Negotiating construction contracts can be a complex process as parties strive to protect themselves from unforeseen circumstances that can impact the cost and timescale of projects.
Until this year, it’s pretty unlikely that a construction contract would have contained specific clauses outlining what would happen in the event of a worldwide pandemic and it certainly wouldn’t have mentioned Covid-19, which until 2020 was a complete unknown. But now that this is our new reality, should construction contracts deal specifically with Covid and its consequences?
The simple answer is yes. When negotiating construction contracts you should think about the impact that Covid-19 could have on your project.
In many ways construction is one of the more fortunate industries as it has been spared complete closure during both lockdowns; instead construction sites have been allowed to continue, albeit with social distancing and other constantly evolving measures in place.
But this has not stopped problems arising, whether as a result of delays in the supply chain, the spiralling cost of materials or shortage of labour due to illness. And what would happen if government guidance changed and all construction work was halted?
Already disputes have erupted about who is responsible for delays and who should shoulder additional costs that have been accrued, all caused by something that couldn’t have been predicted at the time of contracts being executed.
The best way to protect yourself and ensure some certainty moving forward is to follow our top three tips when negotiating construction contracts.
- Discuss Covid-19 and the possible implications for your project with the other parties at the earliest opportunity. This should be done when agreeing the price and project plan. Be honest and realistic with each other. Avoid simply inserting generic statements about Covid. Every construction project is different and you should think about specifically what problems Covid-19 could create for your project, for example what happens if there’s a local breakout or if you can’t source certain materials?
- Define and agree your Covid-19 triggering events and the consequences of these. Triggering events are barriers that once met cause other problems or events to occur. For example, a Covid outbreak among the construction team might be a triggering event that leads to the site being closed. Who bears this cost is a consequence that needs to be agreed in your construction contract.
- Consider including a Covid suspension clause in your contract. This enables one or both parties to be excused from performance of the contract if a specified event that is beyond their control occurs. A suspension clause can state that if the event occurs for a prolonged time, for example six months, preventing work from restarting, either party can terminate the contract. This would clearly be a last resort to be used in only the most extreme circumstances, but it does create useful parameters for agreeing at the outset what costs would be payable on suspension or indeed termination.
It might seem like an easy option to repurpose trusty construction contract templates that you have relied on in the past but I would strongly advise against this. There is no doubt that by having robust discussions about Covid-19 upfront and reaching agreement during the early phase of negotiations, expensive and acrimonious disputes can be avoided.
We have specific expertise in drafting and reviewing construction contracts, so if you need any help at all in this area, please don’t hesitate to contact our team by emailing email@example.com or phoning 01782 205000.