Construction Contracts and Coronavirus - What next?

As we work through this pandemic I am aiming each week to write a pair of articles with a construction focus: one for what NOW, one for what NEXT? 

I am not inclined to write for the sake of it, so I will only produce articles where I consider there is something new to say that could benefit any reader who operates in the construction industry here in the UK (specifically England and Wales). 

There are many sector-specific publications and organisations giving their opinions and advice and I believe that it is more important now than ever to “stick to your lane” and so my articles will focus on construction contracts: drafting them, negotiating them and resolving disputes under them. 

As at 14 April 2020, here is what I believe you need to consider when drafting and negotiating new construction contracts and asking yourself the question WHAT NEXT:

Back to basics

Before we get carried away free drafting “COVID Clauses”, let’s go back to the beginning and think about procurement.  If it is unlikely that your project can physically start on site any time soon, what can you be doing instead?

The fact that designers may be ready, willing, and able to work from home may mean that you consider procuring your project the traditional way – get your design team to fully design and specify everything up front and then get contractors to price the “ready to build” design.  This has the potential to save time, or at least to stop this being wasted time.  However, the construction sector seems to have really been benefiting from early supply chain engagement, so it may be that the early design team could involve the designers from a main contractor or specialist sub-contractors.

If you were heading towards a JCT Design & Build and still find the prospect of “single point design liability” attractive (whether to you or your funder) then don’t forget the option of splitting the contract and using a JCT Pre Construction Services Agreement (PCSA) so that you can progress the job prior to physical mobilisation.  Do remember, however, that there is no design liability under a PCSA – you either wrap that up when you engage the contractor under the full D&B, or you complete the job with a different contractor (and therefore do not use the first contractor’s design).

Now is a great time to carefully consider your approach to procurement for each project that you are working on.  The old way is not always the best way (although “if it ain’t broke don’t fix it”!).  Where projects cannot physically be progressed, there is no excuse not to have your procurement ducks in a row.

Allocating delay risk

The next few paragraphs are based on the premise that construction work is continuing in England and Wales (though not at its usual pace) and that “lockdown” and “social distancing” measures may come and go for many months yet to come.  It is also fair to note that the UK government has not explicitly ruled out a full ban on construction work in England and Wales. 

Over recent weeks there has been much discussion around “force majeure” and whether or not an element of foreseeability is attached, or whether the strict interpretation looks solely to the parties’ ability to control or influence the external factor.  Whilst delays relating to COVID-19 are foreseeable, the timing, nature and extent of the delays are almost certainly not.  But can parties still rely on “force majeure”? 

One possible approach is to consider the nature of the possible delays: a contract could distinguish between delays that slow down work on site, and delays that close the site.  Of course the risk here is a difficulty in ensuring it is always clear whether the event closed the site or merely prevented work.  Is the trigger government guidance, an HSE notice, a council notice, police involvement, an Act of Parliament? 

Alternatively, the parties could agree a “de minimis” level, stating that the first so many days are Contractor risk and thereafter Employer risk.  This could reduce the amount of paperwork in theory but throws up all manner of concurrency issues and could potentially tempt contractors to claim for longer delays simply to get over the de minimis threshold.

However you decide to deal with COVID-19 delays, it is important to always ensure that both time (relief from delay damages) and money (loss and expense claims) are dealt with properly.

The devil is in the detail

You may think that inserting a “COVID-19 Clause” is the only necessary step to make your usual preferred contract drafting fit for its new purpose.  However, as with any contract amendment, it is important to consider carefully what other changes may be necessary.  When embarking on a project now, when the one thing we can be certain of is ongoing uncertainty, it is more important than ever to review all clauses.  Have a careful look at:

• Notice provisions – can you serve notices by email? If not, how will you serve notice effectively if the other party’s registered office is closed?
• Timings – should the parties have more time for providing information, serving notices etc?
• Conditions precedent – are your “usual” conditions precedent fair and reasonable in these new circumstances?
• Termination following a period of suspension – if we have another extended “shut down” that forces the site to close, should this trigger a termination right and if so when and what are the consequences?
• Adjudication - for contracts where there is no implied right to adjudicate, if you are concerned about delays at Court over the coming months and years, would it be worth drafting in a contractual right to adjudicate?
• Execution – does your contract allow for execution in counter parts? Are the parties able properly to deal with executing documents effectively as a deed?

Don’t fail to prepare

When current restrictions are lifted and we start to return to normal (or find our new normal) parties will be keen to start on site straight away.  Now is the time to break the cycle of not getting contracts (and collateral warranties) signed until days before the first interim payment is due.  Staff not on furlough leave should be taking extra care to ensure that the contracts the company enters/prepares to enter at this time allocate risk appropriately for your business and that all the i’s are dotted and the t’s crossed, ready to get back out on site in due course, where most of you would rather be. 

Whilst some of the practicalities may be particularly challenging at the moment, there is no excuse not to have terms agreed and documents ready to be engrossed and signed (whether by pen/paper or electronically/digitally) when the final commercial terms can be agreed and the proper mobilisation commenced. 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.