In light of the Government advice given on 23 March 2020, we have received many queries as to how the restrictions on movement and the requirement that people stay at home will affect construction sites, and how parties to construction contracts should react. We have therefore set out below some of the options which those on site or parties to contracts should consider. Obviously, all action taken should be considered carefully and the best course of action will depend on the exact wording of your contracts.
The latest guidance from the Cabinet Office is that construction should continue as long as it can be done safely AND in accordance with the Public Health England guidance. The industry is being advised to follow the Construction Leadership Council Site Operating Procedures (that are constantly updated in line with PHE guidance) which can be accessed here:
Nevertheless, the imposition of the new restrictions can potentially bring about a change to the operation of a contract in four different ways:
- Force Majeure;
- Exercise of a Statutory Power;
- Health and Safety concerns; and
Each of these options will be very fact dependent and the relevant contracts should always be consulted. We will now consider these four different routes in turn.
A right to claim as a result of force majeure is normally included in contracts, although parties should be wary as contracts will treat a force majeure situation differently (for example unamended JCT allows a claim for time but no money and unamended NEC allows claims for both time and money). Force majeure also is normally worded such that the event relied on cannot have been in the reasonable contemplation of the parties and so there may be a grey area once the COVID-19 outbreak was known about but had not necessarily spread so widely.
Exercise of a Statutory Power
Although the 'Coronavirus Bill' (Health Protection (Coronavirus) Regulations 2020 (No. 129)) has not yet been passed and is currently in the House of Lords, our understanding is that the Bill is likely to become law on Thursday evening (26 March). At this point, if a project is affected by the restrictions that will at that point be on the statute books, then clauses concerning the exercise of a statutory power could be relied on. Before that time, it is potentially arguable that the Prime Minister's announcements constitute the exercise of a statutory power based on pre-war and other legislation.
Health and Safety concerns
Some contracts understandably permit work to stop where a health and safety situation dictates that it would be unsafe for work to continue. Depending on the work envisaged and the conditions on site, these sorts of provisions might be relied on in the current situation. Of course, the need to keep a site and the people in and around it safe may equally dictate that the work, or at least certain aspects of it, must continue.
A contract has been frustrated when a supervening event is sufficiently severe that the parties are no longer held under common law to be bound by their contractual obligations. As no party to a construction contract would be at fault and the COVID-19 pandemic would not have been foreseeable at the time most ongoing construction contracts were entered into, the doctrine of frustration might assist parties. This will particularly be the case if the government expressly orders construction sites to close (compare the case law on government restrictions on building operations during wartime). However, it must be noted that the effect of frustration is that the contract is effectively brought to an end and so has drastic consequences.
The Chancellor has drawn widespread praise from the business community for basing his response to the coronavirus crisis on the principle that “now more than at any time in our history, we will be judged by our capacity for compassion." It is rare to hear a Chancellor speak about compassion and perhaps even rarer to hear lawyers speak about it. But a successful way through this crisis for the construction industry may well be based on an approach that combines careful analysis, understanding and strategizing of the legal position, with a pragmatic approach to finding a solution, thinking about how programme and scope could be adjusted, and focusing on finding an outcome that works for all parties and the project itself.
We are aware that this is a fast-moving and complex area, and the points above must be considered carefully. Should you wish to discuss any of these points with one of our team, please contact John Morris, Anthony Albertini or Chris Leadbetter in London, Mary Anne Roff in Newcastle, Steven Cannon in Manchester or Peter O'Brien in Bristol.