Summary
COVID-19 disruption and delays continue to impact the construction industry, and there is understandable concern about the further impact on the industry of costly and long-running disputes.
Both the Construction Leadership Council (CLC) and the government have issued guidance encouraging parties to act fairly and reasonably when administering contracts and agreeing variations, given the universal impact of COVID-19. The CLC gives practical guidance and provides pro forma documents to assist the parties’ discussions.
Anticipating disputes
COVID-19 disruption and delay has affected, and will continue to affect, the ability of parties in the construction supply chain to perform their contractual obligations. Disputes are likely to follow. We considered the impact of the impact of COVID-19 on the international construction industry in this webinar; this included issues around site closure, work force and supply chain, extensions of time, force majeure and the suspension and termination of contracts. In the UK, construction operations have not been ordered to stop altogether, but many sites have closed or restricted access for a period. Projects still running, or now re-starting, do so in the face of additional health and safety constraints and continuing supply chain disruption. We also considered contract administration in the context of COVID-19 in this webinar, including commercial and legal steps for consultants and considerations following sub-contractor or consultant insolvency.
In the context of COVID-19, the question of concurrent delay (i.e. overlapping delay events) seems likely to arise; this is a fertile area for disputes. Unamended JCT and NEC contracts do not expressly address concurrent delay; our note on Concurrent Delay in Construction Contracts outlines the principles.
CLC Guidance
The CLC has issued COVID-19 Contractual Best Practice Guidance, which supplements the Cabinet Office’s Guidance Note setting out non-statutory guidance on responsible contractual behaviour. Our separate note looking at the impact of the government's guidance is here.
The CLC guidance faces head on the industry’s concerns about becoming “embroiled in costly and long-running disputes”, given upward cost pressures, delays and risk of insolvency in the supply chain.
Key points from the CLC guidance include:
Collaboration: “Collaborative discussions” are encouraged, with a view to reaching agreement on how to deal with the relevant issues and the implications for the contract.
Tools to assist with negotiations: CLC provides pro forma letters alongside the detailed guidance. These are marked Without Prejudice and Subject to Contract; the CLC gives a brief summary of the principles and potential pitfalls when using these terms. Key points are (i) to ensure that communications in the course of negotiations are clearly identified as being WP and Subject to Contract, to avoid misunderstanding about whether or when there has been a final agreement, but (ii) to ensure that once an agreement has been reached it is clearly communicated and recorded, with the WP and Subject to contract tags removed.
Preservation of position: Obviously, the relevant contract terms govern the parties’ rights and obligations until a variation is agreed; the parties must preserve their position under the relevant contract, continuing to comply with notice requirements and similar, while negotiating.
Third parties: a number of ancillary or preliminary discussions may be needed with third parties before negotiations can progress and/or agreement be reached on varying the contract. These may include suppliers, insurers, funders, tenants and local authorities. Insurers and funders in particular may need to approve any variation which impacts on a party’s risk profile.
Delays - extensions of time and termination triggers: As programmes slip and completion dates are missed, breach of contract and delay claims loom. The CLC recommends agreeing a revised (and realistic, anticipating continuing difficulties) programme and extended completion dates, and waiver of any termination triggers in the contract. Employers are encouraged to consider supplier relief to encourage cash flow and keep projects moving.
Dispute Resolution mechanisms: Should a dispute be unavoidable, even while parties seek to be as reasonable as they can in the current climate, the CLC note summarises the most common forms of dispute resolution for construction disputes, including adjudication, litigation and forms of ADR. Even with willingness across the construction industry to offer support and forbearance where possible, a party with, for example, a contractual right to claim for delay or liquidated damages in the event of a missed deadline or completion date may well not be able to afford leniency.
Encouraging good industry behaviour is unlikely to prevent all disputes, but may reduce their number and size or scope. Courts are unlikely to take account of this type of guidance in future disputes.
If the construction industry can regain momentum without, as the CLC fears, becoming mired in disputes, the current disruption might provide lessons which will increase resilience and reduce costs for future projects. Increased use of technology, off site surveys and remote meetings, changes to supply chains and avoiding an overly site dependent labour model may all become the new normal.
See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.
