These are challenging times for the construction sector. Some sites remain open, others have been temporarily closed. This article seeks to provide both a legal and practical guide to ways to minimise risk under the JCT DB Sub form of sub-contract in relation to the impact of the coronavirus.
The current situation is unprecedented in recent history. It is, therefore, not surprising that standard form contracts such as JCT do not make express provision for pandemic outbreaks. But they do contain provisions which can be used to try and mitigate at least some of the risks posed by the effect of the virus and resulting lockdown of parts of the economy. As at the date of this article, the Government has not sought to close construction sites. So, the mere existence and effect of the virus might not be regarded as a valid reason unilaterally to pull off site.
Supply of materials
A possible clause to assist subcontractors in relation to specified materials that cannot be procured (or not procured on time), is at clause 2.4.1, which refers to provision of such materials “so far as possible”. If, due to the coronavirus situation, you are not able to obtain specified materials, then you should notify the contractor, and propose alternatives for agreement. You should keep records of the inability to obtain specified materials, and also as to the steps you have taken to try and obtain them from other suppliers. So, for example, copies of emails, or if enquiries were made by telephone, then a brief written note of that call. In difficult times you may be required to prove that it was not possible to procure the specified materials. A recurring theme in this article is that the courts will no doubt be called upon to determine whether such clauses can be relied on in the context of the Coronavirus outbreak.
Delay to progress
This is likely to be a key area of risk. Even where sites have not been closed, you may have been delayed due to internal and external causes. We have addressed supply of materials above, in terms of changing from any specified materials.
Under clause 2.17.1, it is vital that you notify the contractor if it is “reasonably apparent” that commencement, progress or completion of your works is or is likely to be delayed. Such causes could, as above, be due to delays in supply of plant or materials, but also due to limited labour due to self-isolation/illness or changed working procedures to meet safe site working conditions. As at 2 April 2020, the common “keep 2 metres” apart rule does not strictly apply to construction sites in the sense that, where essential, that distance may be crossed, the CLC did issue revised SOPs with that 2-metre rule strictly enforced, but this was withdrawn following feedback.
With cash flow becoming an ever more crucial issue for contractors, they may look to see whether a sub-contractor has followed the required contract notification procedure, and if not, refuse to allow extensions of time or additional payment. This applies to all notification requirements under sub-contracts, not just those relied on in relation to the virus.
If there are concerns over health and safety on site, it is important that you keep a record of having raised these with the contractor, and their response.
We have prepared a brief back to basics summary on the CDM Regulations - please click here to read more on that issue.
Relevant sub-contract events
Under clause 3.20, both sub-contractor and contractor “undertakes” to each other to comply with CDM regs. If the contractor fails to do so, this could give rise to a claim as a Relevant Sub-Contract Matter under clause 4.16.8, entitling the sub-contractor to loss and expense.
There are a number of particularly likely Relevant Sub-Contract Events under clause 2.19 that it may be possible to rely on in relation to the Coronavirus outbreak.
- An impediment, prevention or default by the contractor (2.19.9).
The contractor may well have its own problems linked to coronavirus - such as reduced staff due to illness/self-isolating - and may also itself be similarly delayed by the employer, who faces the same problems. Such matters could all contribute to delaying or impeding progress on site, and or changed working practices causing delay. For example, if the contractor imposed a 2-metre distance working practice, it is likely that that would impact on a subcontractor’s progress.
Another example that could fall under clause 2.19.9 is a failure by the contractor to enable you to work in compliance with the current Site Operating Procedures (“SOP”) issued by the Council for Construction Leadership (“CLC”).
Importantly such impediment prevention and default by the contractor is also a relevant matter and entitles the subcontractor to claim loss and expense. The subcontractor must give notice as soon as the relevant matter is reasonably apparent and closely follow the notice regime under 4.15.
- Force majeure under clause 2.19.17.
That term is not defined in the JCT contracts, but generally is viewed in the category of “acts of God” being unforeseen or unusual events that could not have been predicted and are outside of the parties’ control. There is relatively little case law on the definition of force majeure. But our anecdotal evidence is that subcontractors are notifying delay due to the coronavirus under force majeure provisions. Given the cash flow impact of the virus, it seems likely only to be a matter of time before the courts are asked to decide whether the impact of the coronavirus falls into the category of force majeure as a Relevant Sub-Contract Event. At present the legal position is not clear.
- Government exercising a statutory power under clause 2.19.15
Such a statutory power could be the rule about keeping 2 metres apart where possible as specified in the Coronavirus Regulations 2020. This can be seen in the CLC’s SOP version 1 issue to the construction sector.
This initial SOP states that workers should avoid working closely together given the Government’s requirement for people to keep 2 metres apart. It states there may be circumstances where it is not safe to work more than 2 metres apart, and goes on to give the general guidance that, “Non-essential physical work that requires close contact between workers should not be carried out”. However, it does not define “non-essential work”. The CLC did issue a revised version 2 SOP which went further on the 2-metre rule, but this was withdrawn following significant feedback from the industry. It does make clear that “skin to skin” work should not be carried out, though presumably gloves would address that issue.
So, it may be possible to rely on clause 2.19.5 as a relevant event if you can show that you were carrying out non-essential work, such that the 2-metre rule had to be operated, thereby causing delay. That in turn could also then be a Relevant Sub-Contract matter under clauses 4.16.7 or 4.16.8, giving rise to entitlement to loss and expense.
If there is an instruction from the Employer to work in a different way due to the virus, or different access, this could be claimed as a variation under clause 5.1.2. for example, if one trade was not available due to lack of labour (illness/self-isolation), the Employer may require work to be carried out in a different order than would otherwise be the case, which could then be a variation under 5.1.2, and in turn a Relevant Sub-Contract Matter under clause 4.16.1. Such instructions, being impediments, could also fall under 4.16.7 and /or 4.16.8.
If so, that would then be a Relevant Sub-Contract Event under clause 2.19.5, but also a Relevant Sub-Contract Matter under clause 4.16.7 or 4.16.8 giving rise to an entitlement to loss and expense.
It is important to keep in mind that even though there may be notification of a Relevant Sub-Contract Event, the subcontractor remains under the obligation at clause 2.18.6 to use its “best endeavours” to prevent delay in its works, regardless of the cause. So again, make sure you keep records of steps taken to prevent or mitigate delay. So, if for example you have a shortage of labour, plant or materials due to the virus, make sure you keep a record of steps taken to obtain/procure them from elsewhere.
Safeguarding the health of your workforce
A practical step that can be taken to try and safeguard the health of staff on site is adequate provision of washing and drying facilities for hands, whether that be provided by the sub-contractor or contractor. Consider also transportation of staff to site. If shared vehicles are used, consider for example limiting this to 2 occupants per car, with the second person in the rear seat, to try and minimise the risk of exposure to the virus. Sub-contractors should comply with the requirements in the CLC’s SOP.
For staff who are responsible for more than one site, consider whether any steps can be taken to reduce the risk of passing on/being infected by multiple sites.
When it comes to payment, keep in mind the right to serve a notice of intention to suspend all or part of your obligations under the sub-contract in the event you are not paid monies due to you. Also remember to submit timely ongoing applications even if the value of work is zero.
Keeping sites open
We have received a number of enquiries from sub-contractors over whether they should continue on site in light of the coronavirus. As mentioned at the beginning of this letter, the Government has not sought to close construction sites, and indeed seems keen that they should not close. Therefore, should a sub-contractor unilaterally pull off site due to the virus, no matter how understandable that may be, there is a risk (and subject to the discussion above) that it may be seen as a serious breach of contract by the contractor, resulting in termination and a claim for damages.
For projects where sub-contracts have not yet been entered into, we recommend trying to allocate the risk relating to the virus as best you can and make adequate provision for it in terms of programme and resourcing.
Taking on work during the pandemic
Sub-contractors taking on contracts during the outbreak of the virus may be regarded as having accepted the risks the virus poses in terms of procurement of plant and materials, and progress of its work, and so may face a hostile reception if they seek to notify delay due to the virus, such as under force majeure. While it will be a matter for the courts to determine in due course, it remains to be seen whether “force majeure” can be relied on as a Relevant Event in situations where the sub-contract was entered into at the time of the outbreak. In those circumstances the sub-contractor may be regarded having taken on the risk created by the virus, such that it cannot be relied on as a force majeure event.