In response to growing concern in the construction industry about the impact of the coronavirus (COVID-19) pandemic on contracts, both the UK government and the Construction Leadership Council (CLC) have issued fresh guidance on how parties should deal with these issues.
The government guidance, issued on 7 May, encourages parties to act fairly and responsibly when requesting and granting relief under contracts and to resolve emerging contractual issues before they escalate into full disputes. It also emphasises that contractual parties in the private and public sector need to act fairly and responsibly in the national interest to protect jobs and the economy.
On the same day, the CLC also published its own best practice guidance for the construction industry, supporting the government guidance and stressing the importance of properly administrating construction contracts to reflect COVID-19, in a manner which is fair and reasonable and with the aim of supporting the supply chain.
It requests that the entire industry works together to secure the long-term health of the construction sector by practically resolving contractual disputes arising from the pandemic.
The key points of the CLC's guidance are as follows:
1. Parties to a construction contract should engage in 'without prejudice' and 'subject to contract' collaborative discussions to mutually agree an approach to the impact of COVID-19 on the project and relief that could be granted to each or either party. This includes consideration of:
- Whether extensions of time are required;
- Whether suspending the works would be in the best interests of both parties;
- What additional costs are likely to be incurred and how these should be shared;
- Whether entitlement to termination could be waived;
- Whether valuations and payments could be adjusted or variations made to mitigate impact; and
- How payments to the supply chain can be monitored and protected.
2. Parties should continue to follow contractual mechanisms until any agreement is reached, such as giving notices of delays, applying for additional time and/or money and complying with risk management and early warning notices.
The guidance includes pro-forma letters which can be used by parties to apply for:
- An extension of time under the JCT Design and Build Contract 2016; or
- A compensation event under the NEC3/4 Engineering and Construction Contract.
3. In reaching any agreement, parties should ensure that they factor in any contractual obligations they owe to third parties (such as insurers, suppliers, sub-contractors, funders, purchasers or tenants) and have similar collaborative discussions with such parties where possible.
4. If the parties cannot reach agreement, then quick and early methods of dispute resolution are encouraged, such as:
- RICS's Conflict Avoidance Procedure;
- Escalation of disputes to senior representatives;
- 'Traditional' adjudication;
- The CIC's recently launched 'Low Value Dispute Model Adjudication Procedure'; and
- The 15-day adjudication service, which RICS will soon be launching.
Neither the CLC nor the government guidance is binding, but parties to construction contracts should bear both in mind when considering their contractual position, seeking to impose contractual provisions and/or seeking to resolve contractual issues arising from the impact of COVID-19.
The CLC guidance, in particular, is a helpful reminder of the specific issues that the parties may find useful to discuss and potential suggestions for resolving those issues.
Where a contractual counterparty refuses to engage regarding COVID-19 or to allow any relief for its impact, it may be worth directing that party to both guidance notes as a reminder that parties are being asked to work together to protect the long-term health of the construction sector and, consequently, the economy.
For more information on the CLC's guidance on the safe operation of sites during the COVID-19 pandemic please see our article on the updated Site Operating Procedures (Version 3).
For more information about how the construction industry should respond to the disruption caused by COVID-19, this video contains some FAQs, with answers that continue to align with current guidance.
If you have any questions or concerns about your projects in light of the coronavirus outbreak, Fieldfisher's construction and projects team would be happy to discuss your specific circumstances with you.
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