The Guide has highlighted five key COVID-19 issues facing the Global Construction sector, namely:
1. solvency of contractors & suppliers
2. liquidated or delay damages
3. ongoing disruption and pressure to increase productivity
4. contract administration and assessment of contractor claims
5. negotiation or risk of increased adjudication and litigation
No matter where the contracting parties appear in the supply chain, managing these risks will be key to the ongoing ability of contracting parties to deliver projects in a timely manner and on, or close to, budget. Ireland has experienced a longer and more wide reaching impact from the COVID-19 lockdown than the UK, or indeed than was suffered in continental Europe. The full impact of the closure from 20/26 March 2020 until 18 May 2020 is, as yet, unknown. Unless the Project fell within a COVID "essential services" exclusion, it was essentially curtailed.
The primary and secondary legislation introduced over COVID-19 has not prescriptively shut down building sites but rather sought to limit the ability to have supplies delivered, to have contractors on site and even when sites re-opened, by insisting on compliance with social distancing rules.
The desired outcome is that the supply chain will see that there is a need to continue to work together and collaborate on the time and cost impact, but this is not always enshrined into the contract terms that ultimately prevail. Many contracts did not contain a "Change of Laws"; or indeed a "Force Majeure" clause referencing a pandemic type situation.
It is in the interests of the entire supply chain from funders to suppliers and insurers that a system collapse does not occur. A wide reaching financial collapse and insolvency across the Construction Sector will lead to increased costs across the board, projects being delayed and not within budget and becoming financially unviable.
Claims for Liquidated and delay cost damages will gradually evolve and hit the market in the coming months. Within reason, it will be in the wider industry interests to see the floodgates open and a myriad of claims emerge.
This will be particularly the case for Private Sector Contracts (not that Public Sector Contracts will be unaffected) - where Contract "condition precedent clauses" will be the subject of much scrutiny. Traditionally, the Construction sector sees significant claims being made for financial loss due to Contract delays, but care will be needed when this occurs with COVID-19 financial loss claims.
COVID-19 has and will definitely continue to impact upon contract administration and has already created a surge of previously unanticipated challenges to ensure the smooth delivery of a construction project. To meet this challenge, stakeholders with strong project management will come to the fore and thrive. There will be little room for the disorganized to survive. This will in turn lead to considerable pressure to increase and meet previously agreed programme dates, and ensure productivity.
The Government has provided some guidance for Public Works contracts, which in summary recommends that contracting parties should collaborate and work together to find consensus. Generally the view is that extensions of time will be permitted, with limited delay damages for increased overheads and costs imposed upon Contractors, in meeting shutdown costs, and also in meeting re-opening and direct costs to meet social distancing requirements on site (including reduced productivity). The Private sector is unlikely to welcome and adopt generic guidelines and levels of acceptable collaboration will depend on issues such as "need", alternative options and/or trust between the parties and continuing relationships. Claims arising in the world of private contracts, will yet come from contractors, sub-contractors and the wider supply chain. The full impact of the initial COVID-19 impact, shut-down and new world of "working with the virus" is as yet still an unknown. The potential costs ranging from direct increases to their overhead, in terms of materials supplied, hire of plant and related costs, inability to perform other scheduled contracts on time etc.
The potential impact upon the stakeholders' balance sheets is wide reaching, with lost/reduced profit being the most likely outcome for most stakeholders. Care will be required for all industry stakeholders, including the legal advisers, as the only outcome that is certain is that claims will be contested on all sides. The goal is not to promote disputes but to find a way to minimize claims and manage disputes to avoid insolvency and hefty legal and experts input and bills.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.