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COVID-19 Implications on UK Construction

Pete Larsen
Pete Larsen
November 9th, 2020

Reading time: 3 minutes

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With the COVID-19 pandemic expanding globally and a rapidly increasing number of infections, the construction industry has been taken by surprise. Many projects had to be postponed or shut down until “further notice”, leaving contractors unprepared to deal with this unprecedented situation. The main question remains how the existing construction contracts and the obligations of the parties can be still executed.

Under the current pandemic circumstances, what contracting parties must face is lack of projects’ progress due to shortages in supply chain and workforce, site closures and cash flow difficulties that may even lead to bankruptcy. A site closure or project delay then raises questions about the legal implications of the pandemic on the existing construction contracts; specifically, on the force majeure clauses and the subsequent extension of time.

Firstly, there is no common legal definition on what constitutes a force majeure event. Typically, an event of force majeure is an event that is beyond either party’s control, not attributable to either party, and could not reasonably have been foreseen, avoided, or overcome. The wording of the respective clause in contract plays a catalytic role. Some contracts may contain an (exhaustive) list of force majeure events, while others may only indicate that relief is provided when the event “hinders”, “prevents” or “renders impossible” the performance.

Clause 2.26 of the Joint Contracts Tribunal (JCT) contracts do not explain at all what force majeure in their context is, but rather only refer to it as a ‘relevant event’ that should be cited when a delay notice is submitted for extending the time over an estimated period (or two months, if such period is not indicated). After the expiry of this estimated/indicated period, either party can terminate upon seven days’ notice. The 1920 case of Lebeaupin v Crispin provides a strong argument for considering epidemics/pandemics as cases of force majeure. Therefore, it certainly appears reasonable for contractors to turn to the force majeure relevant event in respect of the COVID-19 pandemic.

While COVID-19 as a force majeure event may justify the extension of time under a JCT contract, it may provide both additional time and compensation under a New Engineering Contract (NEC).Even though not expressly referred to as a force majeure clause, Clause 19 and 60.1(19) provides for an event that stops the contractor completing the works (by the date shown on the Accepted Programme) and which an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for it. Under NEC a degree of foreseeability is introduced.

In cases where work had to be stopped or delayed because of the virus Clause 19 may apply. In such cases people may have been prevented from working in the project site and materials or equipment may not have been received due to restrictions on movement. Therefore, it would be difficult to argue that the contractors could have predicted the issue and have allowed for it. Such events would be also regarded as compensation events under Clause 60.1(19), which should be notified by the contractor to the project manager within eight weeks. However, the test under Clause 19 is strict; it is not sufficient that the works or a section of works is delayed, but the delay must affect the completion date of the whole project.

Finally, even though often overlooked, nearly all construction contracts impose a requirement on contractors to mitigate or use their best endeavours to reduce delays. The 1911 Sheffield District Railway v Great Central Railway case may give some clarification on best endeavours by stating that ‘best endeavours means what it says – it does not mean second best endeavours’. In the case of COVID-19, such an obligation may imply cooperation and risk assessment on working under social distancing measures, reprogramming of works to cope with the new arrangements, replacing staff that cannot work with furloughed staff and continuing with off-site activities.

FLI regularly advises clients on corporate portfolio management and strategy, with a key focus on global roll-outs and investments. With over 17,000 lawyers worldwide in over 100+ jurisdictions, FLI benefits its clients by providing access to local industry and jurisdictional experts. If you would like to discuss how this may relate to your outside counsel requirements or to explore how FLI may render assistance to your firm both domestically or in cross-border matters, please feel free to get in touch with Daniel Casares-Lauritsen at dcasares@first-law.com

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Pete Larsen

Pete Larsen

Pete Larsen brings more than fifteen years of experience as corporate in-house, litigation-management across the country involving banks and financial institutions, commercial real estate law, title, commercial leasing, and litigation related to residential, multi-family and commercial real estate.

Prior to joining FLI, Pete served as Associate General Counsel for a premier commercial real estate and loan and financial advisory services company, Situs. He primarily supported Situs’ loan-servicing and special servicing business units, providing legal expertise within commercial the commercial mortgage servicing industry, including servicing and securitization.

His responsibilities also include complex contract preparation and negotiation, litigation-management, banking and finance, legal department management, mergers and acquisitions, risk assessment and insurance.

In October 2011, Mr. Larsen was the lead attorney on the purchase of loan servicing rights of approximately 9.7 billion Euros, more than doubling the company’s European assets under management at that time.

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