While Covid-19 may impact upon construction contracts, it is important to note that only the direct and foreseeable consequences of the pandemic will be relevant if either party seeks to use it as an excuse for non-performance.
As the Employer
You may be entitled to Liquidated Damages if the work is delayed and the Contractor does not serve the required notices.
You may also be entitled to terminate the contract if the Works are unable to proceed for more than the ‘relevant time’ in your contract (generally, 2 months), and to appoint someone else to finish them.
As a (Sub-)Contractor
In the UK, standard forms of building contract do not refer specifically to the consequences of pandemic flu affecting a project. This means that a contractor who wishes to claim relief will have to rely on the generic provisions relating to delay and disruption of a project that may be included in the building contract.
As a result, in most forms of building contract, a contractor who wishes to claim relief for the effect of pandemic flu will have to show one of two things:
The Joint Contracts Tribunal forms of contract do not expressly list pandemics or epidemics as events that entitle the contractor to relief. However, they do allow the contractor to claim an extension of time for various reasons (see below).
One of those is ‘force majeure’. There are no reported cases on whether or not Covid-19 will count as a force majeure. The burden of proof that circumstances should be covered by a force majeure clause lies on the person seeking to say that they should - eg, the (Sub-)Contractor - for this reason, it may be difficult and/or expensive to rely on a force majeure clause if ‘pandemic’ is not specifically listed as a Force Majeure event.
If the Works site is closed either because of the Employer, the Contractor or the Government (see below), it may be possible to claim extensions of time under a JCT (or similar), but such extensions for time will only be granted if the correct notice is given at the correct time.
Delays & Extensions of Time
A contractor responsible for failing to complete on time is in breach of contract, which entitles the employer to claim damages. Such damages may be either liquidated (LAD's) or unliquidated (general damages).
Unliquidated damages will be assessed on the basis of the usual principles that apply to all types of breach. In short, the employer will have to establish that it has suffered a loss, and that the loss was caused by the contractor's breach.
Often the contractor must serve a notice on the employer or the contract administrator recording its opinion that an event has caused, or threatens to cause, a delay to the project. The contractor must comply with any procedural requirements in the contract, often regarding the form, content and timing of the notice.
If service of a notice operates as a condition precedent to an award of an extension of time, a mistake by the contractor (for example, in serving the notice outside the prescribed time period) will have drastic consequences. A contractor must read and understand any procedural requirements, since a failure to comply with them may bar its claim for an extension of time.
JCT (2016) - Relevant Event (Time) but not a Relevant Matter (Money)
2.27 1 If and whenever it becomes reasonably apparent that the progress of the Works or any Section is being or is likely to be delayed, the Contractor shall forthwith give notice to the Architect/Contract Administrator of the material circumstances, including the cause or causes of the delay, and shall identify in the notice any event which, in his opinion, is a Relevant Event.
2 In respect of each event identified in the notice, the Contractor shall, if practicable, in such notice or otherwise in writing as soon as possible thereafter, give particulars of its expected effects, including an estimate of any expected delay in the completion of the Works or any Section beyond the relevant Completion Date.
3 The Contractor shall forthwith notify the Architect/Contract Administrator of any material change in the estimated delay or any any other particulars and supply such further information as the Architect/Contract Administrator may at any time reasonably require.
Relevant Events are defined in clause 2.29 and may include:
- The Employer closing the site (2.29.7)
- The (Main) Contractor closing the site (2.29.7)
- The Government closing the site (2.29.13)
- Force Majeure (2.29.15) (see above)
Delay caused by a Relevant Event will entitle the (Sub-)Contractor to an extension of time, but no additional money.
In practical terms, it pays to keep good time-keeping records and thoroughly document any effect that Covid-19 has on the programme, together with ensuring that you serve clear and appropriate notices in good time.
Force Majeure & Termination of Contracts
Under the JCT contracts, if a Force Majeure event is ongoing for the ‘relevant continuous period’ (normally 2 months), the (Sub-)Contractor shall be entitled to terminate the contract under clause 8.11.1:
8.11 1 If, before practical completion of the Works, the carrying out of the whole or substantially the whole of the uncompleted Works is suspended for the relevant continuous period of the length stated in the Contract Particulars by reason of one or more of the following events:
.1 force majeure
then either Party may [give 7 days' notice to un-suspend the Works, or the contract will come to an end.
Note that this applies equally to the Employer or the Contractor - either party can use the clause to terminate the contract.
Under clause 8.12, the Parties then proceed to complete a final account and the Contractor must pull off site.