Everything you need to know about construction contracts in light of the coronavirus outbreak

Published on
4 min read

When work grinds to a halt on a construction site, the key question is who pays for the delay? We explore the differences between specific JCT and NEC contracts plus the real impact on businesses when their contractor stops working and makes a claim. Currently the government seems to be saying that construction sites should stay open although that may change in the weeks ahead.

JCT contracts

Broadly speaking JCT 2016 and 2011 (Design & Build (DB) and Standard Building Contracts (SBC)) are relatively simple. If there is a force majeure event which causes delay to the completion date then the contractor gets time but not money. However, if there is an instruction to change work, for example altering the access to the site, then there might be a claim for extra money as well.

Claims for time

The most frequently mentioned basis for a contractor to claim more time in respect of coronavirus is force majeure. It seems likely, now that the World Health Organisation has declared the coronavirus a pandemic, that COVID-19 will, in principle, be treated as a force majeure event, at least in relation to those contracts entered into before the scale of the effect of coronavirus became apparent.
In order to claim an extension of time for force majeure under JCT 2016 and 2011 DB and SBC, a contractor will have to show that the event has delayed the works and as a result the completion of the works, or any section, is likely to be delayed beyond the completion date.  The burden of proof lies with the contractor.

A contractor will also need to show they have demonstrated “best endeavours” to mitigate the effects of any such delay. In order to comply with this, a contractor might have to ensure all on-site workers required by the latest government guidance to self-isolate do so for the appropriate period to avoid other workers becoming infected.

Claims for money

Relevant matters, such as changes to on-site requirements, entitle a contractor to money as well as time under the JCT contracts referred to above. These include:

  • The issuing of instructions, including instructions to postpone work.
  • The issue of instructions to change on-site access requirements, for example the introduction of increased cleanliness procedures may amount to a change for the purpose of the JCT as it imposes an additional restriction on working arrangements, or an instruction to alter working hours or access to parts of the site.

Careful thought should be given before issuing any instructions or guidance generally and in particular regarding working hours and access and working space.

A contractor who is entitled to money for delay, needs to show that it has mitigated its losses. So in the midst of the coronavirus outbreak a contractor would not be expected to claim for its full prelims, but it might seek de-mobilisation and re-mobilisation costs.

NEC contracts

NEC3 and 4 Engineering and Construction Contracts (ECC), which are used a lot in the public sector, pose a big risk for employers. Under these NEC contracts, if a contractor is entitled to extra time for delay they are also likely to be entitled to extra money as well. It may prove cheaper for some employers to terminate the contract instead.

Claims for time and money

The contractor and the project manager should give early warning by notifying the other as soon as either becomes aware of any matter, which could:

  • increase the total of the prices
  • delay completion 
  • delay meeting a key date 
  • impair the performance of the works in use

Many contractors have already given early warning notices in relation to the coronavirus outbreak.
Once a notice has been given, then an early warning meeting under NEC4 or a risk reduction meeting under NEC3 should take place. 

Issues with both JCT and NEC contracts

All parties should ensure that all notices required under the contract are issued on time. This is especially important in relation to payment.

If the contractor makes an application for payment, including loss and expense for delay resulting from the coronavirus, which the employer does not agree with then the employer must serve a payment or pay less notice within the timeframe required, which is very tight.

If the employer fails to do this, the contractor will be entitled to recover the amount they applied for and could launch a “smash and grab” adjudication. Anyone administering a contract should be alert to this.
Under NEC there is provision for the project manager to correct an incorrectly assessed amount due in a later payment certificate but that would not prevent a successful “smash and grab” adjudication. 

For more detail about JCT and NEC contracts in light of the coronavirus outbreak visit our dedicated construction law blog Practical Completion, which has a number of blogs with links to more in-depth articles on this subject.

Tags

Mills & Reeve Sites navigation
A tabbed collection of Mills & Reeve sites.
Sites
My Mills & Reeve navigation
Subscribe to, or manage your My Mills & Reeve account.
My M&R

Visitors

Register for My M&R to stay up-to-date with legal news and events, create brochures and bookmark pages.

Existing clients

Log in to your client extranet for free matter information, know-how and documents.

Staff

Mills & Reeve system for employees.