In this blog post, ICCP President, Paul Gibbons, answers questions related to issues arising from COVID-19. He compares claiming for COVID-related prolongation costs, profit, and extension of time under three standard forms of contract, discusses financing charges and DAB decisions, and looks at provisional sums. These questions were answered in our sixth Construction Clinic session, which took place in May 2020. The entire webinar may be viewed on-demand on YouTube.
Question 1
Question: If COVID-19 is a force majeure event and the employer is a government department and there was a change in law that has restricted movement, broken down the supply chain, and restricted air travel of the Contractors’ experts, will the Contractor be entitled to prolongation costs, profit, and extension of time? And if so, what kind of documents can support such a claim in case the Contractor has COVID-19 delays? And indeed, in that regard, what can his defence be for liquidated damages?
Answer: I’m not sure if you’re aware of our Construction Clinic 1, but we dealt with force majeure in quite a lot of detail and particularly under FIDIC, where it is dealt with in accordance with Sub-Clauses 8.4 (Extension of Time for Completion) and 19.4 (Consequences of Force Majeure). You’ve got to be careful in FIDIC because not all force majeure events would lead to an entitlement to costs with extensions of time. So you would need to consider under which clause of FIDIC you’ll be looking to claim under.
If I turn to the JCT standard form of contract here in the UK, COVID-19 force majeure would fall under a relevant event, but while that relevant event might get you an extension of time, it wouldn’t necessarily get you a relevant matter. It’s the relevant matter that you actually need to claim loss and expense. So, if you put a Notice in under JCT Clause 2, you might not lead to the costs flowing for loss and expense. So again, under the JCT, be very careful as to how you’re claiming for force majeure and that you claim it under the right banner. (You can read more about relevant events and relevant matters here.)
If I turn now to NEC; the NEC doesn’t really address force majeure. However, Clause 60 (Compensations Events) and in particular Sub-Clause 60.1(19), deals with matters which are acts of prevention, if you wish. It could be classed that the employer shutting the site down as a result of an act of prevention, vis-a-vis force majeure, could lead to a compensation event. The compensation event under the NEC entitles one to claim for the time-related costs and any other costs as a result of the COVID-19 impact.
So I think the answer to the first part of the question is: it depends on which contract you’re working under. I’ve just mentioned three, but there are many contracts around the world, and there are amendments to those standard forms. I’ve just quoted standard forms here. So look at your contract with regards to COVID-19.
Turning now on to the documents which should be provided to support such a claim. I was actually involved with a webinar last week [prior to recording this] and on that webinar, we had the Consultant’s view, so our view. We had the view of a Barrister and what records should be maintained from a Barrister’s perspective. We also had the view of an Employer and the records an Employer would be expecting to receive. All together, we had four independent views from the four parties to a contract, in terms of what records should be maintained.
I think the general gist that I got from that webinar is that we are in unchartered waters. I think it’s on all parties who are in contract to work collaboratively and to maintain good contemporaneous records.
What does that actually mean, in terms of how you go about producing those good contemporaneous records? It goes back to looking at what the contract says and generally what is seen as good practice within the industry. In respect of labour records, I’ve seen some quite poor ones and it’s the labour records that you’re relying upon. You need to be very mindful of the fact that you might not have the personnel on-site to maintain these records. I would suggest that on live projects that have been working with reduced personnel, that you check what records are in place. It might be that a dedicated person is employed to ensure that all the specific records are in place.
Those records would also demonstrate the impact on the programme by way of allocation sheets. Consider, what allocation sheets have you maintained in terms of what you planned to do, but also what you have not achieved on that particular day? You need to record correctly and contemporaneously the allocation of time, resources, plant, etc. You may have scenarios where you’ve got designers and/or other specialist consultants and indeed material suppliers who might not be able to get resources to projects.
You’ve got to be able to demonstrate exactly that you had these people engaged, ready to perform, but they were not able to perform whether because of lockdown in a specific country, or they couldn’t get access to the site, or they couldn’t get to where they needed to be. There needs to be a recognition of that.
In terms of social distancing measures, we’ve been asked by a lot of clients to reprogram their works. So an activity that might usually take a week, might now take several weeks to complete because of the social distancing measures that are going to be enforced. What does that mean to the completion date? Do you get an extension of time for that? Again, go back to what your Contract says: is it an effect of COVID-19? It may well be that you’re going to have situations where Contractors are going to have to work a day shift and a night shift and a weekend shift, to make up lost time. You might need to be careful here that you’re not massaging inherent delays that were already of the Contractor’s making, prior to the COVID-19 situation.
I think it’s very clear that you need to look, where the project is from a programme perspective and draw a line in the sand and reschedule the programme to see what effect any delays have had on the Completion Date. Where you are suffering from lost productivity, It is a good idea to perform a measured mile assessment in terms of the productivity that you perhaps were achieving prior to COVID-19, and the lack of productivity that you’re now experiencing as a result of COVID-19.
The other thing to consider and which needs to be done religiously is updating your programme. The programme needs to be updated at least weekly, but definitely monthly, in terms of all the impacts that are being felt. That programme needs to be issued to the client, in terms of demonstrating progress and any delays that have been suffered and the causes of those delays. This should be done in the spirit of collaboration and trying to work with your client regarding overcoming delays.
In the webinar, we discussed the issuing of timely Notices. We’ve done two previous webinars on Notices, it is clear that all Notices should be issued on time, correctly referencing the contract.
Question 2
Question: The DAB board has made a decision where the employer shall pay USD$8 million to the Contractor. Well, the employer did not pay that money to the Contractor, expecting their win in arbitration. Meanwhile, the Contractor had continuously claimed eight million with financing charges in the interim payment statement until the arbitration. The Employer finally won an arbitration three years after the DAB’s decision. In this case, does the Contractor lose the rights of the financing charges that they had before the arbitration? What’s the Contractor’s right to receiving the financing charges remain?
Answer: Well, my experience with the DAB board is that it is temporarily binding until such time as formal arbitration or litigation. The decision of an interim position in terms of whether the matter had been temporarily won, I think that then gets overridden by the formation of the arbitrator’s award. In this respect, I would suggest that the Contractor’s financing charges, in essence, get superseded by the award of the arbitration. So, unfortunately in my view, I don’t believe that the financing charges would be payable by the Employer to the Contractor.
Question 3
Question: The contract is a JCT Design and Build 2016, where there is an undefined provisional sum what weight in regards to an allowance in the programme and/ or costs does this take into the actual works programme, once the actual provisional sum is instructed? For example, does the instructed provisional sum offset the allowance made by the provisional sum in the contract?
Answer: So quite simply, two methods; you’ve got the undefined provisional sum whereby there is no allowance within the programme for the cost implication or the programme effects of that provisional sum. It’s just literally put into a contract so that one recognizes that that work has yet to be fully defined and programmed.
If it was defined, then at the time of the contract being formed, you would be expected to make due allowance for the programme and cost effects of that defined provisional sum and to carry out the works as required.
The questions covered in this blog were answered by ICCP President, Paul Gibbons.
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