The impacts of COVID-19 mean that key aspects of a construction project may need to be reconsidered. The correct approach will depend on a range of factors, including the stage at which your project is impacted.
COVID-19 start-up delays may be covered by Delay in Start Up (DSU) insurance, but if a project is on foot, it may no longer be possible to get staff and materials from their originally envisaged source. If so, new arrangements may need to be negotiated.
If milestones and their related payments are missed, the consequent cash flow impact on contractors may threaten overall delivery. If a party to the contract becomes insolvent (for this, or another reason), statutory provisions may impact the solvent party’s right to terminate. It may therefore be better to increase the frequency of payments, or to pay subcontractors directly, so that the failure of a single link in the supply chain does not affect overall delivery.
Government counter-measures to COVID-19 may trigger a force majeure or change of law clause (particularly if movement and other restrictions render normal performance related activities unlawful). To avoid terminating the contract, it may be necessary to consider extensions of time, or agree to treat the affected works as separate, so that work can continue on non-impacted areas.
Read more on force majeure and frustration >>
Parties should carefully consider their counter-parties’ performance capability and financial viability in the era of COVID-19. External funders may require greater collateral or other security. Additional warranties, bank or parent company guarantees may also be needed from sub-contractors and key suppliers, to guard against the risk to the project of a head-contractor insolvency.
If disputes do arise, quarantine and movement restrictions may mean courts tribunals, arbitrators and external experts are not accessible. If so, the contract will be the starting point for any dispute resolution effort, and early engagement will be critical.
If you have concerns about delays or cancellation of your construction contracts, please contact our Construction & Projects team.
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