As the pressure increases for stricter lockdown measures, Karen Kirkham of BDB Pitmans highlights some key issues for the construction sector to consider with Covid likely to be with us for some time yet.
The Covid-19 pandemic is one of those once-in-a-generation events which challenges our assumption that we understand all the risks for construction projects. The last comparable event was the petrol blockade of 2000 and it is not clear what impact Brexit may yet have.
When extension/compensation events, loss and expense or ‘force majeure’ are discussed, we have traditionally tended to use examples which are both extreme and hopefully unlikely - World War III, aliens landing, a dirty bomb. The pandemic is right here, right now and is not going away any time soon.
First, the neutral facts on the commercial pressures facing the industry. There is no doubt that the pandemic makes it more difficult and expensive to deliver projects on time. The UK government has, so far, resisted a considerable amount of pressure to close sites, seeing the construction industry as one of the engine rooms of recovery. However, works have had to be reprogrammed to keep workers further apart and individual trades have unilaterally decided to stop work, whether they should or not.
Workers have been too sick or too scared to come to site. Some overseas workers faced with the prospect of being marooned away from their families may simply not have returned after Christmas. At the time of writing, due to entry requirements it is far more difficult, and possibly uneconomic, for them to do so.
Architects have been pressing for key worker status so that they are not prevented by childcare or home-schooling issues from carrying out their roles (we shouldn’t make the sexist assumption that these are all mums).
The nature of the UK contracting market means the risk of fluctuations in the supply of labour and materials often sits most heavily on the contractor’s shoulders, particularly under contracts which were already signed prior to the first lockdown. The principal contractor is responsible for the health and safety of its workers and everyone else on a site of which it has “possession”, even the client’s own team. Travel to site and away from home accommodation have become fraught issues. All of this has inevitably led to reduced output, delays and an increase in costs.
The UK government has made it clear in the latest official guidance that whilst it expects sites to remain open, it also expects contracting parties to act sensibly and fairly to protect jobs in an industry that contributes around 10% of UK GDP. Enlighted self-interest may dictate just that. Even where dealing with the implications of the pandemic is judged to be a contractor risk with no entitlement to relief, employers need to imagine the effects of this on contractors across multiple projects. What price the contractor’s and key sub-contractors’ potential warranties on the works if liquidated damages liabilities and escalating costs mean they go bust before practical completion?
The industry has also responded to support construction businesses in grappling with these difficult issues. For example, The Royal Institution of Chartered Surveyors has an adjudicator nominating service specifically to deal with disputes regarding Covid, priced realistically to help smaller contractors. The first matter on the adjudicator’s agenda will no doubt have to be “is it a compensation event at all”? The Construction Leadership Council, working closely with government, has released helpful practical guidance supporting UK construction in responding resiliently to the crisis.
In all new contracts, all of these issues can surely no longer be said to come as a surprise. Contracting parties need to consider carefully what the current impact of the pandemic is, what the costs associated with this are, and then what might happen in future.
They need to be open and honest about which of the risks of further restrictions they feel should be borne by which party. They need to benchmark current requirements and guidance on best practice and together agree mitigation and escalation measures for dealing with changes which make it materially more difficult to deliver projects on time and on budget.
Karen Kirkham is head of construction at the UK law firm, BDB Pitmans.