Legal Implications of a Site Shutdown
Cornwalls Law have recently had several enquiries about COVID-19 from building and construction clients. The enquiries have generally focused upon the impact of a site shutdown upon a contractor’s ability to progress the works.
Below, Cornwalls have set out some thoughts on the topic.
Extension of Time
Depending upon the contract, a site shutdown caused by coronavirus may allow the contractor to claim an extension of time to the date for practical completion (being the date upon which the work is required to reach practical completion).
This will depend upon several factors:
- The definition of “qualifying cause of delay” (or the equivalent) in your contract. Some contracts contain a very broad entitlement to extensions of time (indeed some allow for extensions of time for anything beyond the control of the contractor);
- The way in which the shutdown comes about. For example, a shutdown which occurs as a result a direction from the principal (or the superintendent) to suspend work may, depending upon the contract, amount to a “qualifying cause of delay”, whereas a shutdown which occurs as a result of a union directive to stop work as a result of the potential impacts of coronavirus may not; and
- Whether you have complied with any extension of time regime set out in your contract. In that regard you need to be particularly careful to ensure that notices of delay and extension of time claims are delivered within any prescribed time limits and in accordance with other requirements such as to form; as a failure to do so may prevent you from making a claim for an extension of time (which could lead you to incurring liquidated damages in circumstances where you may not have otherwise incurred them).
You should also ensure that any claims for delay damages/disruption costs/costs of suspending work (if applicable) are made within any timeframe set out in your contract. Again, a failure to make a claim for these extra amounts in a timely way may see you lose your right to be paid these extra amounts.
Bottom line; read your contract and obtain detailed legal advice urgently.
Again, depending upon the contract, a site shutdown caused by coronavirus may allow a contractor to claim an extension of time as an event of force majeure, as in some contracts an event of force majeure is a “qualifying cause of delay”. You need to carefully read the definition of “force majeure”. You will be looking for words such as “outbreak”, “epidemic”, or “pandemic” and how such terms are defined in the contract (if it all).
That said, we also point out that your force majeure clause will often require you to take some action (such as giving a notice to the principal often with a specified period of time). We note that a failure to do so will likely disentitle you from relying upon the protection of the clause (i.e. you will not be able to claim an extension of time as there will be no force majeure unless you have complied with the notice provision in the relevant force majeure clause).
Our remarks above relating to extensions of time (particularly, the need to comply with any timeframe/form requirements set out in the extension of time clause) also apply in such circumstances.
To be clear, if there is a process (including notices and timeframes) in the force majeure clause, and if there is a process (including notices and timeframes) in the extension of time clause, you will need to comply with both of those processes and all of the relevant timeframes and other requirements.
Noting that force majeure often entitles you to extra money (as well as extra time), you should ensure that all such claims are made within the timeframes required. Again, a failure to do so may prevent you from being able to recover any extra money associated with the site shutdown.
Again, bottom line; read your contract and obtain detailed legal advice urgently.
There is a common law concept called “frustration”.
A contract will be frustrated if performance is either impossible, or the way performance is to be rendered is radically different from that which was anticipated by the parties (in an objective sense) at the time the contract was entered into.
A short site shutdown is (at least in our view) unlikely to amount to a frustrating event (in the legal sense, as opposed to in the colloquial sense).
As the law does not readily accept that an event has frustrated a contract. However, where a contract is frustrated as a matter of law (subject to the terms of your contract, which might entitle you to claim some amounts, for example demobilisation) the result will likely be to end the contract (which could allow the other party to claim for repudiation if you get it wrong). We therefore recommend that you obtain detailed legal advice before you suggest that your contract has been frustrated, and that you need not further perform.
We have restricted this article to considering one manifestation of the coronavirus, that is a site shutdown; however, this is not the only potential impact. For example, your supply chain may be affected, particularly if you are regularly receiving shipments of goods from overseas. If you cannot obtain raw material or product, this will naturally affect your ability to comply with your contract and your ability to take on new work. We already have several clients who are in this position.
You need to proactively consider the potential impact upon your business from the coronavirus. First, you need to ensure that you are doing all you can to protect yourself from any delays that might occur as a result of the virus, or its effects. Second, you need to proactively manage any client relationships that might be affected by delays. In our experience, the sooner you commence proactively managing those relationships, the less likely you are to lose business. Third, you need to be considering the impact of coronavirus on your business moving forward. This will involve ensuring that your contracts (both up and down the chain) contain sufficient powers to allow you to manage matters in an appropriate way. This will also involve ensuring that you take any coronavirus related impacts into account when taking on new work (particularly in relation to the timeframe for delivering any work).
We also recommend that you obtain legal advice on how to frame any claims for extensions of time, frustration and force majeure as representations on these matters may be significant and, if incorrectly made, amount to repudiatory conduct and/or a breach of the relevant construction contract.
In summary, if you are about to enter into a construction contract we recommend that you seek detailed legal advice as to how the risks associated with coronavirus can and should be addressed in the terms of the proposed contract. The failure to do so could be disastrous for your business.
If you have any questions about this article please get in touch with the Cornwalls QLD Building & Construction team or MPAQ Workplace Relations team on 07 3273 0800.
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.
The Building and Construction team has extensive experience in dealing with the regulatory regime confronting the building industry. Our presence in Brisbane, Sydney and Melbourne means that we have detailed, ‘on the ground’ knowledge of the regulatory environment in the areas where we practice, and the ‘boots on the ground’ to deal with your matter in a timely and efficient manner. If you have a regulatory issue, we have probably seen it before, and can provide you with strategic advice to assist you in achieving outstanding outcomes.
Article supplied by Cornwalls Law 16 March 2020.