Delays and disputes?
Rudi Klein discusses whether the industry could be facing a rise in legal wrangles after lockdown
At the time of writing this, the majority of construction sites in Scotland are still closed due to concerns over the safety of the workforce – but by the time you read this, that may well have changed.
It’s been interesting to see the different ways that the disparate parts of the UK have dealt with the pandemic when it comes to construction.
The Scottish Government insisted that all sites close, unless a particular activity supported one or more of 13 essential services, such as health, energy, transport, food and water.
The Welsh Assembly went one further by introducing specific legal obligations on distancing. The Health Protection (Coronavirus) (Wales) Regulations 2020 imposed a legal duty on those managing workplaces to take all “reasonable measures” to maintain social distancing, enforced by the police and local authority personnel.
Down south it was rather different of course, with many sites remaining wholly or partly open with social distancing rules applied, seemingly driven by the UK Government’s desire not to weaken further the already parlous state of construction company balance sheets.
Ending the lockdown
As thoughts turn to ending the lockdown – or having a phased return – many firms are anxious over payment and possible liability for disruption and/or delay to their works.
SELECT is among those who have once again implored the industry to improve its behaviour so that outstanding payments are promptly discharged and claims or counterclaims arising from the lockdown are avoided.
It remains to be seen whether this kind of exhortation alone will have any impact.
In relation to disruption and/or delay disputes, the term ‘force majeure’ has been bandied about as the get-out-of-jail card. Contracts from the Scottish Building Contracts Committee (SBCC) include it as a “relevant event” giving rise to an extension of time, but it is not defined and doesn’t have a settled meaning. The reference to it in SBCC contracts may not help at all. By way of example, in British Electrical & Associated Industries (Cardiff) Ltd vs Patley Pressings Ltd (1953) a contract for the supply of steel was subject to “force majeure conditions”. Those words were held to be too uncertain to enable enforcement of the relevant clause.
The better approach is in NEC4 clause 60.1 (19). An event stopping completion of the whole of the works (or stopping the whole of the works by the date for planned completion shown on the accepted programme) qualifies as a “compensation event”. Such an event could not have been preventable and would have been considered by the contractor at the contract date to be highly unlikely.
The real difficulty is that force majeure-type clauses will not exist in most contracts, which are either bespoke contracts or amended standard contracts. In practice, most firms will be left high and dry.
Payments and possible PBAs
On payment, the Cabinet Office has advised that contracting authorities consider using project bank accounts (PBAs) and the early release of cash retentions, unless there are apparent defects that are not minimal. It has not considered how this can be enforced along the supply chain and seems unaware of the UK Government’s policy that PBAs must be used unless there are compelling reasons not to do so.
Recent advice published by the Scottish Government goes further: Public bodies should consider direct payments to subcontractors in the event of failure of a Tier 1 contractor to discharge payments.
There is a possible option in the event that we and other sectors become bogged down in disputes that will hinder the recovery process: The UK Government could consider using the Civil Contingencies Act 2004.
Under this, a senior minister can introduce regulations where an emergency is about to occur, is occurring or has occurred to mitigate or control an aspect or effect of the emergency where the need to do so is urgent. In principle, such regulations could be drafted to suspend indefinitely claims and counterclaims directly due to the lockdown and even require the immediate settlement of debts incurred prior to and during the lockdown. Much will depend on the extent to which the economy is convulsed by contract disputes arising out of the lockdown.
Most firms will now want to focus on their exit strategies from the current nightmare. The landscape they will face will be littered with prematurely terminated contracts, huge storage costs, payers on the brink of insolvency and significant remobilisation costs. Drawing all this together in order to recalibrate business priorities will be a daunting prospect, especially for SMEs.
But, even now, firms are still bidding for future work. When signing off contracts they will need to consider protecting themselves in the event of continued interruption to supplies or inability to resource work as a result of employees having been laid off.
By Professor Rudi Klein
SEC Group CEO and Barrister