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Covid-19 and the Construction Industry

2 Apr 20

Due to the COVID-19 outbreak, the construction industry is changing, here Construction Partner and Dispute Resolution specialist Mark James at law firm Coffin Mew talks us through these changes.

The construction industry has had a particularly difficult few years, with uncertainty around Brexit, high numbers of insolvencies, high-profile building safety concerns and more. The spread of the coronavirus is now another challenge the industry is facing. InduSstry responses from the Construction Leadership Council and Build UK have called on the government to support them with keeping construction sites open during the coronavirus pandemic. The closure of sites could result in thousands of job losses, delays and cost increases to crucial projects.

As of last week, the aim was to keep business-critical construction projects running, however this is changing by the day with more and more construction companies halting work on sites. With the recent strict new isolation measures, individual companies may now not have the power to decide whether to stay open and may be forced to shut.

These are difficult times for the industry.

Challenges facing the construction industry:

One of the main concerns facing the construction industry is the delay that will be caused to projects. Delays on site are likely to occur for varying different reasons stemming from the coronavirus. This is an issue as many projects are time sensitive, with the majority of contractors having various projects lined up over the course of the year. This could cause future projects to be lost and in addition, contractors could face penalties set out in the contract for delays in completing the works.

The main causes of delay are likely to arise as a result of

• Supply chains: the virus is having a massive impact on supply chains. Ports in China now appear to be re-opening and shipping supplies. However, due to the recent lockdown, there have been delays with delivering supplies and many containers have ended up in the wrong places. In some instances it has taken two weeks or more to get supplies to the UK. In addition, many supply chains consist of SME’s with a significant amount of self-employed workers. Many self-employed workers are cautiously welcoming the new government package for self-employed, but are wanting to assess the details before making firm commitments to being able to keep supply chains fully operational.
• Temporary suspension of work: This is likely to occur because of a reduction in the numbers of workers due to them becoming unwell or having to self-isolate. This could force work to have to be suspended until further notice.
•Increased health and safety measures in order to try to protect people from contracting the coronavirus.

There are also further issues facing the construction industry including:

• Risks to the workforce. If construction sites remain open, workers may be working in close proximity which increases the chances of the virus spreading.
• The government has extended the wage support scheme to the registered self-employed so that construction workers do not miss out, but at the present time support is only expected for 3 months initially and it does not currently cover those self employed directors of small limited companies.

The main question that needs answering is who will bear the risks and costs of delay?

The Contract:

In light of the current circumstances, contractors should be reviewing their construction contracts to understand their contractual rights and obligations that may arise in the event of a disease outbreak. The contract may also highlight who should bear the risks and costs of any delay to projects.

1. Force Majeure
A good place to start is to check the construction contract for a force majeure clause. A force majeure clause has no specific meaning under English Law and they must be dealt with on a case by case basis to determine their meaning and consequences. A common question arising at the moment is whether the coronavirus pandemic constitutes a force majeure. This may have the effect of suspending the obligation to perform the contract. These clauses have the effect of excusing something that would usually be a breach and temporarily suspends the obligation to perform the works. Parties should check what obligations this clause would relieve them from and comply with any notice requirements under the contract.
In the current climate, and with coronavirus being declared a pandemic, it is useful to turn to the case of Lebeaupin v Crispin and Company in which the court stated “…war, inundations, and epidemics are cases of force majeure”. Whilst a pandemic is different from an epidemic, given that an epidemic is more local and a pandemic is global, it is likely that people will try to place the same reliance on this case.
Any party seeking to rely on a force majeure clause will need to serve notice on the other to be able to benefit. The force majeure must be the sole cause of the delay; the coronavirus must be the only reason for the delay in performing under the contract. A contractor should provide evidence of this such as records showing staff sickness or evidence to show site closures. An employer should be seeking this from the contractor.

Contracts should also be reviewed to consider any clauses relating to:
– The use of alternative suppliers or materials;
– Relevant events enabling claims for extensions of time and additional money;
– Delay and liquidated damages;
– Rights to terminate the contract.

2. Frustration
If there is no force majeure clause within your contract, it may be possible to rely on the common law doctrine of frustration. This is a doctrine applied by the courts and is not a freely negotiated contract clause. The purpose of the doctrine is to relieve parties of their obligations under the contract where a supervening event, which is not the fault of either party, has made performance of the contract radically different from that which was originally agreed. The doctrine does not suspend performance of the contract but brings the contract to an end permanently. If it is deemed that the contract has been frustrated, the party will not be liable for damages or non-performance of the contract.
The issue with the doctrine of frustration is that it has been construed narrowly by the courts. Additionally, the doctrine will only apply to an event that occurs after the contract has concluded. That means contracts that were entered into after the outbreak of coronavirus will not be able to rely on frustration. Finally, frustration will not apply on the basis that it is more expensive or difficult to perform the contract or because another supplier has failed to perform its own obligations. You are therefore unlikely to be able to rely on frustration for supply chain issues.

Solutions – What can you be doing?
These practical tips should help you consider what you can be doing to minimise the impact to your business:

• Check the construction contract for a force majeure clause and take advice where necessary.
• Check your contract for other clauses dealing with the use of alternative suppliers or materials; relevant events enabling claims for extensions of time and additional money; delay and liquidated damages and any rights to terminate the contract.
• Seek legal advice on the doctrine of frustration, in the absence of a force majeure clause.
• Issue any warning notices to other parties if you feel that delays to the works are inevitable.
• Check the terms of any insurance policy to see if it provides any protection for business interruption. If so, you may be able to recoup your losses and should discuss this with your insurers. If you are able to claim under your insurance policy you will have to prove the losses incurred and will receive the money from the insurer after the event. You should therefore record any delays, shortage, or change meticulously in order for any loss to be ascertained.
• You should notify other parties to the contract on the likelihood of any delay to progress works and be proactive in liaising for an extension of time. Having an open discussion at this time seems to be the best approach in order to agree and negotiate a way forward that will work for everyone.
• Take measures going forward to review contracts, terms and conditions and health and safety requirements to be better equipped in the future to deal with similar situations.
• Whilst some construction sites still remain open, be vigilant with health and safety requirements to prevent the spread of the virus as much as possible.