Entering into a contract in the COVID-19 era: Key considerations

As discussed in our earlier insights, the construction sector in Scotland moved into Phase 4 of the five-phase Restart Plan in July: Steady State operation. In contrast with a number of other sectors, in the main, the construction sector has been able to manage the worst effects of COVID-19 and carry on, or commence, with works on site.

As the second wave of COVID-19 in the UK starts to bite, with restrictions in place and the potential for of additional restrictions to be introduced, it is clear that we may well be enduring the consequences of coronavirus for quite a while. England has entered a further four-week national lockdown, although construction workers who cannot work from home are exempt from this. It remains to be seen whether the Scottish Government will follow suit with a further Scotland-wide lockdown (over and above the current restrictions, with some areas of Scotland experiencing all but a full lockdown from this week), but the Scottish Government has expressed its commitment to keep construction sites open.

However matters develop over the next few weeks, the parties to construction contracts may well be faced with further instances of delay and/or disruption to their projects and remedies/rights that may have been available in contracts entered into pre-pandemic may no longer be applicable. By way of example, reliance on force majeure provisions in a contract entered into post-March 2020 will be difficult where the risk of delay and/or disruption as a result of the effects of COVID-19 are now entirely foreseeable.

What is the consequence of all of this for the construction industry, and how should risks be allocated in contracts?

When preparing a building contract, whether that contract is an amended or unamended standard form or is bespoke, both parties need to give careful consideration to how COVID-19 may impact on the works. We have seen from the first wave that sites may be shut down, there have been shortages of labour, plant and materials, delays in delivery, changed working hours and then, as the country started to reopen, necessary health and safety changes on site including different methods of working or restrictions on access. Some of these restrictions remain with us and parties are better placed to anticipate where issues will or may arise and try and deal with them in the drafting. As we are all being impacted by coronavirus, the best thing to do may be to sit down and discuss things constructively, to find a way forward that is beneficial to all.

Over the past few months, we have seen the full range of drafting options, from the employer taking on full COVID-19 risk, shared approaches, and even contractors being required to manage coronavirus with no COVID-19-specific entitlement to time or money.

Both employers and contractors will need to consider the time and money provisions carefully to establish where, if anywhere, the risks of a coronavirus-related claim would lie. Thinking about a couple of specific examples:

  • Employers in particular may think they are in a pretty good place given contractors are now unlikely to be able to successfully argue that coronavirus-related delays were unforeseeable. As ever, everything turns on the wording of the particular contract, but consider the position where the employer is supplying goods and materials to the contractor – this could lead to claims for both time and money if the contractor is able to argue that there has been impediment, prevention or default by, or on behalf of the employer.
  • And what about a change in law? Contractors should be clear, and employers should check, what has actually caused the issue – is whatever has led to the delay set out in a statute or regulations, or is it non-statutory guidance? Using the SBCC standard forms as an example, would there be a change entitling the contractor to time and money, or is the contractor’s only potential route to entitlement due to the exercise of a statutory power? Now that we all have some experience of dealing with a pandemic, parties entering into construction contracts should be in a position to:
    • identify and acknowledge the risks that the pandemic poses;
    • negotiate who bears those risks; and
    • develop bespoke drafting to tackle (or at least attempt to tackle!) coronavirus-related issues,

so that both parties’ rights and obligations are as clear as they can be from the outset.

Don’t forget about sub-contractors – contract provisions need to be thought through down the supply chain, if possible, so that the approach is consistent. This will aid in avoiding confusion if sub-contractors do not have the benefit of the same or equivalent rights and responsibilities in a question with a main contractor as the main contractor has with the employer.

Hopefully the additional drafting at the outset will generate goodwill between all parties in the supply chain in addressing those risks upfront, and avoid costly disputes further down the line.

Construction at MacRoberts

Our experience and expertise in construction extends back many decades and MacRoberts’ lawyers are widely respected both in legal circles and within the construction industry.

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