Construction firms across the UK supply chain are facing unprecedented challenges in managing the Covid-19 pandemic.
In a letter to the industry (1-page / 89KB PDF) this week, business secretary Alok Sharma acknowledged the critical contribution that the UK construction sector is making to the support and resilience of the UK economy and confirmed that construction sites across the UK can remain open. However, firms across the supply chain are nevertheless being faced with difficult decisions about whether to temporarily close sites in response to the pandemic and, where sites remain open, how best to protect their workforces while mitigating delay to progress.
UK construction companies should be focusing on getting the basics right in response to Covid-19 such as reviewing contract terms, giving timely notification, putting in place mitigation measures and keeping accurate records. Where possible, in such unprecedented times, parties to construction contracts may need to be pragmatic in order to find short term solutions to safeguard the viability of the project, including measures to best retain resources, materials and general capabilities during and after the pandemic period.
Although contractual matters and compliance with statutory health and safety duties are vital, parties must also bear in mind the need to maintain long-term relationships and reputational issues without compromising contractual positions. Parties should be particularly wary of waiving any rights, or promising to deliver when they may not be able to do so. If necessary, the need for compliance with statutory health and safety duties should be made clear where necessary to persuade employers and the supply chain to agree reasonable changes to the construction contract.
What are your rights and obligations under the construction contract?
Understanding how the contract allocates risk for the events and circumstances that may arise from the Covid-19 pandemic and what relief may be available will be an important first step - including force majeure, delay to progress, unavailability of personnel or materials and the mandatory closure of the site. Where areas are unclear, these may need to be resolved between the parties.
The NEC has also provided specific guidance on dealing with matters related to Covid-19under the NEC4 standard form contract, which should be scutinised carefully. Regardless of the form of the contract, some practical points that it will be important to consider include:
How do obligations track through the supply chain?
Undertake an audit of all contracts across a project to understand how the risks and obligations are managed through the supply chain. Identify the main subcontractors on the project and communicate with them early on to understand their contingency plans for Covid-19 and exposure. This will help you inform decisions as well as discussions to be had up the line with the employer.
What works cannot continue?
Establish what works cannot continue on site whether as a result of the unavailability of staff, materials or equipment or as a result of being unable to undertake the works while meeting public health guidelines around social distancing. Clear communication, including giving appropriate notices when required, will be important when setting out the cause and effect of the pandemic on specific activities.
What works can continue?
Equally important will be a review of what works can continue, whether on site or remotely, either to mitigate overall delay to the project or to plan and prepare for the delivery of the works in the future. This may provide an opportunity for parties to progress or develop the design for the works, evaluate future procurement streams and collaborate with their supply chain to plan for the delivery of ongoing works.
What notices are required and how can they be issued effectively?
The contract will typically set out details of how notices and other communications are to be served. Careful compliance with these provisions will ensure effective service of any notice linked to the management of the Covid-19 pandemic, particularly where service of a notice is considered a condition precedent to entitlement to a claim. See our Out-Law Guide: notice provisions in construction contracts.
Where service of a notice is not possible - for example, where delivery by hand cannot be achieved due to social distancing restrictions - parties are encouraged to discuss and agree in writing an alternative, potentially temporary, means of serving notices, ideally by email. Where using email, specific points around deemed delivery, including the date a notice is considered to be served if issued outside of normal working hours will need to be addressed.
What obligations are there to mitigate any delay or additional costs incurred?
Parties are likely to have obligations to mitigate the impact of Covid-19 on the project, including mitigating delay and any additional costs incurred under the contract. Some contracts are more onerous than others in this regard. Ideally, parties should work together to agree their response to the pandemic, including decisions on resequencing and getting materials on site as soon as possible.
What impact might government procurement policy guidance have on my project?
The UK government has issued a procurement policy notice (PPN 02/20) which provides grounds for contractors on certain public sector projects to apply to employers to seek relief and protection in relation to cash flows. The guidance includes template drafting that may be used to make temporary changes to underlying contracts. See our Out-Law Analysis: support for suppliers on UK public contracts.
I’m keeping my construction site open. What should I consider?
There are a number of factors that all parties will need to consider where a decision has been made to keep the site open.
Health and safety
Clients and principal contractors, to use the CDM 2015 terminology, have separate but concurrent statutory duties to ensure the health and safety of construction workers and the general public, so far as it reasonably practicable.
Covid-19 is a health and safety risk and should be assessed as such using objective, project or site specific and detailed risk assessments to plan and mitigate risk. If principal contractors do not effectively implement, monitor and enforce the public health guidance in regards to Covid-19, there is a risk that the Health and Safety Executive (HSE) or police will take independent enforcement action to shut sites.
Delay and disruption
Even where sites remain open, progress is likely to be delayed and work will be disrupted in many instances as a result of Covid-19. However, simply claiming Covid-19 on its own will not be enough to obtain relief under the contract. Evidence will be required to prove a causal link between the impact of the outbreak and the delay and cost implications for the project, especially where work has been affected by events not related to Covid-19 so giving rise to issues about concurrency.
Your supply chain
Communicate with your supply chain to outline how planned works will progress in line with current restrictions, liaising to resolve any issues around personnel, procurement of materials etc. It may be that preventative measures can be put in place to reduce or avoid delay to certain works.
Employer/contractor arrangements should be aligned with the downstream supply chain. You should be particularly careful not to find yourself in a position where the employer allows you to continue to access the site but you have to stand down your supply chain.
What if I decide to temporarily close the site?
These are the factors to consider as part of a decision to close a site in response to the Covid-19 pandemic.
Site safety
Careful planning and risk assessment is advised when closing a site temporarily. Works may need to be progressed to a certain stage to allow them to be safely stopped and sufficiently protected, and a full site walk through is advisable so that parties are clear about the status of the works at the point of closure.
Owners of sites have a legal duty of care to any visitors to sites, even in the event of trespass. As such, owners have an obligation to minimise safety risks on sites even during shutdowns by making efforts to prevent access to the suspended site, and mitigation of any potential hazards.
Site security
Removal or safe storage of temporary works, materials and equipment is advisable, and parties should seek to agree an inventory list of any items left on site and where secured. Any site security retained to protect the site should follow public health guidelines around social distancing, and emergency procedures should be implemented to allow for access to be granted during any shutdown for inspections and any urgent remedial works.
Record keeping
Undertake and maintain a precise and accurate record of where site progress is up to at the point of suspension, supported with photographic records where possible. The Construction Leadership Council has created a checklist in relation to suspension planning and shutdown.
Insurance coverage
Review your insurance policies and speak to your broker to check whether your policies cover the issues you may face, including around the security of the site and any prolonged site vacancy.
What can I do to minimise the impact of Covid-19 on my project?
Regardless of whether a site remains open or is temporarily closed, there is much that parties can do to minimise the impact of the Covid-19 pandemic on a project.
How had the works progressed prior to the pandemic?
Any future delay analysis seeking to identify the impact of Covid-19 will need to account for the progress of the works before the pandemic started to affect projects. This will include carrying out an analysis of current progress against the programme, and taking account of progress to date in any revised programme and progress reports.
Be clear, be consistent
Communications with your employees and supply chain regarding any decision in response to the pandemic should explain clearly what is being implemented and why, with specific reference to the contract and UK government guidance where applicable.
Record keeping
Collate evidence and ensure detailed records are kept and maintained about the measures being implemented on site, by whom, and their impact. Ensure that the records reflect which specific activities on the construction site are hindered each day due to Covid-19 measures.
If possible, send records to the employer in real time and request confirmation if there are any other records that the employer wishes you to keep. Failing that, state that you intend to proceed on the basis that the records provided are fully sufficient.
Collaboration
Consider whether agreeing a joint way forward to manage risk or amend the existing contract can be achieved to ensure that the project can successfully reach completion whilst mitigating the scope for dispute.
We have considered the key obligations under Standard Form Construction Contracts likely to be relevant when considering the impact of the Covid-19 pandemic, which you can download here:
Additional research by Catherine Burns of Pinsent Masons, the law firm behind Out-Law.
Contact an adviser
