6th May 2020

Coronavirus: Conflict avoidance in construction and engineering projects

It has been extremely difficult to avoid reading articles and blogs about the effect of the coronavirus pandemic on construction and engineering projects over the past few weeks. Common themes run through most of them and our previous updates – ‘Construction projects – where do we go now?’, ‘Practical considerations for the construction sector’, ‘Construction – where are we now?’ and ‘Impact on building contracts’ - have assessed and provided guidance on a number of specific issues.

Force majeure and the law of frustration have perhaps unsurprisingly attracted a lot of attention. Although force majeure has no recognised meaning in English law, many parties have been quick to check whether a force majeure clause is included in their contract in order to deal with a possible suspension of the works and an entitlement to an extension of time, even though additional costs might not be recoverable in many instances.

Standard and bespoke forms of contract involving employers, contractors, sub-contractors and consultants will include one or more dispute resolution process which can be adopted if the parties are unable to settle their differences through negotiations. Those processes are usually adjudication and litigation - where an adjudicator or a judge acts as a decision-maker - and mediation - where a mediator assists the parties in attempting to narrow the matters in issue and (if possible) agree terms of settlement.

Since the start of the pandemic, the importance of the parties in construction and engineering projects adopting a collaborative approach and maintaining a dialogue has been highlighted by advisors and national bodies.

On 8 April the Construction Leadership Council (CLC) published a statement on payment and contracts in connection with the management of payment in the construction supply chain. The CLC emphasised the importance of existing contractual payment terms continuing to apply and made it clear that businesses should not unilaterally delay payment.

A group of leading UK judges - including two former heads of the UK Supreme Court - and academics made a plea on 26 April for commercial disputes to be resolved before they reach the courts to avoid a “deluge of litigation” in the wake of the pandemic.

Shortly after this, the CLC issued a press release endorsing the Conflict Avoidance Pledge developed by the Royal Institution of Chartered Surveyors (RICS).

Under the pledge, employers and contractors commit to implementing conflict avoidance measures in their contracts and on site, the objectives being to reduce the financial cost of disputes and to help projects to be delivered on time and on budget (which may no longer possible on many projects). The signatories to the pledge include the Institution of Civil Engineers (ICE), the Royal Institute of British Architects (RIBA), Transport for London (TfL) and Network Rail. It will be interesting to see how many clients and contractors - including leading players in the construction and engineering sectors – signal their support for the pledge.

When dealing with clients - specifically architects in my role as a specialist practice consultant to the RIBA - legal advice might emphasise the importance of the parties to a dispute taking all reasonable steps to negotiate and, if possible, agree terms rather than referring the dispute to adjudication or litigation. Costs and time could be saved and uncertainty would be avoided, particularly if the project is yet to be completed.

However, if a specialist sub-contractor has not been paid and is, for example, contesting the validity of a pay less notice, the plea of a retired senior judge or the RICS's pledge might be the last thing on that sub-contractor’s mind. Adjudication or litigation might be the sub-contractor’s only option, and the party who is refusing to pay might be seeking to capitalise on the current crisis in the hope that the sub-contractor will not refer the dispute to adjudication for a quick decision.

Clients will of course still need to understand their position and protect their rights. The threat of adjudication or litigation might encourage the defaulting party to adopt a sensible approach. That said, given the view held by many that “cash is king”, it may still be necessary for a formal process to be used.

Legal action is still expected in various sectors, including against insurers for refusing to pay out on business interruption claims, and against companies who have to make rent payments. The parties involved in construction and engineering projects should, wherever possible, consider adopting a collaborative approach and, where appropriate, take legal and other advice on their options sooner rather than later.

Please note: Nothing in this article constitutes legal advice and we are not liable for any reliance on the information provided. This is a rapidly changing subject, and whilst correct at the time of writing, circumstances may have changed since publication. Please refer to Gov.uk for up-to-date advice on the Government’s response to this issue.

To find out more about anything covered in the article, or to discuss the potential impact of the coronavirus pandemic on the construction industry, please contact Steve McCombe or another member of Thrings’ Construction team.

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