These are unprecedented times for the construction industry. With the UK entering its first day of lockdown, we are in the midst of the most stringent social control measures that modern society has ever seen.
Traditionally, the construction industry has been adversarial. Over the past weeks, we have seen a flurry of defensive activity, in particular a rush to define parties’ strict legal and contractual rights against each other. While this is undeniably important, it is only part of the picture. This is a new situation; one that calls for a new, collaborative, approach.
There was a lot of confusion following the Prime Minister’s announcement yesterday evening, on the operation of construction sites specifically, and industry bodies are working hard to clarify the position. The UK’s housing minister has since confirmed that construction sites can remain open if necessary, provided that social distancing measures are observed.
Regardless of strict government guidance, what is now clear is that the effects of COVID-19 will be felt by all parties in the industry. As supply chains weaken, movement of labour and equipment becomes impossible, and productivity on-site deteriorates, creative solutions will be needed. As pressure to increase and maintain social distancing ramps up, and construction is in danger of grinding to a halt, what solutions can the law offer?
The starting point will always be the contract.
From a contractual perspective, parties will usually be concerned about three things when it comes to COVID-19: additional time, additional cost, and suspension/termination.
Whether the COVID-19 outbreak is an event that allows parties to claim additional time and cost, and/or suspend or terminate, will depend wholly on the contract terms.
One of the main ways in which parties seek to claim additional time/cost is to is to classify COVID-19 as a “force majeure” event under the contract. However, there is no single definition of “force majeure” in English law, and many contracts fail to define it (notably, the JCT suite). Broadly, it is understood to mean an unforeseeable event outside a party’s reasonable control, which prevents that party performing its obligations.
For contracts entered into before the outbreak, COVID-19 is likely to constitute a force majeure event (subject to the contract terms).
For contracts entered into after the outbreak, however, COVID-19 is foreseeable. Care must therefore be taken to ensure the effects of COVID-19 are discussed, agreed and recorded expressly in the contract.
Ultimately, however, the contract is only the starting point. In our view, collaboration will be king in overcoming COVID-19. Wherever possible, parties should engage with each other at an early stage, and maintain an open and positive approach to problem-solving. Contracts do not have to be inflexible.
Our advice for all parties is:
- Initiate an internal review of all ongoing contracts to ascertain the current contractual position;
- Engage with other contractual parties at an early stage to discuss the difficulties faced by all, and whether agreements can be reached to mitigate the difficulties and share the burden;
- Record all agreements in writing. If appropriate, draft formal amendments or an addendum to the existing contract;
- In the meantime, take immediate steps to protect your position under your existing contracts (for example serving the requisite delay notices, or considering the suspension/termination procedure);
- Maintain accurate records of project progress and steps taken to mitigate the effects of COVID-19.
- Undertake a comprehensive review of the potential effects of COVID-19 on the project and on your ability to perform your obligations;
- Address COVID-19 and its effects expressly in the contract – plan ahead for possible scenarios and how they should be dealt with. Ensure all agreements are carefully drafted and say what you want them to say;
- Be creative with solutions – you can agree almost anything;
- Embrace flexibility and transparency in your negotiations.
The effects of COVID-19 will be felt for some considerable time, and the ability to adapt will be key. As matters evolve, it is likely that sophisticated contract drafting will be needed to balance the ongoing effects of the outbreak against the need for projects to continue. From a legal perspective, a shift away from the traditional adversarial attitude towards a collaborative approach will be invaluable in adapting to the challenges presented by COVID-19.