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Rights and remedies in construction contracts

As lockdown eases, and with sites open again, contractors will have to carefully consider how to justify any delays and failures to meet contract requirements.

I've blogged already about how a strong negotiating position here helps contractors manage risks associated with COVID-19-related delays, along with a list of points to consider when you’re checking construction contracts.

Now we take a closer look at the detail of the rights and remedies that may be available if you’re claiming for an extension of time or loss and expense.

Timing

Whether or not any relief is available may come down to timing.

This includes both the timing and effect of government intervention, such as specific COVID-19 legislation, and the base date applicable to the contract.

For example, if the base date comes after the World Health Organisation declared the pandemic, any relief dependent on the “reasonable foreseeability” of the parties is likely to be unavailable.

Standard clauses

You’re unlikely to find an express provision in any standard form construction contract entitling you, as the contractor, to an extension of time or loss and expense for pandemic-related delays and increased costs.

That said, there may well be relief for delays and cost as a result of the pandemic, such as labour and material shortages.

The starting point, of course, is to check the specific contract terms.

Check the likes of SBCC, JCT and NEC contracts for amendments impacting on force majeure (like pandemics), changes in law and exercise of a statutory power as ‘relevant events’.

COVID-19 has changed nothing in terms of contractors being expected to mitigate the impact by taking reasonable steps to minimise or prevent delay; however, different reasons for delay, from self-isolating workforce and social distancing measures to supply chain absences and risk assessments, may give rise to different entitlements.

You’ll need to explain and prove how the relevant event caused the delay and, or cost, and that’s not always straightforward.

The golden rule though is that COVID-19 and related laws and guidance won’t, on their own, justify stopping all work on a site.

So, you’ll need to consider how it might be possible to safely proceed with work and carefully document the decisions you take and the reasons for them.

Force majeure

Force majeure is not a concept that automatically applies in Scots Law.

It is only an option if your contract specifically makes provision for delay caused by a force majeure event. Even then, it will depend on its definition.

A general reference, without definition, would appear likely to cover the current position; however, some force majeure provisions are more prescriptive.

Your contract will also determine the consequence of force majeure-related delay.

If you’re seeking to claim for extension of time (force majeure generally doesn’t allow for loss and expense) then you’ll need to consider and document precisely how force majeure has delayed things. Plus, most contracts will expect, if it’s possible, for work to safely continue either on or off site.

Claiming an extension on this basis has drawbacks too. For example, 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.

This is made all the more complex because there’s been variance in approach for the construction industry between Scotland and England.

For example, the Scottish Government said all construction sites should shut down unless related to essential projects, as defined in its guidance.

In England, there was no such direct advice and construction sites were encouraged to remain open, subject to being able to protect the workforce and minimise infection risk.

So right from the start of lockdown, this posed the question — can a Scottish site remain open, or reopen, even if it isn’t related to an essential project, as long as it can operate safely?

The short answer was possibly (because it was advice, not law) and you can ignore advice when it doesn’t have the force of the law.

That becomes problematic however, when you’re relying on the change in law ground for delay relief further down the line.

The caveat to reopening, of course, was social distancing.

This was part of the Health Protection (Coronavirus)(Scotland) Regulations 2020. It’s debatable whether this is enough to meet the change in law test, but it’s worth investigating.

Exercise of statutory power

If a statutory body (like a local authority) issues any direction this may not actually be an exercise of its statutory powers.

If guidance is non-statutory, it is not an exercise of that power so would not be an alternative relevant event for delay relief.

Now, more than ever, contractors need to go back to basics and check their construction contracts so they fully understand the rights and remedies available when it comes to claiming for extension of time, or loss and expense.

Jennifer Young

Firm managing partner Jennifer continues to be ranked as a leader in the field of construction law, having been accredited by the Law Society of Scotland as a construction law specialist for over 15 years.

Posted, 02 September 2020 by Jennifer Young
Categories: Construction | Coronavirus | Coronavirus and construction | Insights | Litigation