04 May 2020 #Construction
Article originally written by Ruth Wilkinson published originally for FIS on10th April 2020
Covid-19 clause – extensions of time and additional cost
It is sensible for companies to be proactive and try to ensure that there is protection in their contracts against the effects of Covid-19. We have set out below a suggested example clause, for inclusion in tender packages. This clause is drafted relatively broadly with the intention of ensuring that all of the effects of Covid-19 – including the impact of measures implemented to try to control it – will trigger the clause. However, as with “Brexit clauses”, the drafting of this is of course untested and there may be disputes over its enforceability.
Covid-19 Clause – With the uncertainty surrounding the effect that Covid-19 will have on the economy and in particular the construction industry we recognise that there may be implications regarding the supply of resources to both labour and materials. To this effect we request that the following wording is added to all contractual relationships
New definition: “Covid-19” includes (1) the disease known as Covid-19 and the pandemic thereof which began in March 2020 together with any subsequent outbreak of Covid-19 and any mutations thereof and (2) the measures, recommendations, regulations and legislation imposed by the government and/or public authorities in relation to the same from time to time.
x.1 In the event that Covid-19 causes shortages in the supply chain, shortages in supply of labour, delay in availability of materials, site closure, or changes in site operating procedures this will be deemed a relevant event in respect of delays to the programme and the contractor will be entitled to a fair and reasonable extension of time to the completion date in relation to such relevant event(s)
x.2 In the event that Covid-19 causes either (1) an increase in prices/costs (whether of materials, labour, transportation, or prelims) above those experienced in the year 2020 between 1 January and 31 March 2020 or (2) additional costs incurred as a result of changes to site operating procedures, site closure, and any subsequent re-mobilisation then these additional costs will be recoverable under the contract as a variation.
Incorporation of Covid-19 clauses
This clause can certainly be included in tender packages with a request that it be included in the contract. However, care must be taken to ensure that this is followed through the tender process and the clause is in fact properly incorporated, ideally by being inserted as a clause in the main agreement. Subcontractors should bear in mind that if the main contractor cannot obtain an equivalent clause in their contract then it is unlikely, they will be able to secure its inclusion in their sub-contract.
Also when it is inserted it may need to be amended slightly, to use the appropriate defined terms and also any necessary references to other existing clauses. If a JCT contract is used there may not be one new clause added, but instead separate amendments to the Relevant Events and Relevant Matters – these will need to be carefully reviewed to ensure they have the desired effect.
Several contracts we have seen with specific Covid-19 clauses also include a specific early warning regime for Covid-19 delays and cost increases. Of course, many contracts include a general early warning regime for all changes and delays. In either case, this must be complied with if the contractor is to have the benefit of extensions of time and recovering loss and expense. This is not an unreasonable condition, but contractors must take care to comply with any such regime and the notices required to avoid losing their entitlement to claim under a Covid-19 clause.
The current position over site closures in England is (at time of writing) uncertain. It is currently being decided on an ad-hoc basis by contractors and/or employers. Whilst it remains uncertain how long measures to deal with Covid-19 will need to remain in force, it would be prudent to include in contracts a clause setting out what would happen if works on site need to be suspended for a period of time. Such a clause would need to address:
Force majeure – suspension and termination
Contractors may also wish to review the force majeure provisions in new contracts. The impact of Covid-19 itself is now foreseeable and so will not be covered by any force majeure clause in a new contract. However, in the event of a new pandemic in the future, which cannot be ruled out, a force majeure clause may provide some protection. We would recommend including a specific definition of force majeure which is wide enough to include epidemics or pandemics and their effects. It will not be sufficient however just to include a definition of force majeure. The contract will also need to include (if it does not already) a force majeure clause. This should clearly set out what will happen when a force majeure event occurs. Issues which should be addressed by a force majeure clause include:
Using a standard form contract (or even a bespoke contract) which does not make any provision for the potential effects of Covid-19 and the measures implemented in relation to it on any new project would be reckless. However there is no “one size fits all” solution and so whilst contractors should ensure there is appropriate wording in the final contract, they should bear in mind that it does not need to be in the same form as the example clause above, as long as it provides appropriate protection. Contractors should also take care to ensure that they keep accurate records of all impacts of Covid-19 on their projects and comply with all notification procedures under the contract.