09 July, 2020
"Is this my problem? Is this my fault? If that's the way it's going to be I'm going to call the whole thing to a halt."
Paul Simon wasn't writing about managing construction contracts during the Covid-19 outbreak, but he might as well have been. The standard wording of construction contracts tends to look for a party to blame and impose a penalty by way of liquidated damages or cost increase with the final option being extending or terminating the contract for force majeure if something out of the parties' control makes it unworkable. The impact of Covid-19 has shone a harsh light on whether that approach is what parties would have chosen if they had thought about it in advance.
Procurement lawyers have a habit of suggesting what should have gone in the contract and that is not always helpful in the middle of a development thrown off-track by coronavirus. A more practical approach is to consider the various working arrangements presently being negotiated with contractors for inclusion in future contracts rather than having to negotiate then over again if similar circumstances arise. If you think of a good solution for your business now, consider baking it into future contracts.
Standard form contracts especially the JCT contract set are not clear on how to classify the effects of Covid-19. It could be included in two different categories of relevant events and they have potentially different outcomes. Employers and contractors should at least consider which they think it should be and make that clear in the contract so that its operation is predictable. Contracts should not be a lucky dip with unknown outcomes: they should reflect the parties' considered positions on each point they cover.
Public sector procurement has been used as a mechanism for government intervention. Through PPN 01/20 and 02/20 the government has recommended contracting authorities to make payments during suspension of delivery to maintain capacity and to consider not using force majeure or KPI clauses to terminate contracts. The suggested solution is temporary amendments of contracts within the scope permitted by Regulation 72 of the Public Contracts Regulations. The balance between supporting the contractor base and maintaining the financial viability of the contracting authority needs communication and the will to find a solution that may not be the most advantageous for either party in the short-term.
Covid-19 has done a lot of damage and one positive thing we can do is to learn from the experience and take steps to manage the effects of anything like it in the future.
For more information contact Daniel Milnes in our Governance, Procurement & Information department via email or phone on 01254 222313. Alternatively send any question through to Forbes Solicitors via our online Contact Form.