It will come as no surprise that we are getting more and more enquiries from clients and housing associations in respect of the impact of coronavirus (Covid-19) on projects, and how best to resolve any issues under contracts. Considering how this will impact on projects is becoming more paramount, both at the contract drafting/negotiation stage, and in relation to ongoing projects.
Developers and contractors are increasingly approaching employers for extensions of time and also for additional monies. These are exceptional times which call for pragmatism from everyone involved, and this could mean employers need to look beyond the strict contractual terms in order to reach a position that will also work for all parties.
Our general view is that legally, as things currently stand (although this is obviously changing on an almost daily basis), under the standard provisions of the JCT suite of contracts (which are used in the vast majority of projects in the sector), where works are delayed as a result of the coronavirus it may well entitle contractors to additional time (and therefore relief from liquidated damages) dependent on the status of the scheme, but is unlikely to give an entitlement to additional money (unless the delay comes from delays in receipt of permissions or approvals for Development Control Requirement purposes). This is not certain though and will depend on the specific facts of the project in question.
We explore briefly below some of the key provisions that may be relevant here, and under which contractors may seek relief (the clause references are to the JCT Design and Build Contract 2016). These general positions and concepts are likely to be equally applicable to both building contracts and agreements for lease/development agreements. However, we strongly recommend you seek specific advice on a scheme-by-scheme basis to ensure the analysis fits particular circumstances and whether the general positions outlined are applicable and correct.
The main provisions that are likely to be relied upon are:
In addition to the events listed above, it’s possible that other events may become relevant as a result of coronavirus, for example: deferment of possession (clause 2.26.3), impediment/prevention by the employer (clause 2.26.6), civil commotion (2.26.10), strike or lock-out (2.26.11). We are not able to cover all of these events in this article, so please get in touch if you would like further guidance on these points. However, a contractor’s statutory right of suspension under the construction act is not exercisable where a housing association employer is still offering access and making payments (assuming the same are validly due and payable).
Note: This is different from the JCT clause 8.11 right of suspension and termination which could potentially also be relevant following, amongst other, things, prolonged i) force majeure ii) delay as a result of the government exercising its statutory powers to, say (possibly), shut down or prevent access to sites and/or iii) delay in being able to obtain approvals relating to Development Control Requirements - see further below in this regard.
A significant consequence of works being suspended for a sustained period of time due to events such as force majeure or exercise of statutory power (beyond two months unless an alternative period is stated in the Contract Particulars), is that it may give rise to a right to terminate the contract (clause 8.11). The way things are developing, a two month suspension looks more than possible), so it’s important to consider whether an extended period should apply in relation to coronavirus - we can assist and advise you what is appropriate in this regard, and what we are seeing developers and contactors accept.
As noted above, it is not 100% certain how the effects of coronavirus will be dealt with under the standard JCT and the specific facts of each project will be relevant to this. However, the above gives an indication of some of the factors to consider.
Practically we are seeing a range of solutions being proposed, from sharing the pain and granting extensions of time, to mandatory variations and provisional sums. Ultimately what is right for you will depend on the facts and your view on risk and the extent you are willing to manage the evolving situation.
However, we have already advised and acted across a significant number of live and upcoming projects considering the potential impact of Covid-19 (including the time and cost consequences of the same) and can guide you through the most practical and appropriate solutions to put in place.
We are offering a review service for live and imminent projects and can happily discuss how this works if you wish to get in touch.
Equally, we have developed a range of drafting solutions to address and apportion risk relating to Covid-19 for new projects to align with differing and preferred risk apportionment and profiles. Again, please contact the team should you wish to discuss this or explore the various options.
Ultimately, we have already successfully implemented a range drafting solutions for a number of clients with coronavirus-related issues, and can assist and respond rapidly and practically to issues you are facing.
Advice on risk and drafting solutions:
Immediate claims advice: