New guidance to help construction get along
On 7 May the Government and the Construction Leadership Council (CLC) published separate, related guidance on responsible contractual behaviours and best practice.
The note issued by the Government strongly encourages responsible and fair contract behaviour, while the CLC guidance is a more technical document pointing to specific parts of typical construction contracts which can be adjusted or observed to nip potential disputes in the bud.
Government guidance on responsible contractual behaviour (view here)
Its message is one of policy rather than law, but it makes clear that responsible and fair contract behaviour from parties engaged in contracts affected by COVID-19 is needed in order to achieve the following nationwide objectives:
- Maintaining contractual performance required to support the response to COVID-19;
- Ensuring that cashflow is maintained;
- Preserving contracts the performance of which is interrupted by the restrictions brought on by COVID 19; and
- Supporting the restart of the economy by ensuring that contract activity can be preserved until it can be continued.
It goes on to “strongly encourage” responsible and fair behaviour in making and requesting payments, giving relief for impaired performance, claiming breach of contract, reporting and record keeping, responding to extensions of time and compensation requests and progressing to formal dispute resolution.
Although the guidance does not specifically refer to a particular industry, the majority of the recommendations point directly to construction and it’s no surprise, given the necessity of getting workers safely back on site to maintain the (already-affected) health of the industry as a whole.
The guidance was swiftly followed by Government guidance on working safely in construction on May 11 (view here).
The guidance is not legally enforceable and does not override any existing contractual provisions. Despite this, contractors and employers would be well-advised to take heed, not least because of the commercial impact of failure to act responsibly and fairly in times of crisis.
The push towards collaboration and alliancing in recent years means that these messages are nothing new, but in practice the industry has been slow to come around to the practice of more collaborative working to achieve mutual objectives.
CLC Guidance on contractual best practice (view here)
The CLC Guidance offers some practical examples on the issues likely to arise and advice on how to resolve them constructively.
Broadly, the guidance encourages parties to enter into negotiations to decide whether to relax or waive terms in the contract to keep projects back on track, in the spirit of collaborative working. There is a helpful precis on the conduct of negotiations which may result in contract changes (such as without prejudice correspondence and collaborative meetings), and key reminder to take into account any interests of third parties (such as beneficiaries under collateral warranties).
The advice suggests changes to terms such as payment, costs, termination triggers and variations. Parties to a contract are well advised to consider the whole list to decide on the most appropriate changes to be made to meet particular practical concerns.
The guidance attaches proforma letters for the following purposes:
- Requesting and responding to an extension of time under the JCT Design and Build Contract 2016; and
- Requesting and responding to a compensation event under the NEC3/4 Engineering and Construction Contract.
The letters are very useful for those using contracts faithful to the standard forms, but in practice the terms governing extensions of time and compensation events in the contracts may be varied. Contractors and clients using the letters must ensure that the letters used are compliant with the terms in their own contracts.
As with the Government guidance, the note encourages parties to act according to the existing contract terms; failure to adhere to terms could spoil any collaborative efforts made by the parties by triggering a dispute in any case.
While considering the ways to collaborate to meet the difficulties particular to your project, you should ensure that you act according to the notification and reporting requirements in your existing contract throughout.
GET IN TOUCH
If you would like assistance with clarifying or interpreting the terms of your contract, or you need advice on which terms ought be varied to safeguard your project, please get in touch with Caroline Watkins.
All information in this update is accurate at the time of writing. It is meant for general information only and is not legal advice.