Michael Conroy: COVID-19 and the impact on JCT/SBCC contracts
With the Scottish Government and the Construction Industry Coronavirus Forum advising that all non-essential building sites in Scotland should close in response to the coronavirus pandemic, Harper Macleod partner Michael Conroy outlines what this means for building projects that are governed by the JCT/SBCC of contracts.
Amidst the confusion of mixed messages from the UK and Scottish Governments about construction site closures, some Contractors continued work on construction projects in Scotland until the Employer issued an instruction that the works should be suspended. For JCT/SBCC projects, this is because an Employer instructed suspension gives rise to an entitlement to an extension of time and loss and expense for the Contractor whereas a Contractor decision to withdraw labour in response to the First Minister’s guidance may not.
Under clause 3.10 of the JCT Design and Build Contract 2011/2016 and the SBCC Design and Build Contract 2016 edition, the Employer has the right to postpone any works without providing a reason.
Such a suspension of works by the Employer in terms of clause 3.10 entitles the Contractor to claim an extension of time for completion equivalent to the period of suspension and also to recover the loss and expense incurred as a result of the delay.
Claims for extension of time and Loss and expense
If a Contractor wishes to apply for an extension of time under a JCT/SBCC contract then they should do so by notifying the Employer of the material circumstances, including the cause of delay. They should also specify if any of the causes of delay are a Relevant Event.
In terms of Relevant Events attributable to the coronavirus outbreak, these may include the suspension of work by the Employer, the exercise of any statutory power affecting the execution of the Works or force majeure.
As already explained, suspension of works by the Employer would entitle the Contractor to claim both an extension of time and loss and expense. A claim that the coronavirus pandemic constitutes a force majeure, however, will grant an extension of time but does not entitle the Contractor to claim for loss and expense.
The exercise of statutory powers is a particular clause to pay attention to. If it applies, it would entitle the Contractor to claim both an extension of time and loss and expense.
The Health Protection (Coronavirus) (Restrictions) (Scotland) Regulations 2020 do not expressly require construction sites in Scotland to close. The Regulations implement the UK Coronavirus Act 2020 in Scotland and the UK government approach to construction operations differs to the Scottish approach therefore construction sites are not included in the list of business premises currently under mandatory closure. However, the Scottish Ministers have the power under paragraph 16 of Schedule 22 Part 3 of the Coronavirus Act 2020 to close premises in Scotland or impose restrictions on persons entering or remaining in them. This power may be exercised to order closure of any non-essential construction sites which have continued to operate against government advice. If such an order is made in respect of a construction site, then the exercise of a statutory power clause could be relied upon by the Contractor as grounds for claiming an extension of time and loss and expense.
Under JCT/SBCC contracts, insolvency of either party gives grounds for termination of the contract. Unfortunately this will be a reality for some businesses in the construction industry and should be considered in terms of any proposed action due to the economic impact of the coronavirus outbreak.
Either party may also terminate the contract if, before practical completion, the works are suspended (in part or whole) for a continuous period of time due to one of the events listed under clause 8.11.1 of the JCT/SBCC contracts. Force majeure and the exercise of a statutory power are both included in the list of events. The default timescale is 2 months unless otherwise stated in the Contract Particulars.
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