Coronavirus & construction - causation is key
In the last few days, both the UK and Scottish Governments have announced a raft of measures designed to delay the spread of Coronavirus, or COVID-19. With the lockdown now in place, what does that mean for the construction industry?
Workers are still commuting to busy building sites despite the Government requiring all but essential workers to stop work or work from home. The UK Government has said that building work could continue if it can be done safely in the open air and following the guidance on social distancing. Meanwhile, in Northern Ireland the deputy first minister, Michelle O’Neill has said that building sites can continue to operate as long as they obey social distancing guidelines.
Yet, in Scotland, Nicola Sturgeon has said building sites "should close for the period of the efforts to combat this virus”. She told MSPs on Tuesday afternoon that construction workers must cease building projects unless they are essential, such as building a hospital. She did, however, add that if measures can be put in place which will ensure safe working on construction sites, then this position may change in the future.
The position is different across the UK is different, with discussions at this afternoon’s PMQ’s failing to address the confusion across the industry. The industry is awaiting the publication of further guidance on whether construction as a whole is essential work, and if so, what projects are critical. So far, the additional guidance issued to businesses makes no reference to the construction industry.
Despite the confusion, some contractors have taken the decision to close down sites across the country. If you are thinking about closing down your site, wherever in the UK that may be, what do you need to consider?
Claims for time and money
Your starting point should be the list of Relevant Events and Relevant Matters contained in the contract. With many projects, where there are standard amendments to the standard form contracts, whether you are using SBCC, JCT or NEC, any contractor is likely to be looking at the amended force majeure clause to ascertain whether there is an entitlement to an extension of time and loss and expense. A guide to force majeure clauses in contracts, published by our colleague David Goodbrand, is available here.
If you are a contractor seeking to rely on existing provisions to make a claim, make sure any contractual notice provisions are complied with. If they can’t be, due to the lockdown, consider if you need to agree an amendment to these provisions before the works stop.
The right to claims for time and money may differ depending on who takes the decision to close the site – has a sub-contractor refused to attend before the site is officially closed, or is the closure a result of an instruction by the Employer?
Causation is Key
As with any claim for time or money under a construction contract, the key to the success of the claim is causation: did the event i.e. the existence of Covid-19 actually cause the delay complained of? If a contractor cannot show the event actually caused the delay or cost complained of, then the claim will fail.
Suspension and Termination
Construction contracts will usually contain the right for parties to suspend the works in a specific set of circumstances, and then terminate the contract if that suspension lasts for a specific time, very often 2 months.
Either party will usually have the right to suspend the works in the event of force majeure, or the exercise by the Scottish Government or UK Government of any statutory power which directly affects the execution of the works.
Without more definitive guidance on what is “essential business”, and until emergency legislation is brought in to deal with these issues, it is not clear that the current guidance from the Scottish Government would amount to an exercise of statutory powers.
Suspending works in the short term will ultimately lead to a right to terminate, if the restrictions are not lifted within the contractual period. Think carefully about any longer term liabilities which may arise as a result of termination.
What can you do to protect yourself?
- Make sure you are keeping detailed records on any delays to a project and the costs associated with those delays.
- Remember, no matter what Relevant Event of Relevant Matter is claimed, a contractor is not relieved of its obligation to mitigate delays and associated losses.
- Check what insurance cover will be provided in the event of a site shutdown.
- Consider how site security could be maintained in the event of a shutdown.
- Don’t terminate a contract without seeking advice on your contractual rights. Wrongful termination can be a costly mistake.
- If the site is staying open:
- Consider adding some flexibility to any Site Manager, Supervisor or Project Manager provisions. If one of these parties is forced to self-isolate, the ability to send a replacement to site would help.
- Consider if design team meetings can be held remotely to minimise the numbers of people on site.
9th April 2020 - 16th April 2020
The aim of these sessions is to discuss the key issues facing the industry during this crisis.
6th April 2020
Fenella Mason, Colin Clelland and Douglas Simpson discuss site closures and the potential risks.
6th April 2020
What part does frustration have to play in construction contracts amid the coronavirus outbreak?