The Coronavirus pandemic and the measures being put in place continue to evolve by the hour. The construction industry with its inherent complex supply chains and daily need for person-to-person contact, is likely to be severely impacted. All parties will need to be extremely proactive in managing their risks, but also need to consider their rights and responsibilities under their contracts. I thought it would be useful to offer some perspective and guidance from a legal point of view in the form of some Frequently Asked Questions.
This overview will consider the issues resulting from
Coronavirus in the context of four commonly used standard form contracts. These are:
- The JCT Design and Build Contract 2016 (JCT),
- The NEC4 Engineering & Construction Contract
- The IChemE Red Book Fifth Edition 2013 (IChemE)
- The IET MF/1 Model form of Contract for the
design, supply and installation of electrical, electronic and mechanical plant
This guidance also assumes that no amendments have been made
to the standard form. If any such amendments have been made, it will be
necessary to consider their effect.
How may Coronavirus affect the management of the site?
Contractors will have various duties relating to health and
safety, and in particular a duty under the Construction Design and Management
Regulations (CDM) to plan, manage and monitor the construction phase, as well
as coordinate matters relating to health and safety to ensure that, so far as
is reasonably practicable, construction work is carried out without risks to
health or safety.
That may require the works to be organised differently, so
as to minimise the risk of the transmission of infection, with a possible
reduction of the numbers present on site at any one time. It may also be
necessary to monitor employees and ensure that any who show possible symptoms
go into self-isolation. All of this may disrupt the regular carrying out of the
works. Aside from that there may be staff shortages and difficulties in
obtaining deliveries of materials from suppliers.
Can I get out of the contract?
There is no general rule that a party is excused just
because factors beyond their control mean the contract takes longer, or is more
expensive, to perform. In extreme cases the law will automatically discharge
the parties from further performance where the contract has become incapable of
being performed because the circumstances mean that it has become something
radically different from that which was originally undertaken. This is known as
frustration. Short of a government order requiring closure of building sites
though, it seems unlikely that frustration would apply.
Force majeure is a term used to refer to things like wars,
riots and “Acts of God”. However, it is not a rule of English law, although it
has been adopted as a contractual term in many English law contracts. The
problem is that it is not universally defined.
Briefly, here’s how each of the previously mentioned contracts addresses
- IChemE defines Force Majeure as “any
circumstance beyond the reasonable control of the parties which prevents or
impedes the due performance of the Contract by either party including the
following”. There follows a list of events, which include “government action or
trade embargo” and “epidemic”.
- MF/1 contains a similar definition, which does
not, however, specifically mention epidemic or government action, but does
include” any circumstances beyond the reasonable control of either of the
parties”. This would probably cover Covid-19 and government measures in
- JCT uses the term “force majeure”, without
defining it. In the absence of a definition, its meaning will depend on
judicial interpretation in the context of the contract as a whole. Case law
suggests that it will include an epidemic such as Coronavirus, although this is
- NEC4 does not use the term “force majeure”, but
makes similar provision for events which stop the Contractor from completing
the whole of the works, or stop him from completing them by the date for
planned completion, which neither party could prevent and which an experienced
contractor would have judged at the contract date to have such a small chance
of occurring that it would have been unreasonable for him to have allowed for.
As you will see below, the contractual consequences of force
majeure can vary considerably.
Am I entitled to an extension of the time for completion?
Unless the contract specifically allows additional time for
completion, contractors are likely to be exposed to liability for damages if
works are delayed – and will therefore need to consider seeking an extension.
Again, let’s briefly look at how this is handled by each standard contract:
- JCT has force majeure as one of its ‘Relevant
Events’, entitling a contractor to an extension of time where it has caused
delay. Other “Relevant Events” may also apply, such as the exercise of a
statutory power by the government or local authorities. However, mere advice or
exhortation by the government would not amount to exercising a statutory power,
so in that case contractors would need to rely on force majeure
- MF/1 entitles the Contractor to an extension of
time for circumstances beyond the reasonable control of the Contractor, which
would probably include delay due to Coronavirus.
- IChemE entitles the Contractor to an extension
of time for delay caused by Force Majeure (as defined).
- NEC4 states that the Contractor is entitled to
an extension of time where an event occurs which stops the Contractor from
completing the whole of the works, provided that neither party could prevent it
and an experienced contractor would have judged it at the contract date to have
such a small chance of occurring that it would have been unreasonable for him
to have allowed for it.
In all cases it is vital to follow the correct procedures
under the contract and, in particular, to give the appropriate notices on time,
because otherwise the right to an extension of time might be lost.
Can I recover additional costs?
There is no general entitlement to additional costs as a
result of Coronavirus. It all comes down, inevitably, to the specifics of the
- For JCT there is no entitlement to loss and
expense, so the contractor will have to take that on the chin, or use their own
insurance (although that is unlikely to cover them anyway).
- IChemE requires each party to bear their own
costs arising from delay by force majeure
- MF/1 does not contain a general entitlement to
additional costs arising from Force Majeure, but the Contractor is entitled to
additional costs arising from changes to statutory and other regulations and
changes in the cost of labour, material or transport, any of which may be a
consequence of Coronavirus.
- NEC4 does state that the Contractor is entitled
to additional costs where an event which stops the Contractor from completing
the whole of the works (as described above) occurs. It is vital to follow the
correct procedures in the contract for claiming such costs.
Termination for Force Majeure
Finally, it makes sense to look at what each contract allows
- Under JCT, either party has a right of
termination where the carrying out of the whole or substantially the whole of
the uncompleted Works is suspended for a specified period (normally two
months). This may be a high bar to reach where Coronavirus causes serious
disruption without actually causing a complete suspension of the works.
- Under NEC4, the Contractor has a right of
termination where an event occurs which stops the Contractor from completing
the whole of the works (as described above), and the event is forecast to delay
completion by more than 13 weeks.
- In the case of IChemE and MF/1 the bar is set
event higher: under IChemE the works must be substantially prevented for a
continuous period of 123 days before there is a right of termination, while in
the case of MF/1 the period is 120 days.
On top of the burden of managing the practical difficulties
created by Covid-19 and keeping abreast with government measures, it is
important to become familiar with the relevant terms of your contract so that
you can take the appropriate actions at the appropriate times. If you are about
to enter into a contract, you should consider whether to include specific
provisions to deal with Covid-19. This is now a known, but unavoidable risk.
How it is to be managed will need to be a subject for discussion and
negotiation between the parties.
As ever, I recommend that you seek professional advice to
help you through these unprecedented times.