Welcome to the latest edition of Construct. I hope your businesses are managing to navigate a way through uncertainty arising from COVID-19 and even more importantly staying safe and healthy.
Without doubt furloughing has proved to be the most widely used of the government’s package of measures to assist businesses and preserve the economy whilst the country fights Covid and recovers from its effects. HMRC appear to have pulled out the stops to ensure that claims through the portal are processed smoothly. The CBIL loan scheme has been welcomed but many have reported difficulties in accessing loans through banks, concerned to limit their risk from exposure to 20 per cent of the loan not guaranteed by the government. This is not a universal experience and the position may be improved if the government increases its guarantee to the full amount of the loan. The guarantee does not of course alter the fact that a loan must be repaid. In many cases it is not certain that a business that was viable will remain so after Covid. It also remains to be seen whether the assistance available to the self-employed will be increased above the current level.
Construction has been affected by the closure of significant numbers of sites after lockdown. Some sites are still operating, although mostly at a reduced level. The government has sent mixed messages so whilst it is clear that it wants construction to continue for obvious economic reasons, it is down to the individual contractor, wherever it sits in the supply chain, to ensure that if it carries on work it can do so safely. Our information from clients and contacts is that some took a decision to close down all activity shortly after lockdown was announced whilst others risk assessed each site. Some sites that were initially closed have reopened whilst some which were initially left open have since been shut down.
The Health Protection (Coronavirus Restrictions) (England) Regulations 2020 do not prohibit the continued operation of construction sites including the attendance of site operatives. There is no express mention of social distancing, which remains guidance. This is reflected in the current (3rd) iteration of the Site Operating Procedures published by the Construction Leadership Council, which envisages limited working by operatives within 2 metres of one another. This position is reflected in the latest guidance from the HSE, which although it refers to the possibility of enforcement to improve work place risks, also envisages the possibility of working within 2 metres. The confused state of the law and its interaction with the Public Health England Guidance gives rise to uncertainty. This uncertainty is manifested in a contractual context.
Health and safety has, quite rightly, been the guiding light for most. The legal status of guidance on social distancing may be pivotal in many contractual situations. Where lockdown restrictions are relied upon as a basis for leaving site it is necessary to examine in detail how they operate to make the continuation of working impracticable. Construction sites have not been shut down by legislation. The onus has been placed on those who operate them and work on them to ensure that work is carried out safely. That requirement underpins every construction contract but whilst it may justify ceasing work it may not always be a ground for seeking extension of time.
Most contractors will have carried out an immediate review of their contracts and served the appropriate notices warning of likely delay and associated financial loss. It is of the utmost importance to read contracts carefully and avoid falling foul of the notice provisions, which will be fatal to a claim if service of notice by a deadline is a condition precedent.
Whilst many staff have been furloughed, it is sensible if some resource is allocated to making sure that the evidence of causes of delay is captured and collated for future use. Although the general position is that notices have been received with understanding, that is no guarantee that claims for extension of time and loss and expense will not be disputed when the time comes.
In order to minimise the risk of a dispute or to build a robust negotiating platform you should identify all of the grounds on which extension of time and loss and expense may be claimed, which will inform the evidence gathering exercise. Evidence wins arguments and cases and the lack of it loses them.
The most talked about and obvious grounds are force majeure (or its equivalent) and change of law provisions. The JCT forms include as a relevant event, the exercise by the UK government of a statutory power which directly affects the execution of the works.
Whilst there are credible arguments that Covid is an instance of force majeure and the restrictions imposed are the exercise of a statutory power, there are also contrary arguments and neither carries with it a right to loss and expense under JCT forms. Therefore if additional grounds for extension of time and loss and expense can be identified they should be relied upon. An example might be an employer impediment (or main contractor impediment in a sub-contract) arising from restrictions imposed on site operations. Restrictions may also constitute variations. Instructions to increase resource may lead to acceleration.
The time to prepare applications for extension of time and loss and expense is now with a view to submitting them promptly once the extent of delay is known or updating forecasts. Most negotiations or disputes are likely to arise after lockdown has been relaxed and sites are operating at full capacity again. In the meantime for any disputes that arise it is largely a case of business as usual. The courts remain open for the most part with some restrictions, adjudications can carry on as pretty much as usual and remote mediations are proving to be effective. The biggest practical challenge is often the collation and pagination of document bundles but there is usually a way to overcome it.
I hope you find this edition of Construct informative. Please feel free to contact any of us here at Prettys if you wish to discuss anything arising in connection with your business. For those of you who like reading, links to previous Covid related material prepared by Graham Mead and Ian Waine are included below.