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30 MAR 2020

CORONAVIRUS AND CONTRACTS

Rosemary Beales on what the disruption caused by COVID-19 means for your legal agreements

T

he disruption to the delivery of construction services caused by COVID-19 is likely to escalate at an increasing rate during the coming days and weeks. Already office-based workers are now working from home. Those who are on site are able to work whilst social distancing – but it remains questionable for how much longer this will be the case.

It is therefore important to give some thought to the impact that restrictions on the delivery of services might have. These could range from minor to more fundamental disruption to the suspension of part or the whole of the services. In all such cases it is imperative to consider the contractual implications in any given circumstance in what is an unprecedented situation.

ACE is conscious that many forms of agreement exist, often bespoke, and that even where standard forms are used bespoke amendments are included which may alter or affect the operation of the agreement. This blog focuses on two standard forms, namely the ACE Professional Services Agreement 2017 and the Infrastructure Conditions of Contract (ICC) With Quantities Version.

Naturally, it is vital that members make themselves aware of the terms and conditions of their specific agreements and contracts.

ACE Professional Services Agreement (2017)

This standard Agreement has been increasingly used since its publication three years ago. It clearly sets out the rights and obligations of the Client and the Consultant (including joint obligations). It is important to be mindful of these but equally important, should the performance of the services appear likely to be affected by restrictions arising from Government guidance on COVID-19, to discuss this with the client as early as possible.

Clause 4.1 of the PSA 2017 imposes an obligation on the Parties to “collaborate in a spirit of mutual trust and mutual support in the interests or the timely, economic and successful completion of the Project”.  Clause 4.2 requires the Parties to give notice as soon as they become aware of any matter which is likely to affect the provision of the Services. This includes delay and additional costs “irrespective of whether the matter is contended to give rise to any relief under the Agreement”.  The parties then have seven days to discuss or meet to consider actions or measures to deal with the matter in order to avoid or mitigate any delay or extra cost. Any agreement should be put in writing and, when signed, is binding.

Given the current situation in relation to COVID-19 is so uncertain it may well be prudent to ensure that any agreement retains the potential to revisit actions going forward. Clause 4.2(iv) states that where no agreement is reached under Clause 4.2(i) the Client should issue such instructions as appropriate. It is important to consider what impact these may have on the Consultant’s rights and obligations under the Agreement.

In relation to risk, Clause 5 requires the Consultant and the Client to work together to analyse and manage any risks which may arise during the delivery of the Services and the potential outcomes of these risks including any associated costs.

There is, additionally, under Clause 13.3, the ability for the Consultant to suspend the Services upon the occurrence of any circumstances beyond the control of the Consultant which prevents or significantly impedes the performance of the Services. This can be up to 26 weeks although not less than four weeks’ notice should be given for this.

The Agreement provides for appropriate reimbursement in such circumstances. In the current situation Government instructions, health and safety concerns or the closing of a construction site could all be events which could be considered as warranting suspension. So far as the four week notice period is concerned, given the unusual circumstances, this may well be a matter of discussion with the Client under Clause 4.

ICC with Quantities Version

This contract also, under Clause 6, encourages collaboration and early warning in terms similar to Clause 4 of the Professional Services Agreement 2017. It may well be that, in the circumstances, the key issue will be managing the situation both on and off Site on an ongoing basis. Any agreed actions or measures should be put in writing and signed by the Contractor and the Engineer on behalf of the Employer. If there is no agreement, the Engineer should issue "appropriate instructions".

Under Clause 5.7 the Engineer may potentially order the suspension of part or all of the Works if "necessary for the proper construction of the Works".

Clause 14 of the Contract deals with "Force Majeure" meaning in this context "any circumstance outside the control of either party…. which renders it impossible or illegal for either party to fulfil his contractual obligations".  If performance of the Contract is prevented for such a reason for a continuous period of not less than 42 days, either party may, by giving not less than 28 days’ notice, terminate the Contractor’s employment under the Contract. The Clause then sets out the Contractor’s entitlement on termination. It is arguable as to what constitutes "Force Majeure" but the current situation may, if it develops further, be considered as such. It is to be noted however that this is a very drastic step with potentially significant cost implications.

The above summary highlights some of the actions that might be considered in the context of the current situation. However, if this can be managed without resorting to 'fine print' recognising that the key is to deliver the Services in a professional manner, it would result in the best outcome for all parties.  

Rosemary Beales is Contract Advisor at ACE. Browse our agreements and contracts. Explore the rest of our COVID-19 content.

Rosemary Beales

Rosemary Beales

Contracts Advisor

Rosemary is ACE's contract expert and knows agreements inside out.

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