Following the ongoing debate about the implications of the UK lockdown to construction companies, and whether they should remain open, Karl Cameron, an experienced commercial litigation partner at law firm Trethowans, who works extensively in construction, has provided the following comment.
“The government must urgently clarify the lockdown’s implications for the construction industry and any exemptions relating to construction sites themselves. Dialogue over the last 24 hours has emphasised the polar opinions of some of those in government and those within the industry as to what is best, and what is in the public interest at this unprecedented time.
“Construction projects themselves are not only beholden to sufficient manpower being available – and the debate about whether workers can be adequately protected against Covid 19 rages on – but also the timely provision of goods and raw materials. Without lockdown exemptions applying throughout the supply chain this cannot be achieved and everything will grind to a halt anyway, regardless of whether the decision is that work can continue on sites.
“To avoid this, construction contracts routinely have in-built and well-established mechanisms to prevent non-performance. This extends to both sides, whether it is contractors and sub-contractors failing to complete work on time or employers failing to pay what is owed under the contract as those payments fall due. However, these protections are worthless if there is not an efficient court system to back them up.
“Covid 19 has not shut the courts down – the Ministry of Justice has already emphasised the importance that, for now at least, the administration of justice continues – but inevitably a strained court system means redress cannot urgently be sought. This in turn means that contractual protections in construction agreements, such as adjudication procedures (which at their very root are intended to enable projects to continue despite a contractual breach) and liquidated damages clauses may have no teeth and may be disregarded.
“Before the public health concerns emerged contractors would have committed to achieving deadlines and assumed strict contractual obligations to do so. Those obligations cannot be avoided in the ordinary course, and even force majeure provisions may not offer a solution.
“On a contractual basis it may not be enough for contractors to argue they were simply unable to perform their obligations – whether that be because their work force was self-isolating or because materials simply could not be sourced – and therefore that could leave them open to having to pay huge levels of damages for failing to complete projects they contracted to undertake in a situation that is entirely out of their control. The only refuge may be statutory intervention, but the detail of this, and the extent of caveats in place are still largely unknown.
“Of course, the Government has announced an impressive raft of support for business over the last week (both direct funding and statutory protection) but whether that can go far enough to avoid a contractors obligations under a contract in their entirety remains to be seen.
“The signs are that Government is prepared to do what is necessary to temporarily suspend the enforcement of contractual obligations in the commercial world in these difficult times. The extension of the moratorium relating to enforcement action for non-payment of rent by commercial tenants to landlords is a prime example of this, but a three-month suspension to either pay damages or perform the obligations under the contract may be insufficient. With no income during the suspension period it is likely those businesses may go under in the short term, and even if they do not they will be ill-equipped to meet any financial penalties or commence work to finish a delayed project once the lockdown concludes.
“In short, whenever there is disruption or interruption in a construction project, urgent performance and cash flow is key – work needs to continue, and payments must be made. Without both elements, and notwithstanding any potential government intervention to suspend enforcement rights, if either stops the whole industry will grind to a halt and there may be a significant number of casualties once it starts moving again.”
