As the world continues to deal with the impact of Covid-19, employers and contractors are beginning to look very carefully at their building contracts to try and understand their rights and remedies.
One potential point of contention going forward, for employers and contractors alike, is likely to be where the contract includes "best endeavours" or "all reasonable endeavours" type clauses. Here, we'll consider some key issues with these types of clauses and how they interact with delays caused by the coronavirus pandemic.
The Law
The JCT and SBCC contracts generally contain the base obligation for a contractor to proceed with works "regularly and diligently" and to complete the works "on or before the relevant Completion Date". An adjustment to the Completion Date is then tied to the proviso that the contractor "shall constantly use his best endeavours" to prevent delay in the progress of the works.
As a starting point, "all reasonable" and "best"endeavours places a more onerous obligation on a party than "reasonable alone". In practice, this means that a party under an "all"or "best" type obligation cannot simply attempt one course of action to mitigate the delay. That party must look to take all actions that a party could reasonably take in the circumstances. This principle will go so far as to include an obligation to litigate, if that course of action is reasonable.
It is also important to note that a party can and will be expected to incur additional expenditure in order to comply with an obligation to use "best endeavours". Consideration can be given to the party's own commercial interests, but that does not extend to action which would lead to financial ruin.
Comment
Applying these principles to the current situation, if construction sites are continuing to operate then they will require to comply with social distancing rules and ensure that staff are not being put at risk. This is in line with the most recent industry guidance, issued by the Construction Leadership Council (Site Operating Procedures – "Protecting Your Workforce During Coronavirus (Covid-19)." Third edition) and in Scotland the requirements of the Health Protection (Coronavirus) (Restrictions) (Scotland) Regulations 2020. Making changes to standard working practices in order to comply with these requirements is likely to be where any additional will costs arise.
However, incurring cost to prevent or mitigate delay is not entirely open ended and could be measured against the outcome – what period of delay is prevented or mitigated as against the cost of that prevention or mitigation? It may be the case that the cost is disproportionate to the result.
This is where Covid-19 throws up issues. The UK Government's three-week rolling lockdown review process means that as far as anyone can foresee, the potential delay is only for 3 weeks, as at the end of each successive 3-week period the guidance from the UK Government could change. This short-term review cycle arguably blunts the effect of a "best endeavours" type obligation, as the outcome is measured against that three-week period. In this scenario, and given the uncertainty, reaching an agreement between the parties on the measures to be implemented, would seem to be a sensible and practical solution
Even after assessing the position, if a risk assessment shows that working and complying with government guidelines cannot be achieved, a "best endeavours" obligation will not require a contractor to return to site. These risk assessments are essential. An assessment could allow a return to work, or justify contractors staying away from a site where the appropriate safeguarding measures are not available. As in any situation, there will still be room for disagreement here.
At present, we envisage these issues playing out under scenarios such as:
- Where an employer believes work can safely be undertaken, but a contractor refuses to return to site;
- Where a contractor refuses to incur the additional cost of measures to prevent / reduce delays; and
- A contractor arguing that there is a Relevant Matter, in order to seek additional preliminaries and the costs of alternative methods to carry out works in compliance with its best endeavours' obligation.
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If faced with any of these scenarios, parties will need to carefully consider what the contract provides and be able to demonstrate and evidence the factors they have considered which justified a particular course of action. Without that, when the worst of the pandemic is over, parties could be faced with losing potential financial entitlements or even facing claims for breach of contract, with all of the consequences which flow from that.
We are continuing to update our clients as new issues continue to arise over the pandemic.
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