Last month the coronavirus outbreak led to the Scottish Government recommending closure of all Scottish construction sites considered ‘non-essential.’ Works underway at children’s hospitals in Glasgow and Edinburgh along with rail and utility repairs continue to progress, as well as those which are supporting facilities to treat COVID-19. While safeguarding public health must be the priority, and there has been immense social pressure to do the right thing, these restrictions put the construction industry under immense financial pressure. They are also likely to have significant implications for the sector in years to come.

In terms of the potential contractual impact, construction companies need to consider their position carefully in the present climate. Most standard construction contracts will include force majeure provisions which allow additional time to complete a project in the event of an unforeseen delay. These clauses do not, however, necessarily include entitlement to additional payment for any associated costs.

Some companies’ contractual obligations may be covered by such provisions, but in other cases force majeure has been defined in such a way as to exclude this current pandemic.

The same applies to ‘change in law’ provisions, some of which are defined to require changes in legislation whilst others include guidance.

Where one of these applies, and depending on the state of play at the relevant time, it doesn’t necessarily equate to an ability to abandon site and stop work. While that may be the outcome, all aspects of the work being undertaken should be assessed with a record kept of the guidance in force at the time, the decision-making processes and their likely impact on the project. Companies should then issue contractual notices and update them as the situation develops. If operating both north and south of the border, there are important differences in government guidance with more of an expectation in England that sites will stay open and work will proceed where possible so there’s no one size fits all approach to contractual notices.

In some contracts, where either force majeure or an instruction to stop work continues for a protracted period of time, it can be the case that termination rights are triggered. It is worth being alive to the terms of the contract to avoid this becoming a problem.

It’s also important to maintain open communication lines between employers and contractors about if and when work is able to proceed. Open dialogue on intentions, likely impacts on the project and costs being incurred could prove helpful in securing agreement and avoiding legal disputes. Positive and collaborative relationships are more essential than ever in making this happen.

During the lockdown, companies should also consider what offsite work, such as design, procurement strategies and remobilisation plans can be progressed. Simply claiming that COVID-19 has stopped a company from working is unlikely to be enough to protect its position within a contract, especially where most standard forms require the contractor to take steps to mitigate delay where possible. This is likely to be judged on a case by case basis and linked to the individual facts and circumstances of each project.

While the Scottish construction sector is now getting to grips with the immediate impact of this pandemic, its longer term implications are still far from clear. Once the existing restrictions are relaxed, it’s impossible to predict whether we’ll see additional strains of the virus emerge, which might result in further lockdowns in months to come.

The prospect of an economic slowdown and its potential impact on projects needs to be at the heart of preparation and planning. However, more immediately, following return to sites, firms may need to address labour shortages due to self-isolation or illness. There are also potential shortages or delays in procurement of materials, equipment or spare parts to be considered, even once work re-commences.

Longer term, some have suggested that there may be a move in focus away from some hard infrastructure, such as roads, rail, and airports, towards more digital infrastructure to support the 5G network and digital connectivity. The construction sector is highly focused on risk management through contractual agreements between suppliers and clients, but it’s nearly impossible to account contractually for the impact of a public health issue like COVID-19 and the uncertainty and potential instability it could bring.

Future contracts are likely to acknowledge additional risks in their drafting, regardless of whether these risks are known at the time: rather like drafting for Brexit which was a known risk but with unpredictable and unquantifiable impacts associated.

The construction sector has, over the years, navigated many crises. This one seems more challenging than most but from the contractual side at least, the key message is to keep an eye on the contract requirements for notices, keep records and maintain communication lines. 

• Shona Frame is partner and construction sector specialist at CMS

Read all of our articles relating to COVID-19 here.