With the ongoing impact of coronavirus (COVID-19) being acutely felt across the country, the closure of all schools in the UK from Friday 20 March will add to the already mounting challenges being faced by schools and healthcare PPP projects across the UK and Ireland.
The inevitable impact of the ongoing measures being introduced to combat the spread of the virus will be felt by PPP projects in different ways, depending on where each is in its lifespan.
Projects in construction
Projects that are in construction (and in Scotland there are a number of hub design, build, finance and maintain (DBFM) projects which fall into this category) will have different considerations to those that are operational. There has already been a significant amount written about the issues that construction projects will face in respect of workforce, subcontractors, supply and access to sites as the virus spreads.
Across the suite of standard form construction documents (eg SBCC/JCT and NEC3/4) there are some options open to contractors to provide relief from obligations. A large number of schools and healthcare projects are currently being constructed under Scottish hub DBFM and Design and Build Development Agreements (DBDA). However, these provide less good news for contractors given it is unlikely, without amendment, that the DBFM/DBDA suite of documents will provide any relief in the form of a compensation event, relief event or force majeure.
While COVID-19 remains a live issue, parties seeking to enter new contracts may wish to discuss the inclusion of bespoke wording prior to contract execution.
In either case (whether there is COVID-19 specific drafting included or not), all parties should now be seeking more than ever to carefully document any progress with works, in order to provide absolute clarity in the event of delay.
Projects in operation
Operational facilities in the PPP estate throughout the UK and Ireland will be under significant pressure over the coming months to deal with the myriad of potential issues that COVID-19 will cause.
Healthcare facilities will be under a particular level of strain never experienced before now and the facilities management of these projects will likewise come under pressure. Older healthcare projects that include soft facilities management services may be under significantly more stress.
Contract parties (NHS Boards, local authorities, project companies, services providers and funders) will no doubt already be discussing action plans. If you're not, now is the time. Key in these discussions will be documenting any agreement which may vary the obligations of the parties going forward. While speed will be of the essence (even within the confines of a project agreement variation procedure), getting those agreements right first time will put the parties on the front foot and allow them to focus on what matters – service delivery.
Key considerations will include:
- additional service requirements (and whether or not these need to be temporary or permanent);
- repurposing of facilities (e.g. wards or whole schools becoming dedicated COVID-19 units) and any impact new working practices in respect of health and safety while working in a COVID-19 affected area may have on the service provider's ability to carry out the services (and the costs of doing so);
- adjustments to service level specifications; and
- the operation of the payment mechanism.
In headlines terms the schools are closing, but in reality many will remain open to provide safe spaces for the most vulnerable children and key workers' children. It is important for contract parties to keep in mind their obligations under the project agreement and subcontracts to ensure that there are no inadvertent breaches.
For local authorities, it means allowing service providers access to the facilities. For services providers, it means turning up and getting the job done. The payment mechanism on these projects will still operate, so parties need to be prepared to provide business as usual until such time that it becomes impossible to do so. That may come when local authorities can no longer provide access (in which case service providers and project companies will be able to claim relief and the monthly service payments will keep flowing) or it may come when service providers can no longer provide staff to carry out the services.
There may still be relief available for service providers in such a scenario, though it will depend on the form of contract. For example, on a hub DBFM education project, there is no provision for outbreaks of this sort. On earlier schools NPD projects, there may be possible routes to relief in the context of biological contamination.
We may find increasingly that the UK, Irish and/or Scottish Government will come under pressure to step in and underwrite the monthly service payments which must be made by the local authorities under these agreements, notwithstanding the parties' inability to comply with their contractual obligations. Agreements in respect of the suspending of the payment mechanism and performance failure sanctions, such as warning notices, may also be required to avoid projects reaching termination triggers where it becomes impossible to carry out services.
In all cases, careful scrutiny of the project documents will be needed before action is taken.