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Coronavirus and construction contracts

Published: 3 April 2020

The full practical and cost implications of this pandemic cannot be easily foreseen, nor eloquently summarised. Therefore, it is not surprising that in the UK, agreement has not been reached on whether construction work should continue or not. In Jersey however, the Government has been clear on this point. All construction sites should be made safe and closed by 18:00 this evening (3rd April 2020). Click here to read the full guidelines.

At least in this one aspect of Island business, there is clarity and both employers and contractors can plan accordingly. This includes the introduction of a permit scheme that will launch next week to enable construction work to potentially restart, subject to approval that measures have been put in place to prevent the spread of Coronavirus on construction sites.

Regardless, there is no doubt that live and planned projects will face delays, hinderance or cancellation and of course, there will be time and cost implications. Who foots the bill, in a time when it does not seem fair for any one party to be blamed? The answer will lie in the relevant contracts between employers and contractors. In addition to this, the facts of each case will merit consideration and a new legal landscape will likely emerge as a direct result of Covid-19. Two terms which feature commonly in construction contracts are ‘Force Majeure’ (Act of God) and ‘Statutory Powers’ both of which may cause restrictions on or the prevention of contractual obligations being complied with. Each will likely provide for some form of time or cost remedy and the options available to the party suffering as a result of a default will vary.

In many contracts, Force Majeure is not exhaustively defined nor is the term statutorily defined in Scottish, English or Jersey Law. Its interpretation is likely to be set within the context of the particular circumstances in which it is being relied upon and so cannot be seen as a failsafe provision in relation to the pandemic. Even if a Force Majeure provision can be deemed applicable, it may only apply when an obligation cannot be fulfilled, as opposed to a delay or increase in cost in doing so.

Statutory Powers provisions refer to a law coming into force which directly affects the ability of a party to implement their contractual obligations, example, by restricting the availability or use of labour. The Government of Jersey’s Covid (Restricted Movement) (Jersey) Order 2020 is a prime example of such a law.

If this ground can be satisfied, it is generally accepted that this entitles the non-compliant party to an extension of time to comply with their contractual duties. This may seem like a quick-fix option, however employers and contractors should bear in mind that overarching principals will apply when attempting to rely on this.

For instance, contractors must do what they can to minimise any delays and associated costs and ensure that they can demonstrate causation directly attributable to Covid-19. It goes without saying that clear records should be kept as to any delays or disruption and this is even more important now. Contracts should be checked for any notices that have to issued by the defaulting party when they become aware that they will be unlikely to, or cannot, comply with their obligations. In most cases, certain  timetables will need to be followed for valid service of such a notice and the method of service should be carefully checked. An email may not be considered valid – the relevant contract should be clear on this.

In summary, anyone who finds  themselves in a difficult contractual position as a result of the pandemic should think to the future. It may not be as simple as picking up where we left off when normal society, whatever that may look like, re-emerges.

Regardless, it is not in anyone’s best interests to burn bridges or sour relationships. If those foundations can be retained then at least, there will be something to build on when the circumstances allow. To find out more email property@viberts.com.

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