The impact of a lack of materials or labour
Materials coming from China are likely to be in limited supply given the two or so months of limited to zero production from some plants but, as the virus spreads through Europe, the impact will become more wide-reaching, particularly as borders start to close and distribution networks become more critical for food and supplies. In addition, the transport industry faces its own challenges.
Labour shortages could result from high absence levels, whether those who fall ill with the virus or who self-isolate on government advice. As things currently stand, a family member showing symptoms will stop a perfectly healthy and otherwise willing labourer from attending site for 14 days. This is already affecting some industries and on some sites.
A breach of contract may arise where contracts cannot progress as planned, due to lack of materials or labour, meaning the contractor may not be able to complete the works by the agreed date. The risk of obtaining materials and labour typically rests with the party supplying the relevant work.
It is necessary to identify whether each specific contract provides for any entitlement to additional time in the circumstances, if so then there will be no breach of contract.
A ‘force majeure’ clause in your contract, such as in forms of the JCT suite of contracts, might help and might specify the remedies. It might entitle you to more time, and even additional money in some cases. If the government imposes specific statutory measures which prevent labour and/or materials from going to site, this would also allow an extension of time on many standard forms of contract.
The best approach is to know what your contract says, understand it, and ensure that the right notices are in place in the right timescales – communication will be key over the next few months.
If a contractor or sub-contractor is refused entry to a site without a government policy that supports such a refusal, this would be likely to be an act of prevention by the employer or sub-contractor, and likely to lead to an entitlement to more time to complete the works - and probably more money too - to cover loss and expense suffered during the period. If the refusal of access is prolonged, it may be possible to terminate the contract lawfully.
However, if the reason for lack of access is that the party carrying out the works is not complying with site, or wider health and safety considerations (showing symptoms which means they should self-isolate or not complying with hand-wash requirements etc), responsibility for the inability to attend site is likely to rest with them.
If a site is to be closed down due to health concerns or due to government policy, notice should be given to allow the safe and timely collection of materials and equipment. It would be wise, in the event of a national ‘lockdown’/quarantine (given that other countries further along the infection ‘curve’ do appear to all be following this model), to remove from site what can be easily and safely removed and to make arrangements, if at all possible, for payment for materials as soon as they arrive on site rather than when they are fixed.
Entitlement to interim/stage payments
These should not be directly affected by the virus. Stage payments will still become due when the stages are reached and interim periodic payments should still fall due in accordance with the contract. If no work is progressing then there is unlikely to be anything due (although extended preliminaries and potentially loss and expense could be claimed in some instances), but the first application for payment following any site closure is still likely to contain a sum that could become payable so the usual notices should still be administered by both parties to the contract. It might be wise to include new additional individuals in the distribution of such notices in case their colleagues who normally administer the process are unwell or otherwise unavailable.
Practical site issues
Make sure your workforce, and all of those for you have site responsibility, know what is expected of them from a hygiene perspective and know how to recognise the symptoms meaning that they should self-isolate. Construction sites are sources for rapid transmission of the virus. Ensure that there are plentiful stocks of soap/handwash at cleaning stations and that personnel are regularly and properly washing hands. Make sure that this message is communicated in all relevant languages and reinforced in ‘toolbox talks’. We have been specifically asked about face masks but there is no specific requirement in force at the time of writing about these and the World Health Organisation only says they should be used if you are caring from someone suspected of having the virus. Since this note was first drafted, the Construction Leadership Council has issued Site Operating Procedures and they should be consulted. On Tuesday 31 March 2020 the UK Government confirmed that the CLC SOP’s aligned with Public Health England’s guidance.
Given the current situation, you may need to consider laying-off your workforce, reducing their hours or even making redundancies. Laying off employees means that the company will provide the employees with no work and no pay for a period of time. Short-time working is where the company can reduce the hours of their employees, and pro-rata their salary accordingly.
In these circumstances, the first thing that you should consider is whether you are contractually entitled to lay-off your staff or place them on short-time working as different rules apply. If you are not contractually entitled to lay-off then this can still be achieved, but we strongly recommend you seek legal advice before commencing this process. Our Employment law team will be happy to assist you with any queries you may have. If you have agency staff or direct sub-contractors, the terms of those contracts will have to be considered too.
Since the first draft of this note the government has announced packages to support in the current environment, including ‘furloughing’ arrangements, on which please see our article or seek specific advice.
What help will there be available for sole traders, SME’s and large regional/national contractors?
The government has announced a £350bn package and has announced financial support for small businesses with a turnover of up to £45million via the Coronavirus Business Interruption Loan Scheme (CBILS). However, the way which this is working has been criticised and the government is announcing new measures to help businesses access this support. In the meantime, good financial hygiene remains critical in order to claim money, chase debts and minimise liabilities. Some initial help may be available in relation to tax liabilities and if your income is affected, it would be worth speaking with HMRC about their 'Time to Pay' facility, which has a designated coronavirus helpline.
You should also speak with your insurance broker to establish if you have business interruption cover in place that could respond in the circumstances.
Given current uncertainties, it will be difficult, at this stage, to argue that disruption caused by the coronavirus is unforeseeable, so force majeure (if indeed it is provided for in your contracts) will not assist. You need to have frank, realistic and sensible discussions about risks relating to time and money which could yet be amplified by further developments with the virus. Once you agree where those risks sit, make sure they are properly recorded in the terms of your contract.