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Coronavirus: what could it mean for your construction project?

Gateley Legal

The apparent worldwide spread of coronavirus (or Co-Vid 19) may still be in its infancy – but what effect could it have on ongoing and future construction projects? 

At present, how far, how quickly and how serious the spread of Coronavirus will be is a big “known unknown”. The World Health Organisation appears to be gearing up to declaring it a worldwide pandemic and governments around the world are taking, in some cases, drastic steps to seek to prevent and limit the spread of coronavirus, including the quarantine and lockdown of entire towns and cities. 

Whilst it is clear that public health protection measures must take priority, there will be inevitable ramifications across a series of sectors including construction. What is the position if, for example, access to the site is restricted because of a government-enforced quarantine area? Or what happens if materials fabricated off-site (and perhaps on the other side of the world) are delayed or cannot be delivered to site?    

As with all contractual risks, the place to start is the terms of the contract you are a party to and there is, unfortunately, no one simple answer to such questions. As a general principle, however, it may be worth considering that where the initial outbreak of coronavirus was not within the control of either the employer or contractor to a contract, it will, most likely, be considered to be a “force majeure” event (i.e. an event that typically excuses one or both parties from performance of a contract due to the occurrence of certain events which are outside a party's control).

How do standard form JCT & NEC contracts deal with “force majeure” events? 

JCT contracts:

Under the JCT suite, force majeure is classified as a Relevant Event (i.e. entitling a contractor to an extension of time and relief from any liability for liquidated damages), but not a Relevant Matter (i.e. that extension of time does not entitle a contractor to recover any loss and/or expense as a result of the extended contract period). In that sense, a force majeure is a “cost-neutral” event under a standard form JCT contract. 

NEC3/NEC4 contracts:

The core clauses in NEC3/NEC4 provide that the following are compensation events:

“An event which prevents a contractor from completing the works which:

  • neither party could prevent;
  • an experienced contractor would have judged at the contract date to have such small chance of occurring that it would have been unreasonable to have allowed for it; and
  • is not one of the other compensation events stated in the contract.”

The NEC suite is not prescriptive as to whether such a compensation event would entitle a contractor to an additional period of time to complete its works (without incurring a liability for delay damages) or additional money. It simply provides that a notification must be made by the contractor within 8 weeks of the occurrence and that the Project Manager will make an assessment as to the consequences.

Perhaps more interesting is the second caveat to the NEC definition of a compensation event (and which reflects the common law meaning of a “force majeure” event) – if an event (such as the widespread outbreak of coronavirus) is within the contemplation of the parties at the time of the contract, then this would not be a “force majeure”. 

Final thought

Whilst this is probably not of consequence for contracts already in existence, it is an interesting question for contracts that are currently being negotiated. Coronavirus is omnipresent within the news and it may be that particular, and specific, accommodations should be made for contracts currently being negotiated. Failure to do so may leave a contracting party in a position where it is unable to complete its contractual scope and could, potentially, be liable for damages for a breach of contract. Whilst there may still be arguments open with regards to the frustration of a contract, these arguments are fraught with difficulty and the safest course of action would be to agree express provisions regarding coronavirus from the outset and to actively manage, mitigate and notify risks as soon as they arise. 

How can we help?

If the construction of your project is being delayed or affected indirectly due to Coronavirus or you’d like to understand more about your construction contract, please get in touch using the contact details below.

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