March 26, 2020

COVID-19 Global: How is the Coronavirus affecting the construction industry?

Chris Leadbetter's view on labour shortages leading to project delays, who'll bear the delay costs and how the industry is coping

Rise in infections will lead to labour shortage and construction project delays

How is the coronavirus affecting your clients in the construction industry?

Even before there was any real presence of the virus in the UK the effects were beginning to be felt as the supply chain for the construction industry, particularly for materials, is so international. The latest restrictions on movement have already caused labour shortages and have caused some sites to be closed or mothballed. The result is that construction projects will be delayed.

Who is likely to bear the cost of those delays?

That will depend mostly on the contract form being used for the project and how the risks associated with this sort of event have been allocated.

  1.        JCT forms of contract: Much of the UK construction industry uses JCT forms of contract which allow for these sorts of so-called "force majeure" events. The key to the JCT risk allocation is that, unamended, the contract will award contractors or subcontractors time but not  money, so no prolongation costs will be recoverable.
  2.        NEC forms of contract: By contrast, under unamended NEC forms of contract, both time and money will be awarded to contractors and subcontractors due to the coronavirus pandemic.
  3.        International contract: For international contracts, which are mainly FIDIC based, a contractor or subcontractor will often be able to claim time and eventually (if delays are long enough) the contract will terminate and money will become available as well.

All of these force majeure type clauses rely on reasonable knowledge – so parties should be aware that the risk will likely sit with the contractor now if a new contract is signed as these effects ought to be in the parties' contemplation. As more stringent restrictions on movement have come into force parties should also consider whether their contract allows claims to be made due to the exercising of a statutory power by government.

Parties should also be aware that the exact wording of their contracts will determine what, if any compensation or time is available to claim. Parties will still have to comply with all of the notice and other provisions which entitle them to make claims, as all forms of contract have their own hurdles that must be jumped for claims to be valid.

How is the construction industry coping with these factors?

In my experience so far, the construction industry is still only getting to grips with how the pandemic is going to affect work on site. Government advice is being clarified and the industry is working out the implications of having to comply with social distancing measures.

However, given the skills shortage already being experienced due to an ageing workforce and Brexit, combined with the low profit margins prevalent in construction, the coronavirus pandemic is likely to have a lasting impact and there may well be more supply chain insolvencies.