22 April 2020
| Construction, Engineering and Infrastructure
Present indications are that the lockdown may end at the end of April 2020, with a staggered re-integration for construction.
The regulations issued on 16 April dealing with the mining industry may pave the way for a similar process for construction.
What is clear is that when work recommences construction sites will not return to their normal functioning given that the Coronavirus is going to remain an ever-present threat.
For some considerable time there will be an impact on contractors’ productivity because of required site controls and other social distancing measures that will have to be implemented.
All of this will have a significant impact on project completion programmes and almost all construction projects are unlikely to be able to be completed within their originally anticipated timeframes.
- What steps should contractors take to mitigate their risk of penalties and other losses?
- How should contractors ensure vital cash flow through the lockdown period?
- What steps can be taken to put projects back on track as quickly as possible??
What steps should contractors take to mitigate their contractual risk?
1. Contractors must make claims for extension of time arising from the lockdown and any other delays which Covid-19 may have caused, which may also include for example the late supply of goods and materials or unavailability of skilled international subcontractors, and/or products. (we have prepared an earlier article on what claims can be made in relation to the different contracts.)
2. Contractors should request the professional teams to continue to certify interim payments during the lockdown period. Where contractors are entitled to claim costs in terms of their contract, during the lockdown, these can be included in interim payment certificates.
How should contractors ensure vital cash flow through the lockdown period?
1. Contractors should also endeavour to obtain payment for materials and goods already procured and if the materials are not yet delivered to site, propose a cession and/or transfer of ownership to the employer from the suppliers directly, in order to allow for payments to be made.
2. Contractors would also be claiming UIF payments as part of Government’s Disaster Management Package in respect of the workforce which would be on short time and/or unpaid leave.
3. The lockdown may also present contractors with an opportunity to carefully consider the quantities in interim payment certificates and whether they have correctly and completely claimed for the value of work completed. This should include checking all quantities of work certified and that they have been paid for the correct value of work completed.
4. The lockdown period also presents a good opportunity to resolve any disputes on the measurement of work completed and any outstanding claims for extension of time which may not have been adjudicated or will need to be resolved in dispute proceedings.
5. Many contracts allow for adjudication, which is a reasonably cost effective and expeditious way to resolve claims and disputes within a period of 30 days.
What should contractors do after lockdown?
1. When work is able to resume contractors will need to re-program the completion of the works and then ensure that the detailed claims for the consequence of the lockdown are made in terms of the contract (after delivery of the initial intention to claim notices).
2. Contractors may not be limited to the period of lockdown only in claiming a revision to the contract completion dates. The effect of the lockdown may have a greater and/or longer impact on the completion of the works than the period of work suspension. A detailed completion programme measured against the original construction programme will be necessary to justify claims in excess of the period of the lockdown.
3. After lockdown it is likely that production rates on construction sites will fall because of site and/or health and safety restrictions to minimise the risk of transmission of the Coronavirus.
4. When these work restrictions are determined contractors should provide the details of this as part of their claim for additional time and, where possible, cost for the extended contract period.
What can be done to put projects back on track?
1. In construction projects the completion date is usually critical.
2. Where employers are unable to accommodate the effect of delayed completion dates, it may be necessary to consider acceleration measures, where possible, to attempt to achieve the required completion date.
3. Each contract will set out the steps to do so and contractors may have to carefully consider what, if any, aspects of the works can be accelerated and if accepted by the employer, the costs that will be incurred in undertaking an accelerated program of completion.
4. Employers will not be able to hold contractors to the original completion dates, in the face of the Covid-19 lockdown and site closures, without accepting responsibility for payment of acceleration costs.
5. Employers will need to recognise that cash flow is the lifeblood of operations for contractors and that regular and timeous payments are the key to successful performance on projects.
6. It would be open to the contracting parties to agree, on the recommencement of the works, that payment milestones may be brought forward and/or the time period for payments could be shortened for an initial period depending on contractor requirements.
Conclusion
1. Every construction contract will be confronted by claims arising from delays and cost from the lockdown. Where disputes emerge in relation to these claims, it is essential that the disputes are resolved quickly and efficiently to ensure payments are made to contractors without delay.
2. All of the contracting parties will find themselves in uncharted territory and will have to approach the circumstances of each contract with a strong sense of logic, fairness and compromise.
3. None of the parties will benefit from becoming embroiled in disputes on recommencement of the projects and will have to do everything they can to ensure that the work can proceed and the projects get back on track as soon as possible.
