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).
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”.
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.