As recent Ministerial statements have confirmed, the Government's efforts to mitigate the social impact of COVID-19 mean the UK lock-down will continue to ensue for several weeks at least. Over the last few weeks, we have seen large contractors such as Vinci and Laing O'Rourke requiring their office staff to work from home, but a number of construction sites remain active – with some notable exceptions such as Sir Robert Alpine, which has closed all of its sites. For open sites, construction workers are required to remain two metres apart. Whether this is a realistic restriction remains to be seen, and there is much uncertainty ahead for the construction industry.
Employers, contractors and construction professionals are turning their minds to how to manage the inevitable disruption to ongoing projects. We have previously considered termination and suspension in another briefing note. In this briefing, we consider some of the key industry considerations, with reference to the JCT standard form of building contract, for construction sites that remain open.
CDM Regulations 2015 obligations
Health and safety concerns are paramount, but who is responsible for these on sites that remain operational? Even though the Government has not yet ordered the closure of sites, concern remains as to whether, in allowing the continuation of construction work whilst there remains a significant health risk from COVID-19, employers may be breaching its CDM obligations.
The JCT Design & Build, provides that the Employer and the Contractor undertake to ensure that the site and works duly comply with applicable CDM Regulations. The CDM Regulations state that a client (or the Employer as referred to in the JCT) must make "suitable arrangements for managing a project" which includes ensuring the "construction work can be carried out, so far as is reasonably practicable, without risks to the health or safety of any person affected by the project".
As clause 2.3 of the JCT states that the Contractor takes possession of the site from the Employer on the Date of possession (as agreed between the parties), it is certainly arguable that on taking possession of the site the Contractor would be liable for the conditions and management of the site rather than the employer. The CDM Regulations Guidance Note supports this, as it provides that the employer should no longer be responsible for health and safety obligations once the contractor has taken possession, provided it handed over a safe site.
However, the employer should be mindful of the duties imposed by the CDM Regulations on the Principal Designer and Principal Contractor. The Principal Designer is responsible for maintaining a health and safety file. Naturally, this will need to be updated to take into account the Government's guidance that construction workers must keep two metres apart and sanitation should be provided to reduce the risk of the virus spreading. Furthermore, the Principal Contractor is responsible for updating the construction phase plan to take into account health and safety risks.
The reality is that, for sites that remain open, the inevitable decreasing labour force as a result of COVID-19 will have a significant impact on the progress of the work. In order to maintain transparency, it is critical that the following records are maintained and kept up to date:
- Site attendance diaries, as this will evidence any decline in the workforce.
- The programme to reflect any impact along the supply chain or stages of work.
- The format of site meetings if maintaining two metres social distancing is difficult – it may be more suitable for site meetings to be held via video conference.
It would also be worth considering whether the building contract can be varied to make special exceptions or provisions surrounding COVID-19. However, varying one aspect of the building contract can often have an impact on another. If the building contract is to be varied, careful consideration should be given to the following:
- The list of risks that the contract provides for and who is to assume responsible for them. In the JCT, these can be found at clauses 2.26 and 4.21.
- The impact on ancillary contracts and documents such as insurance coverage, performance bonds and parent company guarantees.
- Other necessary changes in connection with amending a longstop date to take into account a delayed contract programme. It may be sensible to agree what extension of time the contractor should be entitled to and for there to be periodic reviews of any further extensions to avoid any later dispute.
As cash flow and supply chains will continue to be impacted by the COVID-19 outbreak, the solvency of contractors may become a concern for some employers. Whilst employers may consider it advantageous to front load payments to the contractor, to help keep financial buoyancy, employers would be advised to consider the risk that the contractor may, even with the additional payments, become insolvent. One way to mitigate the implications of this would be to introduce money safeguards, such as an escrow account, if not already in use.
A further consideration is the risk the Employer faces through keeping the site open. The JCT provides that if an Employer gives an instruction that changes the construction programme (under clause 4.21.1) or unilaterally causes an impediment or prevention to the work (under clause 4.21.5), the contractor becomes entitled to claim for loss and expense. Employers should therefore be mindful when considering when considering issuing any instructions in this regard, to first expressly agree with the Contractor that this will not entitle the contractor to a loss and expense claim.
As construction projects often involve a complex web of interconnected contractual documents, it is always advisable to undertake a thorough review of them.
Now more than ever it is extremely important that contracts are reviewed and understood so that strict compliance with the contract, for example in respect of notices, is adhered to during the negotiation of any contract variations. Knowing the contractual position, would also assist the parties' understanding of where any liability lies.
Additionally, varying the contract would benefit the parties' understanding of the allocation of risk surrounding COVID-19.
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