Dealing with the contractual impact of COVID-19

THE nature and scale of the impact will vary depending on your exact circumstances and the terms and conditions of each individual contract. But in all cases it essential that you minimise the commercial and contractual risk to the future of your company.

First things first
The first thing to understand, and we cannot over emphasise this point, is that there is no single ‘one size fits all’ answer. It all depends on the specific details of your contract. And undoubtedly in some cases the situation will be affected, either adversely or favourably, by the nature of some of the organisations for whom you are working.

Nor is it the case that you can issue one notice or letter and then forget about all your other obligations under the contract. In order to properly protect your interests, you must comply with all of the terms of the contract, and you must do what you are required to do, as and when and how the contract requires you to do it.

If the contract requires a notice to be sent on pink paper and in a green envelope (obviously an extreme example) for it to be valid then that is what you must do!

If the contract requires you to give certain details or fulfil certain criteria, then that is what you must do. It might be tiresome and annoying, but would you rather lose your money, your job, or your company?
Doing nothing isn’t an option!

Please don’t under any circumstances adopt the mindset that ‘we’re OK’, ‘we don’t need to do anything special’, ‘it will sort itself out’, ‘the contract is the last thing we need to think about right now!’ Or any other version of burying your head in the sand.

Please take the contractual side of things just as seriously as every other aspect of this problem we’re all facing.

If things start to go wrong and you’re prevented from doing your works when you were contracted to do so, you must ensure any delay notices are issued in order to be entitled to extension of time.

DO NOT allow anyone to persuade you not to issue delay notices. This is the oldest trick in the book, and one that has cost specialist sub-contractors millions over the years.

Some contractors deliberately use this ruse to stitch up their subcontractors, and the majority of the big national contractors non-standard contracts make the giving of notice a condition precedent to your entitlement to extension of time and/or recovery of loss and expense.

Don’t be misled by a contractor’s seemingly casual approach to closing a site or causing delay. Remember that those making such decisions, will not usually be the ones screwing you over later when the financial consequences are being determined. But doing the wrong thing is worse than doing nothing. Some of the feedback we have had is that, despite our advice, people are looking for an easy solution that they can apply.

And while this may be being done with the best of intentions, in certain cases saying the wrong thing at the wrong time, may actually give the unscrupulous Contractors an opportunity to say that what you have said amounts to a repudiatory breach of contract.

The consequences could be the immediate termination of your contract and no further payment for literally months. I know this is hard to accept if you’ve never had a problem, and a great many of you haven’t, but I have seen companies literally wiped out that had never previously had a problem in 25 years.

This is a difficult point to get across and if it doesn’t make sense, then please pick up the phone and call me on my direct line on 01773 715062. I’ll gladly explain how this might work in practice. So, please take the contractual side of things very seriously indeed and please do not think that this is going to be simple and straightforward, or that common sense and fair play will prevail…
… it might, but it might just as easily go very wrong, very quickly!

The consequences of inaction
You need to know that if you delay the contractor (or he decides to blame you anyway), you will become liable for not only liquidated damages, but for what I call a thick sandwich of costs. This sandwich is made up of the liquidated damages, the contractor’s own costs and any other costs that the contractor incurs, such as those of all his other subcontractors.

Check the contract - Check the Notice - Make sure your notice relates to the contract
As with every other problem that arises, the remedy or answer (or indeed potential lack of it), lies in the contract. And for specialist contractors, trade contractors and subcontractors this is compounded by the myriad of contracts out there.

Any delay notice must relate to the provisions of the contract including any bespoke amendments. Each contract will potentially have slightly different requirements in respect of delay notices, what is required, when it is required and even what they are called.

Almost every contractor has their own version of terms and conditions or bespoke amendments to standard forms such as the JCT forms. So, please pay very careful attention to each of the letters and which contracts they can be used with. Please check that the clause numbers in the letters match up with the clause numbers in the contract.

Better to doublecheck and be safe.

However, one thing that will be common to most contracts (until the contractors draft onerous amendments), is that they will probably lack express terms allocating the risk of infectious disease outbreaks, such as Covid-19.

As a result, parties will need to rely on other provisions, such as extension of time and loss and expense clauses, to understand who bears the risk.

Back up the notice with evidence
Don’t rely on anyone else to have details of the delay issue. They might be the party who ends up making the final decision if the issue gets referred to Adjudication or Arbitration, and/or be keen to see your claim fail.

Wherever possible supply back up information to support the delay notice, if you can cross reference all other information, including, if possible, a programme showing the effect on the works. If you can’t send back up information at the time, then follow it up as soon as you can with further information.

Record as many facts as possible
Remember that it might not be your team that is affected by the coronavirus, it could be the other trades on the job which can’t complete their works and in turn that is what stops you doing yours.

A lot of time and effort can be expended trying to research the background and facts of a delay notice after the event. Wherever possible include as many facts and cross references to relevant documents as possible.

Will you be able to remember all the issues in say two months or two years’ time? Will you be able to remember what drawing/sketch/part of the building you were referring to? The best approach is often to imagine you know nothing about the project, could you read the delay notice and make an assessment of the impact?

If the answer is no, then you may need to do some more work.

Above all else remember that the aim is to comply with the terms of the contract and demonstrate your entitlement to extensions of time.

Please, please, don’t say: ‘But, it doesn’t work like that in the real world.’

In the ‘real world’ we’ve seen the contractors set offs and claims against his subcontractor, literally destroy the subbie’s business. If you don’t protect your position by securing extensions of time it could cost you your money, your job, or your business. There is no shortcut, no easy answer. No quick fix. But there are steps you can take and with our help you can protect your business and sleep easier at night.
Stay home, stay safe, protect the NHS.
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