Jonathan Seddon: Coronavirus and construction projects procured under JCT
Morton Fraser’s head of construction law Jonathan Seddon looks at the potential impact of coronavirus on UK construction projects being procured under JCT.
I started looking at the potential impact that the coronavirus might have on my client’s construction projects a few weeks ago when the virus hadn’t actually yet arrived in the UK. Clearly the answer depends on what the contract actually says, but in general terms I concluded that, in terms of the JCT regime, delays caused by the coronavirus would probably be a force majeure event (i.e. the contractor gets time but not money).
I looked at it again earlier this month in direct response to clients asking what the likely implications would be now that the first cases in the UK had started to be reported. At that point the specific strain of coronavirus had been given a name - COVID-19. Again based on the caveat that it depends how each contract is worded, and again focusing on the JCT regime, I concluded at this point that the answer depended on how the coronavirus had caused the delay.
At the time of writing, the situation is suddenly very real. On Monday evening the PM recommended that those who could work from home should work from home, and that we all avoid pubs, clubs, theatres and the like. On Tuesday most office workers across the country stayed home. On Wednesday the First Minister of Scotland announced that schools will close early for Easter, and may not re-open until after summer.
It seems inevitable now that the coronavirus is going to cause delay and disruption to construction projects across the country. Everyone - both employers and contractors - should now be looking at their contracts for live projects to understand the implications.
The answer will always depend on a combination of what the contract actually says and what exactly has happened on the project to cause the delay.
Let’s take as an example, an unamended JCT design and build form of procurement. As I say, other forms of contract may deal with these scenarios differently, and amended contracts must be looked at very closely as they may well contain provisions that are entirely bespoke to that particular contract.
Would an outbreak of COVID-19 be force majeure?
If an outbreak is considered to be force majeure, then the impact upon JCT contracts would be that a contractor can claim for an extension of time, but not for loss and expense (so time but not money).
Unamended JCT contracts do not contain a definition of “force majeure”, so theoretically it would be possible to define the phrase widely or narrowly. It seems likely, however, that courts would consider factors such as what was in the contemplation of the parties at the time of signing, and whether the event was beyond the reasonable control of the party seeking to rely on the force majeure clause.
In other words, if a contract was signed before COVID-19 became a widely known thing, and if the outbreak on site was beyond the control of the contractor (so assuming the contractor had taken all reasonable steps to mitigate), then it would seem likely that a contractor would have good grounds for claiming an extension of time to the extent that the outbreak caused delays to the project.
Conversely, if a contract was signed now, it is unlikely that a COVID-19 outbreak would be considered to be a force majeure event.
An additional consideration is that under an unamended JCT, if a force majeure event goes on for longer than 2 months then this would entitle either party to terminate the contract altogether. In the context of the coronavirus, a site shut down lasting 2 months or longer is surely not out of the question.
Government imposed lockdown
If the Government introduces a lockdown across the sector or throughout the country, and the effect of that is that a construction site is compulsorily shut down, then that would in all likelihood be regarded as a change in law. For a contractor, the effect of that in an unamended JCT would be the same as force majeure, in other words time but not money.
The way things are headed, this scenario remains a distinct possibility. It is, after all, what has happened in Italy.
From an employer’s perspective, probably the worst case scenario (when looking purely at the consequences under the contract) would be for the Employer to issue an instruction that gives rise to a Change. The reason for this is that Employer’s Instructions instructing a Change entitle the contractor to claim for both an extension of time and loss and expense (time and money).
Similarly, if an employer decides to suspend the Works, or defer possession or restrict access to the site, those scenarios would also open up the potential for the contractor to claim for time and money.
So in most scenarios where the Employer decides to either change the Works, or otherwise put the works on hold, the implications could be more serious for the Employer. It is easy to see how either of these scenarios may happen, particularly where an Employer takes the view, on grounds of health and safety and / or simply acting like a responsible developer, that they have no choice but to take action where the Government has not yet initiated steps to invoke a national lockdown.
Tidying up a loose end
The unamended JCT contracts refer to “strike” and “lock-out” as grounds entitling a contractor to make a claim for an extension of time. A “lock-out” is not the same as a lockdown. A lock-out is where an employer prevents the workforce from working, usually because of a trade union dispute. So it’s kind of like a strike, but the other way round. In any case, it is not relevant when considering claims relating to Covid-19.
- Jonathan Seddon is a partner and head of construction law at independent law firm Morton Fraser