In our third Construction Clinic session, which took place in April 2020, Paul Gibbons answered questions related to prolongation and NEC and JCT contractual issues arising from COVID-19. The following questions have been excerpted from that session. The entire webinar may be viewed on-demand on YouTube.

Question 1

Question: What is the remedy under the NEC3 Engineering Construction contract where there is a defect notified by the Employer, but this is a latent defect and notified after the defects date. Is the Contractor obliged to correct this?

Answer: The NEC3 sets out the obligations of the Project Manager and the Contractor. The obligations related to notifications of defects are set out in clause 42. The Contractor’s obligations in terms of dealing with and resolving the defect is set out in clause 43.

With latent defects after the defects date, it is the Contractor’s responsibility until the end of the limitation period under English law, which is either 6 or 12 years depending on whether the contract is under hand or deed.

So, if a defect under the NEC is notified after the defects date and it’s a latent defect, then the Contractor is obliged to correct this in accordance with the limitation period set out under English law, either 6 or 12 years.

The NEC sets out different procedures, but the main clauses you need to look at are 42, 43, and 44, with a backstop of the limitation period set out under English law.

Question 2

Question: What if you submit a Notice but quote a wrong clause from the Contract?

Answer: Assuming you are referring to a Notice of delay, disruption, or additional costs, I would always suggest that you fully understand the basics of your contract before citing clauses, because that could be fatal if you don’t reference the specific contract clause. Your contract will tell you if that is right or wrong, in terms of referencing the correct clause.

If in doubt, simply say, “In accordance with clause 60, I’m notifying you of my Notice” (or clause 2 or clause 4, if it’s JCT—Loss and Expense) and buy yourself a bit of time. Then, have a discussion internally, perhaps with your legal representatives or commercial team, and get a collective view of what that clause of notification should be. Then, send a clarification of your Notice.

Question 3

Question: As a result of COVID-19, main Contractors in the UK are engaging directly with lawyers rather than claims consultants to assist with contract analysis given that the main Contractors seem likely to have time owing and no money. Is this what you’ve seen? Any comments?

Answer: I’ve been seeing a lot of lawyers assisting main Contractors to ensure that notifications are given correctly in accordance with the contracts they are engaged under. Those notifications put markers down in terms of making sure that either time and/ or money is reimbursed where the Contractor has entitlement.

Where we, as consultants, have seen an upturn, is where we are being asked advice, such as: what records need to be maintained to demonstrate our entitlement at the end of this COVID-19 period of delay, frustration, and disruption?

The answer to that is maintaining good contemporaneous records in terms of labour, resources, where production has not been able to be progressed, photographic evidence, monthly reports, etc. Even in the case of mass furloughs, there need to be a few select workers maintained on the projects to collate these detailed records, because they are going to need to be accurate to ensure that entitlement has been developed.

While lawyers have been helping with putting notifications in lately, we [consultants] have had a lot of requests for assistance and advice on what good records look like.

Question 4

Question: Is it possible to claim prolongation costs due to COVID-19 when there are materials which need to be delivered from other countries in order to complete the project on time?

Answer: This was dealt with in some depth in Construction Clinic 1, but I’ll briefly answer here. Under FIDIC, you get an extension of time under 8.4 and you get costs under 19.4. So, you are entitled to prolongation claims.

Under JCT, you can and can’t get costs for prolongation. It all depends on whether a relevant event under clause 2 is also a relevant matter under clause 4. It’s clause 4 under JCT that gives the Contractor entitlement to loss and expense. You’ve got to make sure that a relevant event is also a relevant matter. (Again refer to Construction Clinic 1 for more detail.)

Under NEC, yes, you do get prolongation costs wrapped up in a compensation event under clause 60. But, as alluded to in Construction Clinic 1, how long the COVID-19 scenario is going to last is unknown. So, the NEC asks that you should be forecasting the effects of COVID-19, but how can you forecast the effects when it is unknown how long it will last? It’s risky for the Contractor to make assumptions. What the Contractor should be doing is putting the emphasis back on the PM and asking the PM to state assumptions on how the COVID-19 situation should be priced. If those assumptions prove to be incorrect, the Contractor can go back and put another compensation event quote in, or ask the PM to change their previous assumptions and revalue that accordingly.

So, it all depends on which contract you are dealing with. I’ve just dealt with standard forms here. You may well have bespoke contracts, or other types of contracts, such as MF/1, that all deal with matters differently.

The questions covered in this blog were answered by ICCP President, Paul Gibbons

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