Business

Covid-19, construction and contracts - navigating the legal complexities in the time ahead

The construction and engineering sector in the eye of the coronavirus storm
Matthew Howse

THE Covid-19 pandemic presents challenges for us all in ways none of us could ever have imagined. And the same is true of the construction and engineering sector which is in the eye of this particular storm.

As well as concerns about protecting the health and wellbeing of employees throughout this, many in the sector are also worried about the supply of materials, labour shortages and ultimately, delays to projects.

Combine this worry with mixed messages from the government and a lack of clarity on what constitutes an essential building project and the difficult situation which the industry finds itself in is clear.

While there is no doubt that this is a challenging time there are steps which can be taken to navigate the legal complexities and risks of the deep freeze on the industry.

The logical starting point is to consider contractual obligations under the most commonly used contracts - joint contracts tribunal (JCT) and new engineering contract (NEC).

Like any good relationship, co-operation is essential. Under NEC both parties should continue to notify of early warnings such as events which could increase costs or delay completion. Under JCT, the contractor should proactively notify relevant events and matters.

Understanding the impact of Covid-19 on your project requires sharing information with and discussions with all project partners to manage, mitigate and review risks – both those currently happening and those which are foreseeable. Even if your contract does not require this approach, it is commercially critical.

Last week it was reported that 65 per cent of construction work by value had already shut down. The implications of this will be felt by all in the vast supply chain and certain costs could unfortunately be lost as a result.

If work has already started, the employer must rely on an express contractual right to suspend the works. JCT allows ‘postponement'. NEC allows the contract administrator to instruct the contractor to stop or not to start work at any time. Ultimately, prolonged suspension without a contractual right is a breach of contract, allowing the other party to terminate the contract.

In extreme circumstances, terminating the contract may be the only option and terminations based on contractual provisions will depend on the agreed terms set out in the termination clause. Government imposed restrictions on travel and movement which directly affects the delivery of work should be provided for.

However, termination outside of the contractual provisions is much trickier and relies on the undefined ‘force majeure' or ‘suspension without cause'. This is obviously a worst-case option but unfortunately will be one which is considered in the coming weeks and months.

What comes next is uncertain - amid this pandemic we are living from day to day unsure of what tomorrow will bring. However, decisions will have to be made regardless of how difficult or unpalatable they may be and so understanding contractual obligations will be vital.

Like everyone in society, those in the construction and engineering industry will be hoping for a quick resolution.

:: Matthew Howse is partner (dispute resolution & litigation) at Eversheds Sutherland Belfast

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