Coronavirus and Construction; What is the Contract Position?

COVID-19 is having a huge impact globally and the situation is rapidly escalating within the UK which will in turn affect all construction and infrastructure projects in the UK, with labour and material shortages being expected.  In the worst cases, projects will be suspended until the pandemic is brough under control.

For the self-employed, of which there are numerous within the construction industry, this is a worrying prospect, so it is vital that good public health practices are employed to minimise the impacts of COVID-19.  These should include

  1. Wash hands regularly and thoroughly as recommended guidance. Handwashing facilities should therefore be reviewed to check these are adequate;
  2. Maintain social distance between operatives and tradesmen ideally >2m;
  3. Avoid working in congested areas i.e disperse activities where possible and I would suggest maintain good ventilation;
  4. Avoid touching surfaces
  5. Use PPE wisely notably masks (where available) and gloves;
  6. Notify supervisor if anyone develops symptoms of Coronavirus and self isolate.

But where does all this leave Clients and Contractors alike?

Under the JCT suite of standard building contracts, which is widely used across the building and construction industry there are provisions covering delays to the works and the loss and expense associated with such delays.

The JCT Home Owner contract provides that the consultant will extend the working period “if the contractor cannot finish the work on time for reasons beyond his control”.  This would clearly cover a Coronavirus pandemic such as this.

The JCT Minor Works Building Contract states that where delay “occurs for reasons beyond the control of the Contractor…..the Architect/Contract Administrator shall give such an extension of time may be reasonable”.  This too would clearly cover a Coronavirus pandemic.

Crucially, however, there is no provision of any reasonable costs arising from such delay.  In essence, the Contractor is entitled to additional time, where it can be demonstrated that the virus had delayed the works, but not any costs for additional management time and hire charges etc. arising from such an event.  Both contracts only provide for any reasonable costs / direct loss and/or expense incurred due to the regular progress of the works being affected by compliance with any instruction.

The position becomes more complicated under the JCT Intermediate Building Contract’s and the JCT Standard Building Contracts which are designed for more complex building and construction projects such as large domestic projects through to building new schools etc., but the same theme is adopted.

In summary, these contracts provide for extensions of time arising from “Relevant Events” and changes to the price from “Relevant Matters”.   Epidemic or pandemic events such as Coronavirus are not listed as Relevant Events.  Therefore, contractors seeking entitlements resulting from the COVID-19 outbreak would most likely seek to do so under the “force majeure” relevant event.

Notably, in an un-amended JCT there is no contractual definition of force majeure. Parties should, in the first instance, check for a contractual definition of the term in any schedule of amendments.  Such definition may set out an exhaustive or non-exhaustive list of events or circumstances that may amount to force majeure.

Typically, an event of force majeure is one that is beyond a party’s control, could not reasonably have been provided against, could not have reasonably been avoided or overcome and is not attributable to the other party.

A statement of the meaning of force majeure by Goirand was approved by McCardie J in Lebeaupin v Crispin [1920] 2 KB 714 as applying to many English contracts, and suggests that an epidemic may constitute a force majeure event:

“Force majeure. This term is used with reference to all circumstances independent of the will of man, and which it is not in his power to control… this, war, inundations and epidemics are cases of force majeure; it has even been decided that a strike of workmen constitutes a case of force majeure.”

However, there are no reported cases testing the scope of the term “force majeure” in the context of JCT contracts.  Without a specific definition provided in the JCT, and without common law precedent, the meaning of force majeure may have to be determined by case law in the courts.  Some commentators have indicated that interpretation of force majeure under JCT is likely to be restrictive because similar matters, which would typically constitute force majeure, are already expressly dealt with as relevant events. As an epidemic/ pandemic is not covered by other relevant events, it would seem to be reasonable, however, for contractors to seek to rely on the force majeure relevant event to cover such circumstances.

Importantly, and as to be expected, the contractor must notify the Architect/ Contract Administrator forthwith, stating the applicable Relevant Event(s), “if and whenever it becomes reasonably apparent that the progress of the Works or any Section is being or is likely to be delayed”. Failure so to notify is likely to result in the contractor losing this entitlement, so it’s imperative to stay on top of notices and also give some consideration to when such a notice might need to be served, bearing in mind that that time may now not be far off.

Contracts often provide that a party seeking to rely on force majeure will need to be able to show that they have sought to mitigate the effects of the event and JCT contracts are no exception. There is a requirement on the contractor, albeit not expressly related or limited to force majeure, for example at Clause of the JCT Standard Building Contract 2016, to “constantly use his best endeavours to prevent delay in the progress of the Works or any Section .. and to prevent the completion of the Works or Section being delayed or further delayed beyond the relevant Completion Date”. This obligation should not be overlooked because, again, a failure to do so could result in a loss of entitlement to an extension of time under the JCT contracts. Contractors will likely take certain steps as a matter of course, such as seeking alternative supply sources, but should also be taking steps to minimise the impact of the virus itself, for example by adapting site attendance protocols.

It is worth noting that ‘force majeure’ is not included in standard form JCTs as a “relevant matter”, so whilst the contractor may be entitled to an extension of time for a force majeure event, they would not be entitled to loss and expense.  The effect of this is that a contractor does not have to pay damages for delay, but he must bear any cost resulting from the delay (effectively meaning that a ‘force majeure’ event is treated as a neutral event, where the financial risk is split between the contractor and employer).