Collaborate to beat Coronavirus - a message for the Construction industry from the CLC

Last updated 16:30pm , 1 July 2020

On Sunday 10 May 2020 the Government announced its three stage plan to start easing the COVID-19 lockdown in England, with a detailed paper being published on 11 May 2020.

As part of stage 1 of the plans, the Government is actively encouraging those who are unable to work from home to return to work. The construction industry was expressly mentioned in the latest announcements as an industry that should be actively encouraged to remobilise. Undoubtedly this creates questions and concerns for clients, construction firms and their employees about how best to continue construction operations while maintaining the safety and wellbeing of all concerned. Earlier this month the Construction Leadership Council (“CLC”) published a COVID-19 Contractual Best Practice Guidance to ensure parties to construction contracts engage in collaborative discussions to address and resolve issues arising out of COVID-19. As construction operations remobilise more widely following the latest Government announcement, it is perhaps even more important for parties to take note of the CLC Guidance. “Collaboration” is the key message from the CLC and the following are some points which the CLC is encouraging parties to consider adopting to ensure the smooth running of projects as everyone wades through the effects of COVID-19 in order to come out of the other side.

1. Delays on projects are likely to be inevitable. Both Employers and Contractors should consider the impact of COVID-19 on the programme and completion dates. Where possible, amended programmes should be provided which reflect the impact of COVID-19 on the Works or Services and extended completion dates agreed which reflect the extent to which the Contractor has been, or will be, delayed by COVID-19.

2. A Contractor's entitlement to an extension of time will largely depend on the terms of the contract but the Government has encouraged Employers to consider contractor relief as a result of COVID-19 to enable projects to progress and encourage cash flow, either under existing contractual mechanisms or through agreed variations to the contract.

3. The contract will usually set out who bears the risk of the additional costs of delay but the CLC is encouraging parties, as part of the collaborative approach, to consider “sharing the pain”. Both parties could put forward all likely additional costs arising out of COVID-19 so they can all be considered as a whole. The parties can then discuss which party will bear the risk of such additional costs and whether that risk could be shared.

4. It is extremely important that all contractual mechanisms are followed by the parties to ensure all rights and remedies are preserved. This includes complying with all notice requirements under the contract. If the contract requires a notice of delay or costs then these must be given in the correct way even if they arise out of COVID-19.

5. Project progress meetings should continue (in accordance with current guidance on safe working) and issues arising out of COVID-19 and steps being taken in respect of those issues should be discussed and documented in these meetings.

6. If a dispute has arisen between the parties, “without prejudice” discussions (correspondence and meetings) should be held to offer compromises in a genuine attempt to settle matters as early as possible. Marking correspondence as “without prejudice” does not automatically afford it such status unless the correspondence is sent as part of genuine negotiations.

7. The parties could mutually agree to suspend works.

8. The parties could consider adjusting valuations and payments to assist the contractor, with the Employer taking other security to protect its position.

9. The parties could consider variations to specifications if, for example, specific materials are likely to be delayed as a result of COVID-19.

10. The parties could consider how payments to the supply chain, e.g. subcontractors can be monitored and protected by the provision of evidence of the same or the use of a project bank account.

11. The parties should be mindful of any obligations owed to third parties, such as insurers or funders, before and during any collaborative discussions.

The key message is for parties to co-operate where possible and it is important to note that many of the CLC's suggestions would mean that the parties will be agreeing to depart from the contractual mechanism. As such it is important to seek advice before any steps are taken. This will ensure that agreements are correctly documented while protecting the parties' positions under the contract.On 25 June 2020 the Corporate Governance and Insolvency Act 2020 (“CGIA”) came in to effect which could affect what steps parties take and/or the appropriate timings of those steps where there is risk of insolvency. More details on the CGIA and how it impacts the construction sector can be found here.

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