Construction Contracts and Coronavirus. How Contractors Can Move Forward

Although everyday activities are now slowly starting to get back to normal and construction sites open up, we are now witnessing daily activities slowly returning to normal. Indeed, construction sites have been one of many industries that have had to close for a brief period. As many sites are now back open, progress has inevitably been delayed. Subsequently, contractors might find their obligations challenging to fulfill due to things like material restrictions or labour shortage which is a consequence of the many government measures to reduce the spread of coronavirus.

Ultimately, if you’re wondering how your construction contract may be affected, we provide everything you need to know about JCT D&B 2016 and NEC4 ECC, two of the most popular types of contracts.

 

JCT 2016 Contracts

How to Get an Extension if You’ve Been Affected by Corona

If your contract is part of the JCT 2016 suite, contractors might be able to claim an extension if they have already attempted to prevent a delay, carefully followed the notification process and shown that the project completion date will be delayed.

Specifically, this applies under these two events:

Exercise of Statutory Powers. For example, if the government decides to close a site down after the base date. Although it’s uncertain whether the government will ever bring this into force, it could be enforced for specific locations. For example, ones which have a high number of operatives.

Force Majeure. Because this isn’t defined in JCT contracts, case law and commentary should be referred to in order to understand the exact meaning. Even then, it is somewhat difficult to interpret because there are no known cases of this in JCT contracts. In short, if an event is unforeseeable when the contract starts and couldn’t have been prevented by either party, it then applies.

How to Cover Loss or Expense as a Result of the Coronavirus

Under JCT, there are separate rules for entitlement which relate to cost or time. In either case, a contractor is not automatically entitled to costs associated with delays under force majeure or exercise of power.

Fluctuation provision can apply, which might allow a contractor to increase their prices if market price increases. Of course, this depends on the choices included in the contract for each party and isn’t usually a feature of fixed-price contracts.

If a contractor is eligible, they may be able to claim relief from things like problems associated with poorer supply, or the rush to get projects finished once restrictions are lifted.

How Contractors Should Notify Delays Caused by Coronavirus

Under a JCT contract, a contractor must let their employer know if they expect their work’s progress to be impacted in any way. Contractors shouldn’t be too worried if this notification isn’t made in a timely way as this shouldn’t affect their entitlement.

However, for the sake of best practice, contractors should notify their employer ASAP not only to protect their position but to also avoid criticism through the claims process if this happens.

Your Rights if a JCT Contract is Terminated under Force Majeure

Coronavirus does have the potential to shut down specific construction sites through force majeure completely. If this happens, either party is entitled to walk away from the contract. Moreover, if the contract is suspended for over two months, either party can terminate their agreement, no matter the reason. Above all, this is likely to happen because most construction sites are now returning to normal.

NEC4 Contracts

These types of contracts are different from JCT as they allow contractors to claim for added time or money which are considered together in the category of ‘compensation events’. They don’t use force majeure as above but contain similar provisions.

In the context of COVID, this means that if a contractor is unable to complete their work and subsequently misses an urgent deadline, the contractor wouldn’t be held reliable because they couldn’t predict this.

What each party must do is inform each other about events as they happen, or at least eight weeks from when they occur. If contractors don’t do this, they will not be entitled to increase their price or change their deadline as a ‘condition precedent’. Early warning notices are encouraged so that risks are visible and can be minimised in advance.

Best practice helps eliminate ‘time barring’ arguments which can occur for condition precedents. Sometimes, contractors may also be able to claim money back through force majeure.

Because some NEC contracts are fixed in price, the compensation a contractor may receive could be based on costs incurred, which is likely given current circumstances.

In the construction sector, the government may intervene to prevent other problems further down the line, such as insolvencies in supply chains. However, the canceling of contracts is unlikely.

If a force majeure severely delays work, an employer may have little other choices than to terminate some of its contractors. However, in the majority of cases, knowing what will happen in the near future is difficult under current circumstances.

Essential Things to Remember About Current and Future Contracts

The chances are that if a contractor is operating under JCT forms, they are likely entitled to an extension based on current COVID delays. The government did not bring in a forced shut down of construction sites under statutory powers. However, the risk of a force majeure event still existed.

The force majeure is problematic in itself as it is mostly uncoded and unexplained.

The position of contractors under NEC4 contracts is perhaps more visible. Specific hurdles need to be overcome, and contractors need to indicate that delays caused by COVID are unforeseeable, and prove they are complying with any precedents set.

Regardless of which type of contract they are working under, contractors can claim for money or time lost. Specifically, they will need to show that their progress has been delayed, specifically regarding projects on a ‘critical path’. They’ll also need to prove that extra costs have been incurred and that they have put things in place to reduce the impact of COVID.

Putting the challenges aside, contractors need to make sure they continue to manage their projects carefully and comply with critical notifications. Any new contracts drawn up will need to consider current and future risk, and provision should be firmly in place to help minimize inflated costs or time delays.

We also have another interesting article "Recession & Preparation as a Contract Manager"