Due to the fast spread of the coronavirus, many in the construction industry are already facing unprecedented issues and foresee further issues – as a consequence, Build UK has published guidance on contractual issues
Due to the fast spread of the coronavirus and the continuing escalation in the government’s policy, the situation is changing daily. As all but key workers are asked to self-isolate, as well as site closures and import issues (especially from countries like Italy and China), many in the construction industry are already facing unprecedented issues and foresee further issues as the consequences of the virus escalate.
There are a number of practical and contractual issues to consider, both for reviewing risks and liabilities under current contracts and when negotiating into future contracts.
Current contracts
Build UK says it is important to carry out an audit of current contracts now. Performance of current contracts is likely to become increasingly difficult – more time may be needed for performance of the contract and there may be labour and materials shortages, increasing costs and some contracts may become commercially unattractive or unprofitable.
Key factors to focus on include:
- Timing (obligations regarding timing, and consequences for late delivery of materials and/or services);
- Contract requirements to give notice of above;
- Termination (right to terminate for late delivery);
- Damages (what is the potential exposure to damages).
Parties should speak to each other as soon as practical to work together to find solutions. The entire industry is facing the same issues, so it is in everyone’s interests to do so.
Future contracts
In relation to future contracts consider the implications of these issues now, and do not enter into a contract without having done so.
This is especially important because some protection which might be available for those who have entered into a contract prior to the coronavirus outbreak (force majeure) might not be available where parties have entered into a contract with knowledge of the potential risks of the pandemic.
There may be an argument for delaying entering into contracts until the risks are clearer and it is known, for example, whether the situation will ease in the summer or whether as some predict, the direct effects might last considerably longer. However, this obviously needs to be balanced with vital cash flow.
Contract performance
Where either party is concerned that an issue has arisen which may affect the performance of the contract, it should notify the other party as soon as possible (there are likely to be requirements to do so under the terms of the contract) to agree how to deal with it and to allow the party to negotiate any necessary amendments to the contract.
Within its contractual guidance, Build UK also outlines:
- Parties should consider how to balance the risk of increased procurement and staffing costs during and following the pandemic. If additional costs/charges are to be passed on, consider the use of caps or a limit on costs
- With difficulty in supply of materials and labour, there are likely to be price increases. Parties should discuss the risk and see whether there are ways of mitigating it, including considering the supply chain to see if there are ways of avoiding particularly volatile currencies and suppliers.
- Insurance – business interruption insurance; and existing buildings insurance and all risks insurance for the works.
- Specific guidance for JCT and NEC sections.
You can access the full ‘Guidance on Contractual Issues Caused by Coronavirus’, here.
