Many a legal article has now been written concerning the relief that contractors may be entitled to under the JCT suite of contracts as a result of the COVID-19 pandemic with the general position being that contractors are entitled to time but not money. Notwithstanding this, there are certain nuances to the JCT contract* that might perhaps best be at the back of a developer's mind when managing its contractor in the shadow of COVID-19.
A Contractor's Endeavour...
There has been uncertainty as to the extent of the contractor's obligation under clause 126.96.36.199 of the JCT to use its "best endeavours" to prevent delay to the progress of the works during the COVID-19 outbreak. While it should be observed that this does not translate to an obligation on contractors to accelerate the Works to achieve the recovery of progress against the programme at their own cost, it is a stringent obligation that requires contractors to take all those steps in their power which are capable of producing the desired result (potentially to include incurring some additional, but not substantial, costs).
It is important for developers to be cognisant of this obligation that their contractors are under. If a contractor fails to properly discharge this obligation, any potential extension of time may be assessed accordingly (and most likely reduced to reflect the lesser delay that would have resulted if the contractor had properly complied). For instance, in order to successfully obtain an extension of time award where COVID-19 results in labour shortages, the contractor would most likely have to show that its supply chain had made reasonably considerable efforts (including incurring some additional expenditure) to procure replacement labour or to redeploy existing labour to minimise delay.
To suspend, or not to suspend?
Due to Government's recent relaxing of the COVID-19 lockdown, the critical nature of clause 8.11.1 of the JCT appears to have diminished. This provides that the Contractor may terminate its engagement where there has been a prolonged period of suspension of the length stated in the Contract Particulars (the default position being 2 months) by reason of, respectively, force majeure and the exercise by the Government of any statutory power which directly affects the execution of the works.
But if there was to be a second wave of COVID-19 infections, what would actually amount to suspension? The JCT is not clear on this point; it does not set out whether the trigger for suspension has to be an objectively measured external or third party act (such as an edict from the Government to close down all construction sites) or when this threshold is crossed (and the works have entered into a de facto suspension) is something that the Contractor can simply take a view on. As drafted, the only express contractual right that a Contractor has to suspend is in the event of non-payment. Contractors may therefore seek to exploit this and use the threat of suspension to gain better leverage in any commercial negotiations that may subsequently take place if a second wave of COVID-19 was to strike.
How about loss and expense?
In ordinary circumstances, the JCT does not entitle contractors to claim loss and/or expense as the COVID-19 pandemic does not naturally fall within the list of Relevant Matters under the JCT. However, with contractors becoming increasingly determined to recover some form of loss and/or expense, developers should be aware of attempts by contractors to change this position.
- Contractors may try to manoeuvre developers into issuing an instruction (or which contractors might argue constitutes a formal instruction) which would fall within the definition of a "Change" under the JCT, thus providing the contractor with an opportunity to claim additional monies. It is therefore vital that developers are aware of what might constitute an instruction under their contracts. The JCT stipulates that all instructions are to be in writing although what differentiates a written instruction from simple correspondence is likely to turn on the specific facts taking into account the regular course of dealings between the parties. For example, if a formal employer's agent's instruction has previously always been the form of communicating contractual instructions, then this is likely to be determinative. It would seem best if developers avoid issuing any correspondence that validates contractors' chosen approach to addressing Covid-19 risk or communicates imperatives around this issue due to the risk of such instructions having the unintended consequence of constituting a Change.
- Contractors may also seek to argue that clause 188.8.131.52 of the
JCT entitles them to claim loss and/or expense as a result of the
impact of COVID-19. This clause provides that where there is a
change in the Statutory Requirements which necessitates an
alteration or modification to the works, such alteration or
medication shall be treated as a Change. However, as things stand,
the merits of this argument appear weak for two reasons:
- There has been no legislation enacted to date that could plausibly be argued has resulted in the alteration or modification of the underlying works being carried out. Under the Coronavirus Act 2020, the Government has the power to close premises (including construction sites) and restrict people's movements, activities and contact. However, to date, unlike in Scotland, there has been no declaration that either a "public health response period" or a "transmission control period", during which the Government can issue such directions, has commenced.
- It is also arguable that, given the drafting of clause 184.108.40.206 of the JCT, it is only intend to cover issues relating to physical changes in the actual designs or workmanship themselves and does not extend to the way in which the works are carried out. When compared to the formulation of clause 5.1 of the JCT, the drafting of each provision highlights this distinction and illustrates the more circumscribed scope of clause 220.127.116.11 in this regard.
On the face of it, the position under the JCT 2016 contracts is relatively straightforward when it comes to granting contractors relief from the impact of COVID-19. However, as with everything, there is some nuance to this issue which developers need to be aware of when dealing with contractors coming up with ever more inventive ways to secure additional money as well as additional time.
*All clauses mentioned refer to the JCT Design and Build Contract 2016
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.