What are JCT and construction contract provisions about Coronavirus?
We have had many clients contact us the past couple of weeks obviously concerned about the global pandemic and current situation surrounding such, each client has different questions and needs different advice, and in many cases the advice is changing daily and we as well as you are trying to keep up.
The biggest issue in construction in the current climate will be delays – these may be caused by unavailability of materials coming from further afield or even abroad and reduced workforces due to isolation and in some cases the restrictions on movement of people.
But what can you do?
All construction contracts should contain delay options, but you’ll have to read your contract for specific details, you may be on a standard JCT or NEC contract as a base, though these often get amended beyond recognition so each one needs to be evaluated individually. The standard JCT and NEC do have force majeure clauses in their contracts so provided that the clause hasn’t been amended or deleted you will have some protections in the current climate.
What is force majeure?
Force majeure is unforeseeable circumstances that prevent someone from fulfilling a contract: it is a fairly strict definition in most contracts and must only be used when there are no other options. For example, if events are cancelled as a precaution, prior to the government officially banning social gatherings, then you will have no recourse under force majeure. However, when sites are closed down, if borders are completely closed down to deliveries, basically if you absolutely can’t have any effect on the situation you will be covered.
So what do I actually do?
See what the contract actually requires, in a JCT the force majeure clause is a relevant event so you can apply for an extension of time and any additional payment you require – be aware that the virus is affecting everyone and they may not have the money to pay much additional costs! Your contract also will have more practical requirements; they may require a certain amount of prior warning, certain amounts of evidence or a revised programme based on your expected delays. The main area that force majeure is going to affect is liquidated and ascertained Damages (LADs), you can’t be responsible for any additional costs or liabilities outside of your control, including LADs, it won’t mean you get paid indefinitely but you will not be charged for the costs and losses outside of your control. You should as always try to reduce your liability for consequential loss too.
What about being paid?
If all sites are shut down many businesses are going to struggle as they won’t be getting interim payments but will still have staff to pay etc. It is always worth looking at your insurances, if you had existing business interruption insurance you may be covered against such a crisis. If you haven’t already had these kinds of insurances in place, look at getting them in future but any new policies they will likely have excluded any claims based around Coronavirus and possibly other pandemics.
In a worst case scenario you may be able to use the doctrines of frustration, which essentially means that if a contract has become impossible to perform, you are allowed to terminate the contract and be released from any obligations under such. Frustration has a stricter test than the test of force majeure, so be careful when you try to use it. The contract must be utterly impossible after exhausting all other avenues including delaying performance, using other suppliers, sourcing additional staff – everything. In times of uncertainty such as these, you may wish to consider whether this is the best option, as many other projects are being cancelled or delayed, you don’t know whether you will have sites available to work on when lockdowns are over.
The government is also providing additional help for companies not covered by insurances; this is changing day by day with more support given as the situation progresses, keep updated on government websites and the HSE for further information.