29 December 2020

Impact of border closures on construction contracts

Marie-Therese Groarke
Associate | UK

The recent border closures motivated by the new variant of Coronavirus emerging will inevitably have an impact on some construction projects. This might come in the form of delays to the supply of goods and materials, labour shortages or other unforeseen disruption to the project.

Contractors will be keen to limit their potential liability by making claims for extensions of time. In turn, employers and developers will be keen to ensure that contractors do not use the recent border closures and the new variant of coronavirus to push through spurious claims. They will also be wise to ensure that evidence of the direct effect of such events on project delivery is provided when assessing whether it forms a valid basis for an extension of time.

When considering claims for extensions of time, the parties’ first port of call should always be to consider the terms of the contract. Unfortunately, there is no generic rule which can be applied for an easy answer. The specific facts applied to the specific wording of the contract will producing varying answers from project to project.

Contractors should be prudent in the way that they manage their contracts. In practical terms, this means that they should be giving notices early and often along with sufficient supporting particulars. Contemporaneous records should be kept and all feasible steps should be taken to mitigate delays.

For employers, developers and administrators considering extension of time claims, the position under the standard form JCT contracts (i.e. the Design and Build Contract, Standard Contract, Intermediate and corresponding sub-contracts) allows contractors to claim an extension of time in the event of a ‘force majeure’. This is not defined in the contract and does not have a specific meaning in English law. In practical terms, a force majeure event should be something which delays or prevents performance, is outside the control of the contractor and was not foreseeable at the time of entering into the contract. This might arguably include the recent border closures if it can be evidentially shown to have directly affected the project and caused a delay which is on the critical path.

The position under the NEC 4 Engineering and Construction Contract is similar to the JCT standard form referred to above. The contractor can apply for a ‘compensation event’ where an event occurs which is not preventable and was not foreseeable at the time of entering into the contract. If the contractor has established a valid compensation event, the Project Manager can certify an extension of time to the date for completion of the works. Unlike the JCT, the Project Manager can also certify an addition to the contract sum (defined as ‘Prices’ under the contract) if a loss can be demonstrated as a result of the compensation event.

Parties currently contemplating entering into a construction contract should now be well versed in how the impact of the coronavirus pandemic can be unpredictable and throw novel challenges for projects. The border closures demonstrate that parties should not just consider potential events that happen within the United Kingdom. The pandemic is a global crisis and actions of foreign governments have the potential to derail a project. Risk allocation should be carefully considered in this context and any drafting solutions to take account of the potential impact of coronavirus should be forward thinking and flexible enough to respond to the relevant circumstances. If not, a contractual solution which seems appropriate for the events of today could be inappropriate for the events of tomorrow.

Marie-Therese Groarke Associate | London

Category: Article