Patrick Waterhouse, Construction Adjudicator, and Robert Gerrard, NEC Users’ Group Secretary, look at how to mitigate the effect Coronavirus is having on the construction industry. They examine the actions that can be taken to negotiate your way out of disputes and minimise your losses from the shutdown.
- Updated: 20 April 2020
- Author: Patrick Waterhouse and Robert Gerrard
From an industry perspective, we must make sure that something good comes from the current crisis. We see examples of wonderful short-term human effort to build temporary hospitals and the like. Now is the time to really stretch each other's ability to act with mutual trust and co-operation. It is inevitable that some disputes will arise, but there are ways to avoid disputes occurring.
If you are an NEC user, we assume your early warning notices have been focused on your contracts for a while now. In order to minimise the time and cost effects, take the time to book in early warning meetings using the array of technical products available to host them. These meetings should look at: Who is affected? How are they affected? What can we to do to avoid or reduce the impact COVID-19 has on projects?
Adjudication nominations have continued to be sought by disputing parties throughout the last few weeks of the lockdown in the UK. The High Court in England and Wales has recently confirmed in a case that the 28-day limit for adjudications was still enforceable, despite the current circumstances. Parties starting an adjudication need to ensure that they will have their key people available for the 28 days and any possible extension to the process. Responding parties perhaps face a trickier task, often playing catch-up if they haven’t been aware of a looming adjudication.
COVID-19 disputes in NEC contracts are likely to involve the change in law provisions (if option X2 has been included) and compensation event 60.1(19) relating to unforeseeable events. Whilst some parties are trying to retain cash in their businesses, we are likely to see disputes about payment. Compliance with the provisions of Y(UK)2 is necessary in the UK to issue the correct notices in respect of payments. Failure by paying parties to do this could well lead to ‘smash and grab’ adjudications being referred.
Clause 12.3 allows the Parties to change the contract as they see fit, which right now resonates with UK Government advice. So, get your heads together and consider dispute avoidance measures such as:
Is the Completion Date essential? If not, just change it to a more realistic one and revise the programme accordingly.
If X7 is incorporated, can the delay damages be reduced dramatically, taking some risk away from the Contractor?
Can payment periods be looked at again? Can payment be immediate as some clients seem to be doing? Are these benefits instantly going to Subcontractors/suppliers? Can you increase the frequency of assessments? Get on quickly with the implementation of compensation events for ECC Option A/B contracts in particular.
We have heard that retentions are sadly still in fairly abundant use in the industry. Consider changing over to a retention bond, perhaps, if you really must have some sort of retention.
Determine which projects are actually essential and give a 19.1 or 34.1 instruction here – make safe the site and mothball it. This is likely at the client's time/cost, so what can we safely demobilise? Contractors should talk to suppliers, maybe seek significant savings on idle Equipment or just off-hire if you are able to.
What can people do in the meantime in lockdown? How about wrapping up parts of the account?
Realise which people are furloughed until when and what affect this might have – make sensible decisions.
There's a whole host of sensible decisions to be made, in addition to the above, to minimise or avoid disputes. Use the early warning process as the means to drive willing and honest people to do the best we can in these troubled times.
Of course, the parties should engage with one another and negotiate how to survive this period. The senior representatives’ role in NEC4 contract is ideal. Clients need their projects to re-start as soon as possible and for this they need contractors, preferably the incumbents. Contractors need work to restart as soon as possible too, to minimise their losses from the shutdown. So, the parties in any contract need one another to survive and flexibility is therefore paramount. Disputes will arise, of that we have no doubt, but these are not normal times and the strategy for resolving disputes needs to be considered carefully.
Do you want to learn more on how to manage the NEC4 Engineering and Construction Contract (ECC) to avoid disputes between the parties? Pick up a copy of NEC4 Resolving and Avoiding Disputes, written by Patrick Waterhouse and Robert Gerrard, available in print and as an eBook.