COVID-19 and its impact on JCT contracts

The COVID-19 pandemic has had a substantial impact on the construction industry in the UK. Labour shortages and shortages of plant and materials have adversely affected many projects, which in turn has resulted in additional costs and delays.

This article considers how the current wording of the JCT Design and Build Contract 2016 edition (“JCT D&B 2016”) deals with the risks of the COVID-19 pandemic. Whilst the article focuses on clauses from an unamended JCT D&B 2016, the other main JCT contracts include similar provisions. The article also focuses on JCT contracts entered into prior to the global awareness of COVID-19.

Is COVID-19 a force majeure event?

The term ‘force majeure’ has no specific meaning in English law. A force majeure clause excludes liability for failure to perform a contract as a result of events outside a party’s control and which was not foreseeable as at the date of the contract.

Some contracts include a list of specific force majeure events such as war, terrorism, acts of government or epidemics. Where the term epidemic, or pandemic, has been used, that will cover Covid-19 and relieve a party from contractual liability.

Other contracts refer to events or circumstances which are ‘beyond the parties’ reasonable control’. Determining whether this covers issues arising from Covid-19 is a question of interpretation and is fact specific.

Can the contractor claim an extension of time in respect of Covid-19?

A contractor is entitled to claim an extension of time on the grounds that delay to the progress of the works is caused by one of the Relevant Events listed at clause 2.26 JCT D&B 2016. If an extension of time is granted, the contractor is relieved from a claim of liquidated damages.

In respect of a COVID-19 delay, a contractor may be entitled to additional time on the grounds that delay is caused by:

• Any ‘change’. If the employer closed the construction site or restricted working hours, this be relevant (clause 2.26.1).

• An employer’s instruction to postpone any work to be executed under the contract. This may be relevant where an employer postpones work because it cannot be carried out safely in accordance with guidance about safe working practices on site (clause 2.26.2).

• Deferment of giving possession of the site (clause 2.26.3).

• An employer’s act of prevention. This may be relevant where, an employer temporarily closes a construction site, changes working hours and methods or otherwise restricts access to site as a result of guidance about safe working practices on site (clause 2.26.6).

• The carrying out of works by a statutory undertaker (clause 2.26.7).

• Labour issues caused by civil commotion or union action/strike/lock-out. This may be relevant where a contractor suffered from labour shortages as the initial “lock-down” in relation to construction workers may fall within “lock-out” (clause 2.26.11).

• The exercise of statutory powers by the UK government or any local or public authority after the base date that is not caused by a contractor default and directly affects the execution of the works (clause 2.26.12).

• Delay in receiving permissions from statutory bodies (clause 2.26.13).

• Force majeure (clause 2.26.14).

In relation to force majeure, there is no definition in the JCT D&B 2016. Whilst there have been no reported cases as to what Force Majeure means under a JCT contract, the case of Lebeaupin v Crispin [1920] 2 KB 714 confirmed an epidemic would be a force majeure event. Accordingly, delay caused by COVID-19 would give rise to an extension of time under JCT D&B 2016.

Can the contractor recover loss and expense in respect of COVID-19 for JCT contracts?

While the contractor may be entitled to claim an extension of time where a Relevant Event delays progress of the works, a contractor is not entitled to claim compensation for loss and expense unless the Relevant Event is also one of the Relevant Matters listed at clause 4.21 of JCT D&B 2016. The Relevant Events listed above that are also Relevant Matters under JCT D&B 2016 are:

• Changes instructed by the employer (clause 4.21.1).
• An employer’s instruction to postpone work (clause 4.21.2.1).
• Any impediment, prevention, or default by the employer (clause 4.21.5).

Neither a change in law or a force majeure event is a Relevant Matter under JCT D&B 2016 and so the contractor is not entitled to make any claims for loss and expense because of a change in law or a force majeure event.

Can either party terminate the contract because of COVID-19?

Subject to the contractor complying with the notice requirements of clause 8.9.3, under clause 8.9.2 of the JCT D&B 2016, the contractor is entitled to terminate the contract if the carrying out of the whole or substantially the whole of the uncompleted works is suspended and the suspension continues for a continuous length of time as stated in the Contract Particulars (if no period is stated, the period is 2 months) by reason of any impediment, prevention or default by the employer.

If the carrying out of the whole or substantially the whole of the uncompleted works is suspended and continues for a continuous length of time as stated in the Contract Particulars (if no period is stated, the period is 2 months), either party may give notice to terminate the contract as a result of, among other things, the following:

• A force majeure event (clause 8.11.1 JCT D&B 2016).

• The UK government or other local or public authority exercising statutory powers that directly affect execution of the works (clause 8.11.5 JCT D&B 2016).