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Covid19 | Managing Commercial Risk in Construction

Covid19 | Managing Commercial Risk in Construction

Covid-19 has had a considerable impact on all of society and in comparison to most of its affects, its impact on the construction industry can appear relatively small.  After all, construction sites are still operating, buildings are still being built.  Like most industries, however, the construction industry is feeling the impact, not only in a reduction of activity and insolvencies, but in how operations are carried out, the costs of doing business and the ongoing uncertainty.

We have all stood in a queue waiting to enter a shop or supermarket.  This is because the operator is obliged to control the number of people inside to make sure there is enough room to maintain distancing measures.  The same applies to construction sites.  This need to keep people apart can both reduce the number of people on a site, the work they can do and the way they can do it.  While contractors can do a great deal to work around the problem, this inevitably leads to a loss of productivity.  This leads to increased costs to the contractor and increased time to do the work.  Unsurprisingly, contractors will seek to pass these on to their clients.   Insofar as these increases are reasonable, doing so would appear to be reasonable.

Much depends, however, on what the contract says will happen.  There are two suites of standard form building contracts generally in use in Scotland.  One says the contractor gets extra time, but not extra money.  The other says it gets both.  Many clients took the decision that despite the fact their contractor was not entitled to any extra money, it was reasonable in these unprecedented circumstances to make an additional payment. 

Equally, just because a contractor was entitled to extra money, that did not mean it had to pay whatever it asked for.  It was entitled to increased costs, caused directly by the additional restrictions imposed on it as a result of Covid-19.  This would not normally include additional costs arising from such things as sub-contractor insolvency, supply chain disruption or lack of labour.  Again, though, many clients took a reasonable approach, due to the unprecedented nature of the Covid-19 crisis.

Today it is no longer unprecedented and that means the contractual protections may no longer apply.  Contractors entering contracts now still face site restrictions and the wider effects of Covid-19, but the contracts do not necessarily give them protection.  Even where they do, contractors will not want to take the risk of relying on their clients being reasonable.  Equally, while there is uncertainty, some things are known- the level of productivity, the robustness of the supply chain.  Clients will not want to absorb all of the risk involved around these matters.  After all, the contractor usually takes the risk of being able to build what it agreed to build, at the price it agreed, in the time it agreed.

Entering a building contract now means balancing these competing concerns and good legal advice helps you do so.

Insight from Graham Jackson, Director of Construction Law. For more information contact Graham on 03330 430350 or email gjackson@thorntons-law.co.uk.

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About the author

Graham Jackson
Graham Jackson

Graham Jackson

Legal Director

Commercial Property

For more information, contact Graham Jackson or any member of the Commercial Property team on +44 1382 346233.