How do I amend my construction contracts to deal with COVID-19?

How do I amend my construction contracts to deal with COVID-19?

The Construction Leadership Council (CLC) published its new guidance on the 21 October 2021, entitled “COVID-19 Contractual Guidance”. The purpose of this guidance is to provide a suite of documents which show contractual best practice and record keeping to achieve collaborative settlements. It also provides guidance and suitable drafting which can be used in contracts in respect of future projects. In effect, this guidance has updated and pulled together the information and resources previously published on the basis that the consequences of the pandemic and COVID-19 are ongoing.

The guidance strongly recommends that the construction sector approaches the difficulties arising from the pandemic in a constructive and collaborative manner and that risks are proportionately shared.

For those involved in the formation and agreement of contracts for future projects, the CLC’s ‘Template 3’ is of particular interest. This was first published in July 2021 but has now been updated. The Template is relevant for both the JCT and NEC suite of contracts. The Template provides a number of options and draft clauses to choose from. The choice of which option is chosen is dependent upon the risk profile agreed between the parties. For example, Option 1 only allows for an extension of time whereas option 4 allows an extension of time and compensation if the circumstances in respect of COVID-19 change from those as at the ‘base date’.  There is also a clause which allows the parties to terminate the contract if the works are suspended beyond a specified period.

As with all pre-drafted clauses, it is important to review them in some detail and to apply a number a practical scenarios in order to establish whether the clauses properly address the issues. For example, what are the contractual consequences if there is an outbreak of COVID-19 on site which has the effect of reducing or entirely excluding the workforce on-site? Is this a risk which the contractor is in a better position to manage and therefore, should it be treated as a ‘contractor risk’?

If, in the example above, the contractor is entitled to make a claim then it is important that there is sufficient evidence available to show that the delay was actually caused by COVID-19. CLC’s third updated guidance entitled “Record Keeping” addresses this point. It refers to the Society for Construction Law’s Delay and Disruption Protocol (2nd edition) which emphasises the importance of proper and accurate record keeping. The guidance states that record keeping should be proportionate and in the context of the agreed COVID-19 clauses. Within this context, CLC’s fourth guidance entitled “COVID-19 Impact Assessment Toolkit” provides a construction business with a methodology to demonstrate that COVID-19 has had an adverse impact on its overall business, rather than each specific project. The purpose of methodology is not to replace the strict evidential requirements under the construction contract but to provide technical evidence that COVID-19 has had an impact and can be used in a collaborative negotiation situation.

The CLC has been the source of a number of invaluable resources during the pandemic. For those of us who were involved in advising during the early stages of the outbreak, the guidance and publications were essential; setting the tone of how the construction sector should work through the pandemic. This latest guidance has updated and brought together the information needed when considering how the subject of COVID-19 should be approached now in respect of both ongoing and future projects.

A copy of the guidance can be found here.