PART 3: Delays due to COVID-19 - Act quickly and formally request extensions of time

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Dispute Resolution Article

24 April, 2020

In Part 2 of our Construction Disputes series, we explored tactics for managing delays in construction projects from the perspective of an Employer. We are currently experiencing unprecedented times with COVID-19 and the construction sector is experiencing significant disruption. Contractors are finding themselves unable to work due to recent Government guidance and the knock-on impact of the supply chain being affected and as such the handling of delay is of upmost importance.

Our number one tip from Part 1 of the series was: know what your contracts say. This is crucial in the current circumstances. We urge you all to turn to your contracts so that you know, at the earliest opportunity what the mechanisms are for the seeking and giving of extensions of time and loss/expense claims.

Delay provisions:

It is important to identify clauses within your contracts which cover delay. Modern JCT and NEC standard forms of contract contain provisions for delay. Within the JCT you are required to demonstrate the occurrence of a Relevant Event and that this has caused delay to the works. The NEC suite terms events leading to delay as Compensation Events. Relevant Events and Compensation Events include:

  • Change in law;
  • Exceptionally adverse weather conditions;
  • Civil commotion or terrorism, and
  • Force majeure.

Force majeure refers to acts, events or circumstances which are beyond the reasonable control of the parties to the contract. In the unamended form of contracts such events include, war, flooding and epidemics.

It is clear that the current COVID-19 pandemic amounts to force majeure under these unamended contracts and therefore entitles contractors to seek an extension for the completion of any on-going construction works. Fundamentally the occurrence of such an event will allow a party to suspend all or part of its obligations under the contract.

Frustration may be used as an alternative where a contract does not include an express force majeure clause, and applies where a contract becomes impossible to perform due to an event which is outside of the reasonable contemplation of the parties when entering into the contract. In effect, frustration operates to discharge the obligations of the parties under a contract.

A construction contract may be frustrated by the outbreak of COVID-19 if performance of the obligations under that contract become impossible to perform, or would render contractual performance radically different from what was originally agreed to.

However, since the threshold for establishing frustration is extremely high, force majeure would be more appropriate for a party looking to suspend its obligations due to COVID-19, as frustration operates to terminate the contract entirely.

What do you need to do?

Under the JCT from of contracts you must serve notice of delay to the employer when it becomes "reasonably apparent that the progress of the Works or any Section is being or is likely to be delayed". If the delay is as a result of COVID-19 it will usually be a "relevant event" and the employer is obliged to consider an application for an extension of time. Such request ought not to be refused unreasonably.

Likewise, under the NEC suite, an early warning system is operated and you are obliged to notify the employer at the earliest indication of any matter which could affect the time for completion.

You are required to put this notice in writing and identify the following:

  • The relevant event that has caused the delay;
  • Make a request for an extension of time;
  • Provide reasons; and
  • Reference the contract clause that allows the request.

As we referenced in Part 2 of our series, the importance of record keeping cannot be under-estimated. You need to record the details of the delay contemporaneously and accurately keep records of costs associated with the delay event.

Claim for Loss and Expense

We understand that suspending your obligations is only one element of your concerns. There is also the fact that in current circumstances you are unable to fulfil contracts and may have associated claims for loss and expense.

Under the JCT contract, there is provision for loss and expense claims by the contractor in respect of certain events. Force majeure is not ordinarily one of these events. However, it may be possible for contractors to argue that the measures taken by the Government due to the pandemic would amount to an event for which losses and expenses are payable.

Further, contractors may be entitled to compensation as a result of COVID-19 under the NEC contract. Claims for such compensation must be made within a certain timeframe of becoming aware of the event, usually 8 weeks under the standard wording of the contract.

Tip: Consider your contracts to assess whether any amendments to the standard form have been made in relation to delay provisions or claims for loss and expense as this will help you to understand your rights and obligations during these uncertain times.

Considerations

There are a number of things to consider before attempting to rely on COVID-19 as a force majeure or frustration event and/or bringing a claim for loss and expense:

  1. Commercial relationship - If you are looking to maintain commercial relationships, then it may not be appropriate to assert that the contract is frustrated. Instead it may be more appropriate to enter into a dialogue with the other party and see if they are willing to agree to an extension of time in light of the circumstances. Whilst the contractual procedures still need to be followed it is often prudent to have an informal discussion first;
  2. Financial recoverability - If you are looking to recover costs of delay or termination due to a relevant or compensation event, you should bear in mind that these are financially uncertain times for all members of the construction industry. Therefore, recovering such costs may be difficult, especially from a party suffering financial hardship or cash flow issues.
  3. Are you involved in a public contract - Recent Procurement Policy Notices have introduced supplier relief in relation to public contracts. The guidance has placed an obligation on contracting authorities to help their at risk suppliers maintain cashflow and capacity by paying invoices even if full performance is delayed or is not possible because of COVID-19. More information on Procurement Policy changes resulting from COVID-19 can be found here.

Bonus Tip - Do not delay in making an application for an extension of time and ensure to keep detailed and accurate records.

Our Dispute Resolution team is on hand to provide practical and straightforward advice if problems arise in managing contracts through the disruption of COVID-19. Contact Stephen McArdle or Lucy Bailey on 0333 207 0677 for help with navigating extensions of time or claims for loss and expense. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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