Coronavirus and Construction Contracts: Delay and Prolongation

posted by KeithDaniel

As the impact of Coronavirus (COVID-19) on business and the economy continues to escalate, the construction sector faces the prospect of imminent and widespread site shutdowns.

This will inevitably lead to claims by employers for delay and LADS and claims by contractors for prolongation and loss and expense.

An issue that has yet to be determined is whether the Coronavirus pandemic will constitute a force majeure event.

The majority of standard form contracts include provision for force majeure as a Relevant Event entitling the contractor to claim an extension of time (and, potentially, loss and expense). The ability of the contractor to claim an extension of time is, however, typically contingent on the contractor having served notice on the employer in a prescribed form. Force majeure can also constitute a termination event exercisable by either party providing notice is served in a prescribed form within certain timescales, and which would have the effect of bringing the contract to a final account position.

In the event that a contract does not contain provision for force majeure, an equivalent term is not implied as of right in English law. If the contract is not varied, there is the potential that it may be treated as frustrated; exposing the parties to the risk of competing claims for damages.

The above issues are not insurmountable. Employers, contractors and suppliers need to work together to manage the impact of Coronavirus within the sector. All stakeholders should look to review existing contractual relationships now to ensure their position is protected and, if not, to urgently take steps to reach a common ground with other contracting parties where possible. This may involve issuing notices in a prescribed form, or agreeing a contract amendment or variation.

The construction team at Berry Smith are on standby and available to respond to any queries that you may have. Whether Government ordered lockdowns become a reality or not, Gavin can be contacted on ghoccom@berrysmith.com or 029 2034 5511