forcing construction sites to shut down, this may open up additional arguments as to whether extensions of time and/or loss and expense can be claimed (either under the unamended JCT contracts referred to above, or other forms of construction contracts). We will have to wait to see whether the government reach a point where they consider such an extreme step to be necessary.

For as long as Contractors are permitted to continue working on site, but are likely to be delayed, it is important that parties understand what the implications of this are for their businesses. If you have any questions regarding Construction law, please contact Sam Bawden on 01787 275275.