Construction Contracts and Covid-19

We appreciate that the Covid-19 pandemic is causing significant issues to our clients, both on the contractor and developer side. Below we set out some of the common issues.

Force majeure

Generally, the purpose of a force majeure clause in a contract will allow the contractor to claim for an extension of time, additional money, or, in some circumstances the termination of the contract, should an unforeseen event occur. The first step is to check whether there is a force majeure clause in the contract. The standard JCT contract does set out a provision for force majeure, this does not include the basic concept of a pandemic, but most commentators consider that the pandemic would be considered to be a force majeure event.

Extension of time in respect of Covid-19

Any contractor seeking to claim additional time to complete the project due to implications of the pandemic should document precisely how coronavirus has delayed the works. Below are a number of steps that any party experiencing delay as a result of the current situation should consider, these include:

• considering all possible grounds for claiming an extension of time or cost, whilst complying with all contractual notice periods, submitting notices as soon as possible
• detailing how the relevant Covid related event directly impacted the work. Updating the client and any project estimates as appropriate
• monitoring any periods of stopped works
• seeking to agree steps to minimise delay with third-parties/suppliers.

It is important to keep a record on a regular basis of the following:

• whether government guidance has changed
• all risk assessments addressing Covid-19
• if works on site have stopped
• whether the reasonable measures taken will result in a delay
• any other steps you could take to prevent further delays
• if there is a cost to those steps, whether it is reasonable to incur that cost
• whether there are any off-site works which could be progressed in any event.

There are a set of coronavirus clauses that can be included in a building contract to entitle the contractor to claim an extension of time and/or loss and expense where the progress of its works have been affected by the pandemic and/or it has incurred additional costs.

Recovering loss and expense

We expect that some contractors will be entitled to claim some relief as a result of the outbreak; the terms and scale will depend entirely on the terms within the contract and the circumstances of the project.

If a claim for an additional cost is going to be made, the contractor must notify the employer as soon as possible as some contracts include a provision whereby notification must be made within a set time period. There are a number of implications if a notice is not issued within this time frame.

An alternative to this is for the parties to enter a voluntary agreement to cover the period that Covid-19 impacts site operations, and that allows the original contract provisions to remain and continue again when appropriate – this would, of course, need careful drafting.

Terminating the contract

The purpose of clauses, such as force majeure, is to protect an innocent party. So that, should a significant event beyond their control occur, that party may be excused from the performance without being liable to the other party.

If there is no force majeure clause, other provisions (such as frustration) may apply when wishing to terminate the contract. However, terminating a contract is often complicated and so instructing a specialist is advised.

Engaging with the other party about Covid-19

Communicate with the other party regularly. Where there is a risk that the contract cannot be performed, it would be worth seeing if all parties can mutually agree to alter the terms of the contract; such as the timing and/or the payment terms. Any variations will generally have to be agreed by all parties, and any decisions should be carefully documented where these are agreed.

We Can Help You

If you have any questions regarding the impact of coronavirus on any of your projects, please contact our specialist construction team for further assistance through this website or by calling 0330 404 0749.