Dealing with COVID, as a business, is a bit like being in economy class during a storm. We can’t help the circumstances, and we are forced to trust our captain, but there are things we can do to improve the situation. Don’t get up and go to the bathroom, set-your tray to the upright position and try to relax.
Frequent updates, slightly ambiguous advice being published by our governments (from guidance to prohibition), and a general lack of certainty, leaves us all with many questions during this fast-moving pandemic, with new questions and answers being published on a day-to-day basis.
Stay on top of where we are now by reviewing our answers to frequently asked questions (and the subject of our recent Webinar on Insurance and Covid-19 which can be accessed here).
In this article, which is the first in a series of articles to be published, we answer some key questions, giving you the most straight forward answer we can.
Do my business insurance policies cover my losses sustained during the COVID lockdown?
Our Mark Tetley gave us some great insights into this question.
If you were one of the lucky few business owners who took out a pathogen RX policy prior to the crisis, your business interruption will likely succeed, but since most businesses are forced to bring a claim under an all risks section (which might arguably not cover a pandemic), some resistance from the insurers is expected.
The insurance industry was not designed to be able to afford to bankroll the entire economy.
If I have an all risks policy what must I look out for?
Check all sections of your policy carefully. Review the exclusions and the triggers as well as the governing law which may be important to the interpretation of force majeure and other standard provisions. Speak with your insurance broker as he or she is your key representative in the insurance market and should be championing your needs and rights.
Will the insurers eventually be forced to pay out?
Again, bear in mind the insurance market cannot furlough entire businesses and industries. There are a number of challenges being made by insurers and related parties (i.e. UK Lloyd, Hiscox, NTIA Allianz and QIC Action Groups) and time will tell whether some, or all, of the business interruption claims will succeed.
When can I claim for relief under my construction project?
This is largely a matter of where your project is located. Geographically governments have issued new laws dealing with the COVID spread progressively and hence any action for relief would need to be linked to the dates of this action. Some jurisdictions are easier to discern than others as their laws and instructions are clearer than others (i.e. in Europe many countries simply ordered construction operations to stop whereas in the UK this instruction has been less clear).
The answer is a matter of fact and circumstance.Could the project have been progressed during the restricted phase and to what extent?
Are public sector projects dealt with differently?
The Cabinet office has issued guidance for public sector contracts. They have also published deeds of variation for JCT and NEC as well as a guidance note on how to deal with these difficult issues.
Can a contractor claim an extension of time (an“EOT”) to the construction project because of COVID?
Most construction contracts don’t have a specific COVID or pandemic clause, so it’s likely this claim would have to be made under the change of law or shortage of supply provisions (force majeure). Use the most appropriate mechanism to bring a claim. Here lies the complication with regard to the ambiguity of government information; some contracts would allow a claim for a change of law but not for general guidance (i.e. NEC4 Option X2).
JCT allows for relief to be claimed for the exercise of statutory powers after a certain date, prevention, suspension by the employer or force majeure, amongst others. Beware that an extension of time might not necessarily allow for the cost of any such extension and each form varies widely on this issue. The FIDIC Yellow book could allow for an EOT for shortage of supply or prevention but not the costs of the extension, but may allow for both in the event of a change in law after a certain date. The FIDIC silver book might not allow a claim to succeed under a shortage of labour, if a change of law cannot be relied upon and if in an unamended form.
Does this thing I keep hearing about called“Frustration” apply to my construction project?
It is very rare for a construction project to be considered frustrated, which rather broadly means that the contract becomes redundant as both parties are prevented from continuing. It’s more likely that there will be a degree of prevention rather than absolute frustration due to COVID-19.
What is Force Majeure and can I use this provision to help me?
Force Majeure means different things in different countries. In civil jurisdictions like France, from where the term originates, it has a defined and understandable meaning. In the UK, the term alone is not universally agreed to be understood, hence how the term is described in the contract will reveal its true meaning on our side of the channel. More often than not, it won’t include a pandemic, leaving the provision and clause up for debate.
Can the contractor or employer suspend the contract until we know more about what is going to happen?
An excellent question, which, again, one must go to the terms of the agreement to establish an answer to.
Most construction contracts will only allow for unilateral suspension by the employer, which will entitle the contractor to an extension of time. The contractor would, in most cases, not be allowed to unilaterally shut down. So, why would an employer suspend, and take on the risk, if the construction site is not officially closed-down you may ask? Alas, we are back to the ambiguous advice or laws put in place by the government (and why the industry would much have preferred if Boris and his team had taken a more certain position on this issue). If there was an official shut down there would be no need for either to suspend.
Are there any rules by which the employer and contractor must follow in the interim?
The government of the UK has published some advice for construction projects which you can review here. Other organisations have published advice which generally calls on construction project parties to act collaboratively and to try to resolve issues by agreement. They advocate keeping communication channels open and to continue to allow the contract mechanisms to operate (i.e. giving notices, providing updates, keeping a solid programme updated and maintaining health and safety on site). It’s a good idea to send out a “keeping-in-touch” letter to keep the channels of communication open.
Can we just agree different terms to our construction project dealing with COVID?
The answer is absolutely yes. This is the best outcome for all, one could argue. Standard deeds of variation for specific standard forms have been published. It’s important to make a list of all the potential issues and agree these one by one in your variation.
What if I have an arbitration or adjudication, how will this be affected?
The substantive discussions are likely not to be affected (with the exception of COVID caused delays) but the procedure in how your matter might. Expect virtual hearings to become a regular occurrence which could mean lower costs of suit for both parties but there are advantages to having face-to-face discussions. Don’t assume the dispute resolution clauses will be suspended because of COVID. If you have a claim, follow the procedure and don’t be complacent.
What other things must I be careful of during the lockdown or slowed progress periods?
There has been a spike of invoice fraud since the pandemic (which is where an invoice is substituted by cyber-criminals and funds are redirected). Make sure your accounts teams are aware of this as cybercrime is targeting cash-flow intensive operations like construction projects and the UK lost £83 million to this fraud in 2018, so it’s a problem that’s not going away.
Conclusion
During a time of turbulence, strap-in, don’t overfill your plastic cup and maintain balance to weather the storm. Your experienced pilot will get you through it.
About the Author
John Stocker is a specialist construction, engineering and major projects lawyer with 18 years of experience advising in the field and who speaks regularly at conferences and seminars and has published several articles. John is admitted to practice in England and Wales (2003) and in the High Court of South Africa (2002).
Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.
This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.
This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.
For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.
