Coronavirus, or COVID-19 as it now being referred to, was just another new virus to go with SARS and Bird Flu. But how wrong can you be, it’s now impacting on the economy and spending plans. If it takes hold contractors could see rising staff sickness and materials shortages. Ian Atkinson, partner, and Michelle Essen, managing associate at law firm Womble Bond Dickinson consider the implications for construction firms.
The construction industry has had a particularly difficult few years, with uncertainty around Brexit, high numbers of insolvencies, high-profile building safety concerns, and more.
So, the outbreak of coronavirus disease COVID-19, which started in China at the very end of last year and has continued to spread globally and at an exponential rate, is another in a long line of challenges which the industry is now facing.
Helpful pointers for construction
The extent of the threat and consequences of this disease are not yet fully known but, if the UK were to find itself in a situation similar to Italy, the potential impact on the construction industry is clear. There would be delays on site, there would be risks to a workforce that often finds itself working in close contact with each other and the questions are already being asked about who would bear the costs and risks of delay.
Some key points for employers and contractors to consider include:
- business planning – what are the key parts of your business’s operations where you need a Plan B (eg if materials are being sourced from a country badly hit by the virus, what alternative materials can you use)?
- health and safety – what are your health and safety obligations to your employees or workforce, particularly if they are working on site (eg are appropriate hand washing facilities available, do you need to provide equipment or training)?
- site lockdown – what will you do if your employees or workforce do contract coronavirus, and if you do shut down works on site how do you do so quickly and safely?
- understanding your supply chains – where are labour and materials coming from (eg are key materials being sourced from an country known to be particularly badly hit by the disease)?
- contract review – what do your contracts say about:
- use of alternative suppliers or materials
- force majeure – including for epidemics or (although the WHO has not declared coronavirus as such at this stage) pandemics
- relevant events enabling claims for extensions of time and additional money
- delay and liquidated damages
- rights to terminate the contract?
- frustration – whether you could argue that your contract is “frustrated” (where a serious, unexpected event occurs that is beyond the parties’ control, making it impossible to perform the contract). Note that this is a difficult argument to run in court
- open discussion – perhaps the best approach may be to have an open discussion with the party you have contracted with, to negotiate and agree a way forward that will work for everyone without reverting to confrontation or dispute?
- funding arrangements – if you have funding in place, what does your funding agreement say eg about delay, additional costs, material changes (to the programme, the works or the construction contract), notifying the funder?
- other agreements – does delay under the building contract have a bearing on other agreements the employer may have in place, such as development agreements or agreements for lease?
- insurance – whether you have any insurance policies that could help you recoup any losses – and do you need to get in touch with insurers under the terms of your insurance policy?
It remains to be seen just how severe the impact of COVID-19 on the UK will be. However, it is prudent for businesses to consider in advance how they might deal with a worst-case scenario and to check whether existing contract arrangements offer any sort of guidance as to who bears the risk. Longer term, I am hopeful that ongoing development of new construction processes and innovative products will enable the industry to be better placed to manage unexpected situations.