BUILD UK - MANAGING COVID-19 WITHIN CONTRACTS
Following its previous Contract Terms Guidance, Build UK has produced a new guide dealing with the effects of COVID-19 on existing and future construction contracts.
Build UK encourages parties to work together to find fair and reasonable settlements, rather than adopting adversarial approaches. Summarising the CLC Contractual Best Practice Guidance, Build UK recommends that parties:
1. Protect the supply chain - specialist subcontractors are often cash negative for the majority of the contract period and may require relief from financial pressures;
2. Progress projects safely - health and safety challenges should be viewed as project issues, rather than problems for individual parties;
3. Negotiate quickly and in good faith - take an honest and realistic view of responsibility for pre-COVID-19 problems and agree a strategy for completion;
4. Settle - make every effort to reach a settlement that allows cash to flow and projects to be completed.
Build UK note that COVID-19 is very unlikely to be considered an "unforeseeable event" in future projects. Contracts will therefore be expected to allow for the known impacts of the outbreak at time of pricing. Parties should agree the extent to which a COVID-19 event will give rise to additional money and/or time, considering the following issues:
1. Establish a baseline for the level of restriction included in the contract price and programme;
2. Use open book processes (not to be confused with cost plus contracting);
3. Do not ignore the possibility that things could get better;
4. Keep good records.
JCT - FUTURE PROJECTS: THE IMPACT OF COVID-19 AND BREXIT
The JCT has also published an article responded to the latest CLC guidance in the context of future construction contracts.
There are two principal grounds for claiming an extension of time in relation to COVID-19:
1. Exercise of a statutory power - the JCT notes that interventions by the Government after the Base Date will not give rise to an extension of time, as such delays should be priced for in the tender;
2. Force majeure - the JCT article suggests that there are limitations on the use of force majeure as a Relevant Event/Matter and recommends that advice is taken before entering into a new contract. The article also suggests that the CLC's proposed amendments may be 'problematic' for a number of reasons.
Finally, the JCT article recommends that contractors take account of the latest version of the Site Operating Procedures when pricing new work and consider whether a suitable fluctuations provision may be appropriate, given the additional pricing risks associated with COVID-19 and Brexit. The JCT also hopes that parties might consider using the interesting but unpopular JCT Constructing Excellence Contract.
While parties might not agree with all the recommendations put forward by Build UK and the JCT, it is clear that the issues raised should at least be considered rather than simply ignoring the new challenges and risks posed by COVID-19 and Brexit when contracting.
If COVID-19 is accepted or determined legally to constitute a force majeure event, then the general position is that under JCT forms of contract, the Contractor is entitled to an extension of time, but not money, if a force majeure event occurs, whereas under NEC forms, the Contractor is entitled to time and money if a prevention event occurs.