Negotiating construction contracts — a checklist
Assumptions can be costly.
When it comes to mitigating the impact of the pandemic on your business or your project, it helps to make no assumptions about what you can or can’t do within the terms of your construction contact.
When it comes to claiming for an extension of time or loss and expense incurred because of COVID-19, a strong negotiating position can minimise the chances of further costs arising from breach of contract.
Quite simply, being aware of your rights and remedies could save you thousands of pounds.
The golden rule is that you shouldn’t assume pandemic-related legislation and government guidance alone justify stopping work on site or an additional payment.
That said, there are various options available for contractors looking to claim for an extension of time and, or loss and expense arising out of the current situation. We’ll explore them in more detail in subsequent posts, but here’s a quick overview.
- Timing — this includes both the timing and effect of government intervention, and the base date applicable to the contract. For example, if the base date is after the pandemic was declared, any relief dependent on the “reasonable foreseeability” of the parties is likely to be unavailable
- Standard clauses — Don’t take standard clauses for granted, check for amendments impacting on force majeure (like pandemics), changes in law and exercise of a statutory power as ‘relevant events’
- Force majeure — Only potentially an option if your contract specifically makes provision for delay caused by such an event (and force majeure is defined properly). Claiming for extension of time (force majeure generally doesn’t allow for loss and expense) based on force majeure has drawbacks, including if works are suspended for that reason, many contracts provide for either party to terminate the contract after a certain period of time
- Change in law — If you are relying on a change in law for an extension of time and loss and expense, you’ll need to distinguish between what is actually a legislative change and what’s guidance. The latter is unlikely to stand as a change of law on its own for delay relief
- Exercise of statutory power — Similar to change in law, if a statutory body (like a local authority) issues any direction this may not actually be an exercise of its statutory powers. As such, that direction will not be a relevant event for relief from the consequences of delay
While it’s likely the decision to shut down a construction site is reached with all parties’ consent, and so avoiding scope for someone to claim breach of contract, let’s make no assumptions.
Go back to first principles: check your contract alongside this list —
- Identify all grounds for claiming an extension of time or loss and expense
- Make sure you’ve given notice of the delay. This may be a condition precedent to entitlement, but even if it isn’t, doing so could help substantiate your claim
- Comply with all contractual notice periods and submit everything that’s contractually required to be in the delay notice and/or claim, such as substantiation and estimates of the impact on the programme
- Set out the basis of each claim, tying back to the relevant contract provisions, and its impact eg force majeure, change in law or exercise of statutory power
- The strongest claims include a careful application of relevant law and guidance rather than a blanket statement that the COVID restrictions impacted on the progress of the work
- Are there any other notices required under the contract as the guidance and legal position changes?
- Update any particulars and estimate of the impact on the programme as you go
- Consider and record whether any guidance has changed; risk assessment updated; particular site operations have had to stop and when and how those should start again with social distancing
- Have the reasonable measures you’ve taken delayed progress? How?
- Why or how did the law, regulations and guidance mean you had to cease certain operations or put specific measures in place?
- Are there other steps to minimise or prevent any further delay? How much might that cost? And is it reasonable to incur that cost? Have you discussed and agreed these with the contractor/employer?
- Could any off-site works be progressed meantime?
- How do you document delays now so you have evidence to hand if required?
- You should monitor any periods of suspension to avoid triggering any automatic no-fault termination provisions
The simple fact is that as lockdown eases, and with sites open again, justifying any delays and failures to meet contract requirements will be firmly in the spotlight.
So, to avoid running into any issues, it makes sense to understand the rights and remedies outlined in your construction contracts before sitting round the (virtual) negotiating table.