Coronavirus and JCT 2016 construction contracts

The deep effect of the National crisis, that is Covid-19 has given rise to significant economic and practical consequences for contractors in the delivery of construction projects

It is often not possible to undertake elements of contract works, taking account of the Government’s guidance on social distancing; even where it is, issues of delay and additional cost arise

Does the JCT 2016 provide any help for contractors?

Force majeure – a happening outside of the parties control, not reasonably foreseeable, which adversely impacts on a party(ies) ability to perform its obligations – is not defined in law and so the parties have to look for  a contractual definition, if any 

JCT 2016 does not specifically define force majeure, however it does make reference to the concept and the potential consequnces, as follows:

Force majeure is a Relevant Event which may entitle the contractor time an extension of time but not any loss and expense 

Force majeure creates a right to terminate if it prevents the carrying out of the whole or substantially the whole of the uncompleted works for a prescribed period agreed by the parties (two months in default of agreement)

Notwithstanding these provisions, the lack of a definition means that difficult issues of whether force majeure has arisen, when and to what extent will always be the starting point

Causation may also be issues.  What is the actual effect on the contractor’s ability to perform its obligations and are there are factors at play, which are not force majeure?  This is not straightforward when it comes to Covid-19, when the majority of the UK construction industry continues to work, taking account of Government guidance; hindered yes but able to continue to work at a social distance

Consideration should be given to other contractual provisions, as to whether they give rise to an entitlement to an extension of time and / or loss and expense, such as a change in law 

Is the  Government guidance, issued in terms of hygiene and social distancing on site sufficient to give rise to a change in law?

It is thought not, as the guidance is: “not intended to be comprehensive or to represent every business’s situation, but are illustrative examples”

Emergency legislation passed to tackle Covid-19 may change this however

What of the general contract law concept of frustration – a happening which is neither parties’ fault, which renders the contract practically or commercially impossible to perform?

For good reason, the Courts construe frustration strictly and limit its application; for example, where there is an alternative approach to perform the contract, it is not frustrated

Again, it is not straightforward when it comes to Covid-19, when the majority of the UK construction industry continues to work, taking account of Government guidance

Note – if a right of termination has arisen by reason of force majeure, or frustration, parties need to consider other implications, such as step in rights of funders, (which require the funders prior consent)

If you have any queries, please do not hesitate to contact Anthony Best of our Construction Team