6 March 2020

COVID-19: What will the impact on construction projects be?

The WHO has declared the COVID-19 a public health emergency of international concern with the potential to become a pandemic, and the government has cautioned that cases of COVID-19 in the UK are likely to rise significantly over the coming days and weeks.

In the event of a major outbreak of COVID-19 in the UK, construction projects could be affected. Should there be significant interruptions in supply chains, or if workers are required to down tools and remain off-site for long periods of time, what rights and remedies might the respective parties to a building contract or development agreement have?

One thing that all developers can do now is review the contractual position under their existing contracts, in anticipation of contractor claims for extension of time, should COVID-19 continue to spread.

Delay events

A building contract or development agreement will usually specify certain circumstances which, if they occur, entitle a contractor to claim an extension of time to complete the works.

However, the JCT standard forms of building contract do not specifically list disease, epidemics or pandemics in the list of delay events.

In the absence of a contractual provision dealing with delays caused by pandemics or epidemics, a contractor is likely to turn to other specified delay events in a building contract. What might these be, and what is the likelihood of such a claim being successful?

Force Majeure

Force majeure is a contractual term that provides for the award of an extension of time if works are delayed due to the occurrence of circumstances beyond the control of the parties.

There is no universal definition of force majeure however, and despite the JCT forms of contract listing "force majeure" as a delay event, these contracts don't expand on what this term actually means.

So, would an outbreak of COVID-19 constitute a force majeure event?

There is no definitive answer to the question, but the success or otherwise of a contractor's claim citing force majeure for COVID-19 is likely to depend on three key variables:

  • the scale of the outbreak;
  • whether there are any express provisions in the building contract or development agreement which specifically treat epidemics or pandemics as a force majeure event; and
  • what measures the contractor might reasonably be required to take to mitigate the effects of the delay; the JCT Design and Build contract, for instance, requires a contractor to "constantly use his best endeavours to prevent delay…however caused".

The English courts have tended to take a restrictive approach to interpreting clauses in construction contracts which purport to excuse a contractor from performing its obligations due to supervening events. Where a contract such as the standard form JCT does not identify specific events of force majeure, then in the event of a localised outbreak the courts may still refuse to treat such an event as force majeure and may require a contractor to draft in additional resource from outside of the affected area as a means of mitigating against the delay.

It is worth noting that many of the events which are commonly associated with force majeure are already identified in the JCT contract as a delay event. A Society of Construction Law paper from February 2012 ("Force Majeure and Construction Contracts" by Adrian Williamson QC) notes that considering all the other delay events which are already listed in the JCT, "it would be a bold contractor who sought an extension of time under a JCT contract for force majeure". The lack of force majeure-related cases under JCT contracts that have come before the courts suggests this is right.

However, it is by no means out of the question that a virus outbreak may, in certain circumstances, amount to a force majeure event. The FIDIC Yellow Book form of contract specifically lists shortages caused by an epidemic as a delay event entitling a contractor to an extension of time. The NEC4 suite of contracts does not identify epidemics as force majeure events, but in a recent publication ("Clause 60–Compensation Events" 25 February 2020), NEC uses a virus outbreak as an example of an event that would be "so unlikely that it would not be sensible to allocate risk to the contractor" and could therefore constitute prevention of performance under the contract.

In any scenario, the onus will be on the contractor to establish that an outbreak constitutes a force majeure event. A contractor would need to show how the outbreak impacted on the completion of the works, and to demonstrate that it took all measures it reasonably could have in the circumstances to mitigate against the effects of the delay.

Government intervention

An alternative and perhaps more fruitful ground for an extension of time claim may be government intervention, which the JCT treats as a separate delay event.

This ground would likely cover a scenario in which the government, a public body or local authority passed emergency legislation which affected the ability of workers or goods to travel in the event of an outbreak.

The government has already issued The Health Protection (Coronavirus) Regulations 2020. Should the current outbreak worsen, further preventative measures restricting the movement of goods and people could be implemented at short notice and without much time for contractors to prepare. Clearly, the outbreak would already have become (or have threatened to become) sufficiently severe for the government to take such measures.

A contractor's claim for an extension of time under these circumstances might be more likely to succeed.

Moving forward…

Historically we have not seen many construction contracts which have been amended to deal specifically with the risk of epidemic or pandemic. However, in the light of COVID-19, we would expect contractors to become increasingly insistent on negotiating provisions in construction contracts which deal specifically with the consequences of these events. In the meantime, Forsters is continuing to monitor how the construction industry responds to the impact of COVID-19.

Richard is a Senior Associate in our Construction team.

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Disclaimer

The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.

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