The Construction Leadership Council (CLC) Task Force recently published guidance on future-proofing contract amendments. This builds on its May 2020 guidance COVID-19 Contractual Best Practice Guidance (the May 2020 Guidance), which aimed to be a starting point for all parties for dealing with the coronavirus (COVID-19) pandemic.

The May 2020 Guidance encouraged parties to reach a collaborative settlement in response to the effect of COVID-19 on existing contracts, setting out a framework for doing so, with the aims of avoiding insolvencies and successful project delivery. The new guidance seeks to build on this with the objective of assisting parties in identifying the issues caused by COVID-19 and by providing drafting to preserve each party's negotiated position within new contracts.

What does the new guidance include?

The new guidance proposes amendments to address COVID-19 issues in new contracts by suggesting drafting amendments to the JCT Design & Build Contract 2016 (JCT D&B 2016) and the NEC 3 & 4 Engineering & Construction Contract (NEC 3 & 4 ECC). Those are the forms of construction contract used the most within the UK construction industry. Such amendments may be used as a basis for amending existing contracts by Deed of Variation.

The guidance recognises that there could be contentious arguments as to whether COVID-19 is a force majeure event since it is something that could now be foreseen. However, the amendments go further than just addressing COVID-19, and address pandemics generally. They provide various options around the grant of extensions of time, reimbursement of loss and expense, and the right to terminate the contract in the context of COVID-19 (or another pandemic). The amendments clarify whether COVID-19 can be considered a force majeure (under the JCT D&B 2016) or an unforeseeable event (under NEC 3 & 4 ECC).

Pandemic event

The amendments introduce a definition of "pandemic event" that includes: (i) any pandemic (including COVID-19 or any mutation of it), (ii) any legislative changes or other measures of government or public authorities, and/or (iii) any consequences of the pandemic outside the reasonable control of the Contractor that affects the works, including access, labour and materials.

The issue with this definition from the Employer's perspective is that it is rather wide. Due to the way it is defined, it applies from the date that the contract is entered into since a pandemic event (COVID-19) already exists. Whilst the Contractor will need to demonstrate that COVID-19 has impacted the works in some way, it is not necessarily obvious what impacts the Contractor has or has not taken into account at the outset of the project, making it relatively easy for them to bring a claim under the contract for a pandemic event. It would have been better to restrict "pandemic event", at least as regards the impacts of COVID-19 or a related strain, to a worsening of the restrictions or position applying as at the date of the Contractor's tender.

Time and cost options

The amendments introduce three options for both the JCT D&B 2016 and the NEC 3 & 4 ECC in the event of a pandemic event arising:

• Option 1 – provides for the grant of an extension of time only;
• Option 2 – provides for an extension of time as well as the payment of all the Contractor's loss and expense; and
• Option 3 – provides for the grant of an extension of time, but for the Contractor to be paid a predetermined percentage of the loss and expense incurred. The exact percentage will be the subject of negotiation. The purpose of this is to share some of the COVID-19 costs between the Contractor and the Employer. Similarly, the parties may also want to discuss whether the Employer should pay for the Contractor's site-based overheads at a fixed rate for the period of delay.

Termination

The amendments also propose wording that introduces the possibility of termination of the contract in the event that the pandemic event causes suspension of the works for a defined period of time. No period of time is proposed and it is left for the parties to agree what that period should be.

If a pandemic event leads to termination then, under the suggested drafting, it would have the same effect as termination for force majeure under the JCT D&B 2016 and as termination due to a prevention event under clause 91.7 for the NEC 3 & 4 ECC. Parties should agree and amend the proposed drafting on a contract-by-contract basis.

The Employer should consider whether the right to terminate should be for either party or both parties in circumstances where loss and expense is allowed to the Contractor for the pandemic event, since the Employer will be carrying the risk of additional cost and delay.

Record keeping

The CLC has also produced further guidance on record keeping, published on 14 July 2020. It advises parties to consider the effect of COVID-19 on their record keeping practices and encourages parties to review which records need to be kept, and in what form (including digital), and record sharing requirements. 

Further reading

• The May 2020 Guidance
• COVID-19: Managing Contractual Disputes & Collaboration – Summary Guide, published by the CLC in July 2020

With thanks to Elspeth Nuttall who assisted with the preparation of this article.