Clause for concern
One of the ongoing side-effects of the COVID-19 pandemic has been the disruption to progress of works – and unfortunately, it’s no surprise that the risks are being passed along the supply chain
The recent resurgence of COVID-19 and the ever-growing number of areas subject to lockdown have once again raised the spectre of disruption to construction works.
Such disruption may take many varied forms. Sites may be wholly or partially closed because of workers testing positive or due to government-ordered lockdowns, or there may be a delay to site deliveries, all leading to an interruption in progress of work.
It may come as no surprise to many in the industry that COVID-related risks are being shunted along the supply chain. This is in spite of exhortations from the UK and devolved governments that we should all be working together and sharing risk in these unprecedented times. Clearly this message hasn’t got through to some clients and contractors.
When it comes to COVID-related clauses, here is a rather unpleasant one: “The Sub-Contractor shall have no right or remedy pursuant to any provision of this Sub-Contract, whether by adjustment to the Sub-Contract Sum or by adjustment to the Completion Date(s) or otherwise or in damages at common law or in tort [delict in Scotland] or pursuant to any other theory of law to the extent that any matter listed in Schedule 1 (Notifiable Diseases) and/or Schedule 2 (Causative Agents) of the Health Protection (Notification) Regulations 2010 has any affect, whether direct or indirect, on the Works or on the progress of the Works.”
If you have survived a careful reading of the above, here is another example: You are informed at bid stage that if you are unwilling to take on “the risk of COVID” – whatever this may involve – your tender/offer will not be considered. Your sub-contract then tells you that: “For the full period of the sub-contract works – sub-contractor takes on the risk of maintaining productivity assuming 2m social distancing in place.”
This clause continues as follows: “In relation to pandemics (current and future) in the event of any future lockdowns, implemented by government instruction, which lead to the site shutting down:
Week one to eight sub-contractor is responsible for all costs but an extension of time will be granted for each day the site is closed
Week nine onwards, reasonable costs are recoverable under the sub-contract where the subcontractor has used best endeavours to mitigate delays and an extension of time will be granted for each day the site is closed.”
Analysis of first clause
In England the Health Protection (Notification) Regulations 2010 have been updated to include SARS – Coronavirus 2. Similar regulations exist in the devolved jurisdictions such as Part 2 of the Public Health etc. (Scotland) Act 2008.
So, what is the first clause actually saying?
In general, you are to assume all the COVID-related risks impacting upon your sub-contract works, even though you are unlikely to be in a position to avoid/manage them or insure against them
This is irrespective of whether the impact on the main contract works is “direct or indirect”. “Indirect” could, for example, refer to the precautionary shutting down of a site because workers have been taken ill with COVID-19 on another – unrelated – site some five miles down the road
Through no fault of your own, you could be liable to pick up some or all of the main contractor’s liquidated damages if it has not been given an extension of time by the client, or if it has not been given the extension applied for.
Analysis of second clause
Your price is expected to include “the risk of COVID”. The immediate question is: what does this mean?
Since it is so open-ended, pricing for COVID risk would require the services of a clairvoyant. You then take on the risk of maintaining productivity even though social distancing is in force. So without fault on your part, if you can’t social distance – and have to cease work until you can – you will be in breach of contract when your productivity suffers.
For such a clause to work there would have to be some benchmark to measure the requisite productivity.
The costs over an eight-week period of lockdown could be phenomenal, with cancelled deliveries, storage costs, salaries and overheads etc. In this context you would want the right to terminate your contract.
From week nine onwards, reasonable costs can be recovered provided you have used “best endeavours” to reduce delays. This requires you to do everything you reasonably can which could include, ironically, incurring extra costs in order to reduce delays – plenty of scope for argument here. It would have been better if the clause had specified the steps required to be taken.
Advice for SELECT Member firms
Apart from the myriad disputes these clauses are likely to engender, they import risks which, for the most part, you will not be able to manage.
For the sake of efficiency and fairness, risks should always be allocated to those best able to manage them. Therefore, seek to either negotiate them out of your contract or, at least, seek to define with more precision the risks you are being asked to take on.
If you are likely to be saddled with ongoing costs in the event of disruption to your works, make sure that you have a right of termination in these circumstances. Perhaps you could make clear at the outset that your price does not take into consideration COVID-related risks.
By Professor Rudi Klein
SEC Group CEO and Barrister