The two-week lockdown, announced by Taoiseach Leo Varadkar, means that only construction sites that are critical to stopping the spread of coronavirus are to continue operating. We explore what this means for our clients and their construction contracts already in place.
“Already we are being contacted by our developer clients and contract administrators indicating that they will seek legal advice on extension of time and rights within their existing construction contracts due to levels of confusion and uncertainty over who is responsible for what.” states Kevin Duke, Director and dispute resolution expert at Duke McCaffrey.
Government has now provided clear guidance on “List of essential service providers under new public health guidelines” [https://www.gov.ie/en/publication/dfeb8f-list-of-essential-service-providers-under-new-public-health-guidelin/] which includes services in the following areas of construction:
- essential health and related projects relevant to the COVID-19 crisis, and supplies necessary for such projects
- repair/construction of critical road and utility infrastructure
- delivery of emergency services to businesses and homes on an emergency call-out basis in areas such as electrical, plumbing, glazing and roofing
As well as investors, developers and contractors, landlords and tenants of pre-let premises will also be adversely affected by uncertainty. Similarly, many designers and consultants are also being asked to ramp down their services during this period. At this time of state emergency, it is crucial that that all parties to construction projects review the terms of their contracts to understand their rights and obligations. Difficulties arise though as contracts may not address the issues now at play or may address certain of the issues depending upon the interpretation applied to the contractual provisions.
With all of this uncertainty, Duke McCaffrey and construction law experts, Dillon Eustace have teamed up to provide some guidance on what to consider when reviewing your existing contracts. You can see the full Dillon Eustace briefing here [https://www.dilloneustace.com/legal-updates/construction-contracts-covid-19-impacts-and-considerations].
“Without proper guidance from Government, it is difficult for contractors. There is a lot of confusion. We are seeing Contract Managers notifying clients that works will stop, without any real clarity on what this means for the contract obligations and ultimately, who pays for the loss or extension of time. In some instances contractors are asking clients to provide them with the notification, so to relinquish them of any construction disruption responsibility.” says Joe McCaffrey, Duke McCaffrey
Since lockdown, there has been no further guidance from Government on public sector contracts and whilst the note laid out on 19th March is helpful, there are still some shades of grey. Updated dated guidance from the Government Contracts Committee for Construction (GCCC) is urgently needed.
For private sector clients operating under RIAI or international contracts, our advice is to thoroughly review the details of your contract. Within the RIAI there are important clauses that will need reviewing from the inclusion of Clause 36 dealing with “wage and price variations” to Clause 30 regarding “extension of time”, and Clause 4 relating to “legislative enactments”. These clauses could have adverse consequences on the contractor or the client if obligations are not met.
Fiona O’Neill, Solicitor Dillon Eustace states “Most internationally used construction contracts (for example, FIDIC, NEC, JCT), have specific force majeure protocols. However, there is no standard legal definition of force majeure. As such, the application of force majeure protocols in each contract will depend on interpretation of the precise wording used.”
Fiona continues “The only express reference to force majeure in the RIAI Contract is at Clause 30 under which the Contractor is entitled to seek an extension of time upon the happening of an event giving rise to delay in completing the works due to force majeure. However, the RIAI Contract does not have a specific force majeure definition or clause setting out protocols to apply following the happening of what many would interpret as a force majeure event.”
Finally, as cashflows tighten across the sector, the safety net and provisions of the Construction Contracts Act 2013 which applies to most transactions within the industry, will come to the forefront and the specific notification and terms of this legislation will become very important to note and adhere to.
At this time, we highly recommend that you keep track of Government updates, review your contracts in detail, specifically in relation to clauses that might be relevant to a cessation in construction and think about a collaborative approach in renegotiating contract amendments to find a more commercially acceptable position. You must also take into account that any changes in construction contracts may have a knock on affect to other agreements such as funding arrangements.
Keep comprehensive records of all interactions with your contracting counterparties and take legal advice as and when necessary, including in relation to understanding your contractual obligations and documenting any changes that you agree to your contracts. If not properly documented, further grounds for uncertainty and disputes can arise.