Construction contracts drafting in the Covid-19 pandemic

It seems there’s just no getting away from this pandemic, and like most parts of our lives these days Coronavirus is now impacting contract negotiations in the construction sector.

We’re seeing copious amounts of discussion on this topic in relation to relief for parties whose performance is affected by the virus and lots of bespoke drafting too.

So, what’s the standard approach?

Although some example drafting has emerged by industry bodies such as the Construction Leadership Council, there doesn’t seem to be a market standard position as yet. In our experience, there are four themes around which negotiations for new projects are focussing at the moment:

1. Changes from the status quo

The position generally seems to be accepted by both employers and contractors that relief for Covid-19 should be in respect of changes from the status quo. So contracts being entered into now should already account for our current “steady state progress” where social distancing and the use of PPE is permitted on construction sites. It seems reasonable that any relief regime should be about providing an entitlement if the current circumstances change.

2. Mutations that might lead to future outbreaks

It is not just about the outbreak and spread of Covid-19. There is a concern about mutations that might lead to future outbreaks being categorised as something different to Covid-19 so we are seeing clauses that cater for that.

3. Changes in statutory regulations and relevant guidance

As well as the natural consequences and effects attributable to the outbreak of the virus, it is very common to see Covid-19 relief events covering any changes in both or either of the statutory regulations and the relevant public health guidance.

4. Shortages of labour and materials

Some contractors are looking for Covid-19 relief to include for the consequence of shortages of labour (e.g. where rates of illness impact on progress) and shortages of material (e.g. where the source of materials is another jurisdiction which is subject to lockdowns interfering with the regular and timeous availability of materials).

Time and/or Money

For the time being, the drafting debate appears to be limited to the definition of the event giving rise to an extension of time. In my experience, employers are not being asked to grant relief for loss and expense and contractors seem generally resigned to the fact that no loss and expense will be payable for any delay caused by Covid-19.

Termination following a suspension of the works

Some parties are also looking to alter the termination provisions in their contracts where works have been suspended for the specified period set out in the contract. I’ve seen both the specified period being extended on account of Covid-19 and Covid-19 events being both expressly excluded from and included in the triggers which allow a party to terminate the contract.

What does the future hold for construction contracts drafting?

Covid-19 drafting is still very much evolving in the construction sphere and there is a range of approaches being taken by parties in negotiations at present.

Like the pandemic itself, I’m not sure anyone can predict where we’ll finally get to, but I suspect we will start to see a more standardised approach to Covid-19 relief clauses - particularly in respect of the definition of the event itself.

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