What is the impact of Covid-19 on residential building contracts?
In this blog CLPM’s Quantity Surveying team explore how Covid-19 is impacting construction works in the residential building market, and how we are advising and supporting our clients through this difficult time.
Covid-19’s impact on Contract Administration
The role of the Contract Administrator has always been a vital, but challenging one. As the UK government’s lockdown measures are revised and construction sites slowly come back to life, the COVID-19 pandemic has created a unique situation which has no direct comparatives in law.
There is debate amongst construction lawyers as to how contractual intricacies will play out within large commercial construction projects. However, like many of our design partners, CLPM will be required to make important Contract Administration decisions impacting both clients and builders on homeowner residential projects.
The information below is our opinion and the suggested method we will use to make decisions for residential projects. Based on presently available legal guidance and starting with a first principle of ‘fair and reasonable’, our views may change as the situation on site unfolds but represents our best current thinking.
Delay Assessments for “live” Projects
i) JCT Intermediate Contracts:
The legal guidance currently available suggests that if a contractor has closed a site or is having to carry out work “slowly” due to the impact of the Covid-19 outbreak, this would be deemed a ‘Relevant Event’ under the JCT Intermediate form of contract.
The reference is to clause 2.20.12 (UK Government exercising statutory power) citing the issue of the government document “Construction Sector – Site Operating Procedures: Protecting Your Workforce During Coronavirus (Covid-19)” and its associated revisions.
ii) JCT Minor Works Contracts:
There is no specific list of Relevant Events under the Minor Works contract. Applying the logic as per the Intermediate Contract seems pertinent, based on clause 2.8, where a delay has occurred through no fault of the Contractor.
Extension of Time & Liquidated Damages
The Relevant Event generates an Extension of Time, so mitigating any liquidated damages, but does not come with a loss and expense claim opportunity. This will ensure this is not used it as an opportunity to have an open-ended Completion Date as Contractors should be incentivised to keep the programme short to minimise the extension of preliminary costs which they will be liable for.
Contractors will need to comply with the Construction Leadership Council’s “Site Operating Procedures” for the foreseeable future and only make working practice changes when these guidelines are reviewed and slowly extended. Whilst safety on site may become more manageable, a next significant issue may be the availability and price of materials.
To deal with the above, CLPM suggest following some basic processes:
1. Site closures
Ensure an Extension of Time for the duration of the site closure is issued as soon as practical after the site re-opens.
2. Programme Impact due to enforced Site Operating Procedures
Request a revised contractor programme based on the most current version of the operating procedures. Assume this being in place until the end of 2020. Review the programme and assess if it is “fair & reasonable” and issue an Extension of Time accordingly.
3. Programme Impact due to material supply issues in the future
It is likely that assessments will have to be made on a site specific, “issue by issue” basis and treated as an Extension of Time issue, with no costs associated. Make Contractors aware that if there is an option to buy materials (albeit at a premium cost) this should be offered to the Client. The Client has a choice to make, “spend this much extra to save this much time”. The time saving to be made should be clear & demonstrable. Following written guidance from the Employer, the Contract Administrator can then instruct the Contractor accordingly,
4. Contracts & Tender From May (to be reviewed regularly as government guidelines change)
We would suggest that new contracts / tenders issued during May 2020 have an additional letter/clause outlining how it is expected Covid-19 contractual issues are to be treated.
In our view this should state:
- The programme has accounted for working procedures in accordance with the Government guidelines Version 3, based on these being in place until the end of 2020.
- Should the guidelines go beyond this date, this would be viewed as a Relevant Event, but not Relevant Matter under the JCT Intermediate form and in a similar way under the Minor Works.
- Material supply issues that can be demonstrated as having an impact on the programme will also be treated a Relevant Events, but NOT Relevant Matters as above.
Keeping well documented records is not always a strong point within projects. Protecting the contractual position of Clients and Contractors means that the Contract Administrator will need to be vigilant in getting clear instruction AND in explaining the need for good ‘evidence’ to support delays.
We hope you have found our comments useful. There will continue to be challenging days ahead and if you’d like to find out more about how we can support you then please do call us on 01923 896550 or email us on email@example.com and our Commercial Team will be happy to talk to you.