At the time of writing, the World Health Organization is on the brink of declaring coronavirus as a worldwide pandemic. With governments around the world putting such emphasis on preventative measures to limit the spread, including quarantine of people and places, many businesses will no doubt be asking lots of questions:
Where does the risk lie if my project is delayed because access to site is restricted?
What about staff who are affected by coronavirus?
What happens if key materials are delivered late as a consequence of coronavirus? Or not delivered at all?
The coronovirus is clearly outwith the control of both the employer and the contractor to a contract....but what does this mean for the potentially significant losses that might be suffered as a consequence?
As always, the answer lies in the terms of your contract. There are two scenarios to consider here _ in-force contracts and those yet to be commenced.
The JCT standard form lists the following relevant events:
.11 civil commotion or the use or threat of terrorism and/or the activities of the relevant authorities in dealing with such an event or threat;
.13 the exercise after the Base Date by the United Kingdom Government of any statutory power which directly affects the execution of the Works;
.14 force majeure.
For in-force contracts, arguably any of the above relevant events - each of which could conceivably be engaged should the sort of measures seen in China become necessary in the UK _ and could entitle a contractor to an extension of time.
Certainly "force majeure", an undefined term in the unamended SBCC/JCT contract, would entitle a contractor to claim additional time. But there is no such entitlement to loss and expense under this form of contract. In effect, the financial risk is shared between the parties. The contractor has no delay damages to pay, but bears the additional cost associated with the delay.
However, for contracts not yet in force (or those only very recently entered into, after the coronavirus was known) force majeure, which requires that an event is not foreseeable, would arguably not apply here. A contractor's right to relief may then depend on the actions of the authorities _ for example statutory measures restricting the ability for on-site working, movement of people and movement of materials.
In that scenario, the alternative is to negotiate a bespoke amendment to your contract that allocates the risk of potential delays, should the worst happen.
The NEC3/NEC4 core clauses provide that the following are compensation events:
(19) An event which
- neither party could prevent;
- an experienced contractor would have judged at the contract date to have such small chance of occurring that it would have been unreasonable to have allowed for it; and
- is not one of the other compensation events stated in the contract.
Up until news of the outbreak was first widely reported in January 2020, it would be unreasonable to have expected a contractor to make allowance for the potential effects of coronavirus _ and few would argue against that. If the worst case scenario were to happen, a contractor should therefore be entitled to claim a compensation event, entitling them to both time and money. Clearly though, for more recent contracts there would be a strong argument that allowance should, or could have been made. A contractor entering into an NEC3/NEC4 contract may therefore wish to consider negotiating an additional bespoke compensation event to part one of the contract data and/or request that the risk of delay associated with coronavirus is an "employer risk/client liability" under the contract and stated as such in the contract data.
For other forms of contract the parties' rights will depend on the precise terms, but the above general approach in relation to force majeure and similar clauses is likely to apply.
Contributors
Head of Dispute Resolution and Risk & Partner
Senior Associate
