With the escalation of coronavirus infections in the UK, contractors, consultants and developers must consider the impact of the virus on their projects. Within the sector, the questions which are likely foremost in parties' thoughts include (a) a contractor's ability to claim an extension of time if its workforce is either struck down by or unable to attend Site due to coronavirus, and (b) whether a developer is entitled to liquidated damages should the contractor be delayed for coronavirus-related reasons.
As always, the first place one must turn for answers is the contract.
It seems unlikely that any concluded construction contracts contain a 'coronavirus clause'. Instead, parties should consider what, if anything, their contract states about extensions of time in relation to force majeure.
Within English law, there is neither a definition nor a recognised legal doctrine of force majeure. Rather, it is a contractual method by which parties expressly allocate the risk for events which fall within the contract's definition of force majeure. For example, in a JCT Design and Build Contract, force majeure is a Relevant Event but not a Relevant Matter – while the employer takes the time risk (and is unable to claim liquidated damages), the contractor incurs the cost risk (and cannot claim loss and expense). Accordingly, the risk for a force majeure event is 'shared' between the parties.
However, various standard form contracts, including the JCT forms, do not actually define force majeure. Generally, in such situations case law has established that force majeure involves acts, events or circumstances outside the reasonable control of the parties. Yet, it is thought that the JCT force majeure clause has a restricted meaning since events such as war, strikes, fire, etc. are expressly addressed within the JCT suite as Relevant Events. In any event, while nothing is of course certain, it seems arguable that an epidemic and/or governmental restriction on the movement of persons (should such occur) would be an event outside the reasonable control of the parties to a construction contract.
The burden is on the party seeking to rely on the force majeure clause to prove:
(a) the occurrence of the event – likely not too hard a
burden in the case of coronavirus;
(b) that the event prevented/delayed performance; and
(c) non-performance was due to circumstances beyond the party's control and there were no reasonable steps the party could take to avoid the event or consequences.
Accordingly, contractors should consider what actions to take so that, should the need arise, they can evidence that reasonable steps were taken to prevent delays due to coronavirus.
Furthermore, contractors should carefully review their contracts to ensure compliance with any 'early warning' clauses requiring notification to the employer as soon as the contractor becomes aware of an event which might delay the project. Case law has held that failure to adhere to 'early warning' clauses can prevent claims for extensions of time.
For professionals, appointments should be checked for limitations on replacement of key personnel. Typically, such provisions cater for key personnel being unavailable due to illness. Nevertheless, consultants should ensure that any requirements for notification to the employer and/or the employer's acceptance of replacement personal is agreed in accordance with the appointment's terms.
What if parties have not agreed a formal written contract or if the contract lacks a force majeure clause? As noted above, English common law does not recognise a doctrine of force majeure. If matters progress such that it is truly impossible for parties to perform their contractual obligations, the doctrine of frustration may apply, although the Courts have found that this doctrine operates in an extremely narrow confines. Other options that may be available to parties depending on the contract wording include suspension of the project by the employer, and possibly, in extreme cases, termination. Given the serious nature of such provisions (both legally and commercially), it is highly recommended that legal advice is sought before such actions are taken.
For those currently negotiating a contract, the potential for future disruption due to coronavirus is now a known risk. Accordingly, parties should consider making specific provision for delay caused by any further impact of coronavirus.
Overall, in this time of great uncertainty, contractors, consultants and employers will likely be best served by working together to determine how to address the ever evolving situation. And of course, where any changes to a contract are agreed (i.e. amendments to completion dates), it is imperative that such variations be properly documented.
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.