Construction Matters: Have you reviewed your contractual arrangements in light of your COVID-19 experience?

When COVID-19 began to take a foothold in the UK, and the Westminster and Scottish Governments imposed COVID-19 related restrictions on businesses, we received a wave of requests for advice from clients operating in the housebuilding sector.

These included: “Do I need to close my site?”, “How does health & safety law interact with the COVID-19 restrictions?” and “Who holds the risk contractually on the delay and additional costs associated with the impact of COVID-19?”

The answers to that last question were many and varied depending on the precise terms of the contracts entered into between house builders and their main contractors or works package contractors/suppliers.

In many cases foreseeability was a key issue. That is the foreseeability (or otherwise) of the coronavirus pandemic and the foreseeability of its impact on housing developments under construction at that time.

In most cases the relevant contracts had been entered into prior to COVID-19 and its potential impact being generally known about. That allowed contractors to seek to rely on contractual protections that turned on whether an event and its impact had been foreseeable or not at the time that the contract was entered into.

What questions do I need to consider in light of COVID-19?

As we slowly move back to normality (or enjoy the temporary easing of restrictions in the lull before a second wave!) it would be prudent for housebuilders to reflect on the terms of the contracts that they have entered into, or will enter into with contractors/suppliers going forward.

For example – “With the benefit of hindsight – do I think my existing contracts achieved the right balance in terms of COVID 19 risk allocation?”, “Do I need to update my template contracts for use on future projects in anticipation of a second wave or a future pandemic?” and “Do I need to open up and amend ongoing framework agreements (entered into pre COVID-19) to ensure that questions of foreseeability are assessed with reference to the time of the future call-off under the framework rather than when the framework was entered into?”

Some thoughts on risk allocation going forward

Given that on many housing projects the housebuilder is acting as principal contractor and has some of its own employees on site, we found that the trigger for site closure and, therefore, at least some of the consequences, was an instruction from the housebuilder.

Some housebuilders may want to reconsider how their contracts deal with the allocation of risk where they need to close the site to comply with law or guidance. In these “no fault” type situations is the fair balance that the contractors/suppliers get relief from time related obligations but carry their own delay and disruption costs? Should either party be entitled to terminate the contract on a no-fault basis if any such closure continues for a specified period?

We may also see contractors and suppliers taking a proactive and tougher approach if they feel that where the cards landed (based on existing terms and conditions) was inequitable. For example – will they want to insist as a minimum on demobilisation and remobilisation costs and the costs of inflation if there is a significant period of delay?

It will be interesting to see if housebuilders, contractors and suppliers take that time for reflection and, if they do, the impact that has on the allocation of risk in construction-related contracts in the housebuilding sector.

If you would like to review your contractual arrangements for housebuilding projects then please get in touch.

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