One third of respondents to a 2021 Turner and Townsend survey believed that their construction contracts were unfit to address the impact of the pandemic on the project.
I am not surprised.
At the start of the UK lockdown, lawyers, contract users, advisers and professionals were scrabbling to find the clause in their construction contracts which provided the answer to the issue. Everyone wanted certainty (of process, cost and outcome) despite the massive uncertainties of the pandemic.
But they sought in vain.
None of the contracts had anticipated and none had therefore reflected a fair response to these events which were – after all – beyond the control of any human, never mind either of the parties to the contract. Even the UK government weighed into the mess to gently nudge the parties to act fairly and responsibly… perhaps fearing a tidal wave of disputes, insolvencies, and part-built developments blighting the sector for decades to come.
You’d expect me to say that our contracts are not fit for the purpose of this pandemic. I’ve accused them of not being fit for purpose in normal life after all! However, the source of this belief among contract users, is evident in their other answers to the survey:
- 83% have experienced temporary site closures
- 63% have sought government guidance due to uncertainty (and most of the rest have asked industry bodies or professionals)
- Nearly 50% of contractors are now allowing for extra costs in tenders
- 45% report an increase in disputes
- 43% are unsure whether the pandemic is sufficient to allow them to claim additional time/money.
The google trends graph shows a 4-fold spike in the number of searches for ‘force majeure’ in February 2020 (when the first wave was hitting Europe). The difficulty of assessing the impact of the pandemic on contracts is apparent from just two guides: the Eversheds Sutherland Global Guide to Force Majeure and all 27 pages of the CMS Covid-19 timeline for England (Jan 2021 edition).
What should you do?
For existing contracts and work in progress, you will need to negotiate a change to the contract to account for the new way in which works need to be undertaken, and the impacts on the contracted-for time and cost objectives.
For future projects, you will need to bear in mind that reduced productivity, social distancing, staff isolating, supply chain instability and other factors will create uncertainties in your usual methods of predicting time and costs. Factor these into your contracts.
Contracts should also be re-written to provide clarity to the parties on their rights in the event of future unexpected events beyond the reasonable control of either party – as a client, never assume your supply network has the profitability to bear unquantifiable risks.
Be flexible and use flexible contracts.