Concise comments on construction contracts and the coronavirus

Following on from recent articles from our Corporate and Commercial team on commercial contract clauses and our Regulatory teams advices in connection with the coronavirus (COVID-19), we briefly summarise the position in construction contracts:

Examples of problems:
– Shortages of materials due to be imported
– Shortages of labour due for example to self-isolation
– Shutting down of sites or restriction of access to sites

What’s needed?
– Extra time to source materials/labour elsewhere
– Prolongation costs addressed
– In extreme situations consideration given to terminating the contract

Construction Contracts:
Look at any bespoke terms dealing with extensions of time (EOT) and loss and expense to see if pandemics are specifically addressed or there are wide exclusions.

EOT – JCT – unamended
Look to the force majeure (FM) clause (clause 2.26.14 in JCT D&B 2016 edition).  This may entitle a contractor to an EOT and therefore give relief from liquidated damages but will not allow loss and expense.

If we are in due course subjected to a shutdown then in addition to FM, the JCT e.g. D&B 2016 also includes the following as a relevant event (clause 2.26.12):

“the exercise after the Base Date by the United Kingdom Government of any statutory power which directly affects the execution of the Works”. 

Should the UK adopt the more stringent measures put in place in China, Italy and Denmark to name a few, then this Relevant Event may entitle a contractor to apply for an EOT but not loss and expense.

EOT – NEC – unamended
NEC4 clause 60.1 (19) is the FM equivalent.  If it can be relied on then that allows the contractor both an EOT and loss and expense.

FMB Commercial and Industrial Building Contract (FMB) – unamended
Clause 22.3 provides for an EOT if:
“the work is obstructed by any matter we do not control.”
But no loss and expense is due to the contractor.

Termination
– JCT – Contractor or Employer may terminate if they can show that an FM event has occurred (clause 8. 11. 1. 1 of JCT D&B 2016)  but the parties must first have exercised the suspension provisions in the contract and the date for suspension must have passed.
– NEC4  – clause 91.7  – is similarly worded to clause 60.1(19) but only the Client may terminate on this ground.
– FMB – does not address a FM event so one would have to look to the doctrine of frustration which is outside the scope of this note.

Termination is not to be undertaken lightly; if carried out incorrectly the party attempting to terminate may place themselves in breach of contract.