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Considering COVID-19 under JCT contracts

14th April, 2020

COVID-19 will have important implications for parties contracting under the JCT suite of construction contracts.

Therefore it is important for Employers and Contractors alike to understand the key provisions and risks that are likely to be impacted as a result of COVID-19.

Is COVID-19 recognised as a Force Majeure event under JCT Contracts?

The JCT form of contract expressly refers to the concept of Force Majeure however, Force Majeure is not a defined term within the contract, nor does the JCT form of contract give any examples of events that might constitute a Force Majeure event and therefore the wording must be given its usual and every day meaning.

The expression force majeure is normally used to describe a contractual term by which one (or both) of the parties is entitled to cancel the contract or is excused from performance of the contract, in whole or in part, or is entitled to suspend performance or to claim an extension of time for performance, upon the happening of a specified event or events beyond his control[1].

Whilst the impact of COVID-19 is likely to disrupt labour and supply chains and satisfy the meaning of force majeure in broad terms, the parties should think carefully about what matters are within their control at the date of entering into the contract.

For instance, a contractor importing materials from Italy under a contract entered into in December 2019 (or earlier) is much less likely to have had any knowledge of COVID-19 and its impact upon their supply chain than say, a contractor importing the same materials under a contract entered into today when the issues of COVID-19 are more widely known and capable of being mitigated and so this needs to be considered when assessing events within the control of a party.

Importantly, a party seeking to rely upon a Force Majeure clause must not only prove that the Force Majeure event occurred, but that the event prevented the party from performing its contractual obligations and therefore it is critical that detailed records are kept in relation to the workforce and delays in supply chains.

What is the impact upon time for completion?

It is important that the Contractor completes the works by the Completion Date set out within the contract otherwise, the Employer may be entitled to claim liquidated damages against the Contractor as a result of the Contractor’s delay.

The date for completion of the works is fixed at the outset of the contract and the Contractor may only receive an extension of time if the Contractor is impacted by a “Relevant Event” as defined within the contract.

Relevant Events are generally events that are not attributable to the fault of either party and under the JCT form of contract, Force Majeure is considered a Relevant Event.

If it can be established that the Contractor has suffered a delay as a result of COVID-19, then it is possible that the Contractor might be granted an extension of time which in turn may relieve the Contractor from their liability to pay liquidated damages for delay.

As with any event that might affect the date for completion, it is important that the Contractor gives notice of the event stating, the material circumstances including the cause for any delay and the Relevant Event which he believes to have occurred.

What is the impact upon loss and expense?

A Contractor is generally entitled to recover their loss and expense under a JCT contract if the Contractor is impacted by a “Relevant Matter”.

Unlike a Relevant Event (which impacts time), Relevant Matters are generally matters that are caused by the delay or impediment of the Employer and as such, it should come as no surprise that the JCT form of contract does not treat a Force Majeure event as a Relevant Matter.

Consequently, if the Contractor suffers loss and expense as a result of a Force Majeure event, it will be unable to recover such costs from the Employer.

Suspension & Termination

If the works are suspended as a result of a Force Majeure event before the works achieve practical completion, then either party may give notice to the other of their intention to terminate the contract provided that the suspension has occurred for at least 2 months (or such other period of suspension as specified in the contract particulars).

It is advisable for any party considering the termination of a contract to seek proper legal advice before doing so as wrongful termination could amount to repudiatory breach of the contract.

Change in legislation

Whilst this article deals primarily with Force Majeure, it is possible that the government may introduce legislation which mandates the closure of sites or supply chains and may give rise to other issues under a JCT Contract such as a change in statutory requirements.

Should there be a change in the statutory requirements, such changes are likely to follow the consequences of a Force Majeure event.  That is to say that the Contractor might be entitled to an extension of time as a Relevant Event but that a claim for loss and expense is unlikely to qualify as a Relevant Matter unless such change in the statutory requirements could be treated as a change under the contract.

Key take away points

  1. Force Majeure is an undefined term under the JCT contract and it will be a question of fact as to whether an event can be considered a Force Majeure event. The date that the parties entered into the contract should be considered in careful detail, particularly for contracts entered into recently.  It is important to that a party can not only demonstrate an event has occurred, but its impact on the works.
  2. Detailed records should be maintained. It is important to document who was on site and when.  If there is disruption in the supply chain, records should be kept as to what was expected and when.  If site inspections are made monthly, parties should consider increasing the number of inspections to weekly or daily as might be appropriate.
  3. It is possible that a COVID-19 event may give rise to an extension of time but generally, such an event does not entitle the Contractor to claim loss and expense.
  4. The parties should be alive to the possibility that a change in statutory requirements may give alternative grounds to an extension of time and/ or loss and expense should the government introduce tougher legislation to force the closure of construction sites.
  5. A contractor should give notice of any delays as a result of COVID-19 as they would any other Relevant Event.
  6. Terminating a contract is a risky step and a party should always seek legal advice before purporting to serve any termination notice.
  7. A party should always check to see if the standard provisions of the JCT contract have been amended by a schedule of amendments.

[1] Chitty on Contracts 33rd Ed Para 15-152

If you require any further advice, please contact Phil Caton, our Construction specialist.

Phil Caton

Construction

Senior Associate
Email: [email protected]
Tel: 01244 405 531

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