The Impact of Coronavirus on Construction and Engineering Projects [20 March 2020]
It does not appear as if the Coronavirus situation will resolve itself any time soon and it is almost inevitable that construction and engineering projects, both current and prospective, will be delayed or disrupted to some degree. If your project is affected, the starting point is to check the contract.
Current Construction Projects – Contract in Force
Time-bars and Records
As with any claim you may have under a contract, you should consider whether there are any time limits for issuing notices of claim or any other conditions precedent which, if not adhered to, may undermine your claim. As well as being alive to the notice provisions, It is also vitally important to keep records of any delay and disruption experienced so that you are in a position to substantiate your entitlement to additional time and/or money.
Most construction contracts include a force majeure provision for unforeseeable events that prevent the parties from performing their contractual obligations: civil commotion, acts of terrorism, war, epidemics and natural disasters are commonly included. The relief available to you in these circumstances will depend on the exact wording of the contract.
The JCT 2016 contracts include force majeure as a Relevant Event which would entitle the contractor to an extension of time if it delays performance of the works. Force majeure is not defined in the JCT 2016 contract but it seems likely that this Relevant Event would apply to the Coronavirus pandemic. It should be noted that force majeure is not a Relevant Matter under the JCT 2016 contracts and, as such, the contractor would have no entitlement to loss and expense even if entitled to an extension of time.
NEC3 and NEC4 do not use the term ‘force majeure’, but instead refer in the list of compensation events to events that stop the contractor from completing the works, which neither party could prevent and that an experienced contractor would have judged at the start of the contract as having a small chance of occurring (clause 60.1(19)).
Other Contractual Relief
While it is likely that most parties will immediately seek to rely upon any force majeure provisions in their contracts, other contractual provisions may apply to the effects of Coronavirus and it may be preferable to rely upon these provisions instead of (or in addition to) force majeure. For example:
a change in law or the exercise of statutory powers by the Government;
an instructed change to the scope of works; or
an instruction to suspend the works.
Depending on how long the effects of Coronavirus last, you may also need to be mindful of the termination rights under your contract.
Common law remedies - Frustration
The contract will be the best avenue of relief for an affected party. However, if none of the contractual remedies are applicable, the common law remedy of ‘frustration’ may apply. Frustration occurs where there has been a change of circumstances after the contract was made which is not the fault of either party and which renders the contract impossible to perform. If a court finds that a contract is frustrated, both parties are discharged from performance of their future obligations under that contract. It should be noted however that it is rare for cases advanced on the basis of the doctrine of frustration to succeed.
Future Construction Projects – Contracts not yet in existence
For any contracts that have yet to come into existence, you are unlikely to be able to rely on force majeure to excuse a future failure to perform due to Coronavirus. Most force majeure clauses require the event to be unforeseen at the time of entering into contract. Obviously, we are all now aware of Coronavirus and the potential delay and disruption it may cause.
Given the uncertainty of the effects of Coronavirus, pricing the risk is unlikely to be a realistic option. Instead, you should add the risk of any delay, disruption and additional costs due to Coronavirus (and its consequences) as an express compensable event.
The purpose of this note is to provide you with a reminder of the steps you should be taking to ensure that your contractual rights are preserved. Checking your contract and any amendments, ensuring that required notices are issued and maintaining good contemporaneous records should at least go some way to alleviating any concerns you may have in relation to your contractual obligations and liabilities. If your contract is not clear or you have any doubts about the steps you should be taking, please free to call us on 0151 647 8862.