COVID-19, Force Majeure and Construction Contracts

On 23rd March, the Government instructed the public to stay at home and when going out, for essential purposes only, to practice social distancing measures.  Some hours later, they indicated that Construction sites may remain open, though workers should continue social distancing.

We have an unprecedented situation and official guidance isn’t specific, so no-one is entirely clear on next steps.  However, many Main Contractors have taken the decision to close sites, in the face of the impracticality of continuing on this basis as well as the difficulties of obtaining materials from suppliers who have closed down operations. Clients are also being asked to give directions, which may not be the best option for them.

Whilst the Government has not issued a Directive, it is expected that Contractors will seek to rely on Force Majeure as a justification for closing sites. Whether this is a valid option, or not, is unclear and both Employer and Contractor are potentially in a very complex, difficult position.

Taking a cue from leading Law practises, Tridents view in respect of current projects on site is that a pragmatic approach should be adopted by the Employer and the Contractor. The parties should formally agree to a temporary suspension of the site and recognise the contractor will receive an extension of time but no loss and expense and as such LAD’s will not be levied on the contractor.

Note that there is no case law dealing with force majeure or contract suspension such as this, so legal counsel has no reference point and do not fully understand how this will play out.  In this unprecedented situation both Employers and Contractors face uncertainties, and risks.  Thus, the Contract Administrator should discuss this approach with the Client, who may wish to seek further legal advice.

Before giving any advice, the Contract Administrators need to be fully aware of what the contract includes, in relation to force majeure and site suspension clauses; noting that standard contracts have differences and are usually amended by the parties too.  Be aware of the contracts’ termination clause which may come into effect if the site is closed for a period (usually 2 months).

To ensure that the project is efficiently closed down, the Contact Administrator must:

  • Keep detailed records;
  • Value the works and properly certify any completed works, before the site is closed;
  • Ensure all certificates have been issued and contract instructions are up to date;
  • Prepare and issue a letter to formalise the site closure and arrange for both the employer and contractor to sign.
  • Formally issue the appropriate Notices at the right time in relation to the Termination Clause; failure to do so may give the Contractor the right to walk away.
  • Notify insurers.
  • Ensure sites are left secure and safe.
  • Check the financial stability of the contractor and their supply chain, are they capable of weathering the downturn?
  • Prepare a contingency plan. Things may not turn out as expected.

For contracts that are currently being negotiated, a COVID-19 clause will need to be added and legal advisors should draft the wording of this amendment.

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