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Coronavirus and your Construction Contract – One Year On

When we published our article Coronavirus, Force Majeure and your Construction Contract (JCT, NEC) on the impact Coronavirus, and specifically the lockdown in China, may have on construction operations we did not envisage that a year later we would be on our third lockdown in the UK.

The disruption caused by Coronavirus is far more wide reaching than could have been anticipated, however generally speaking construction has coped well. Aside from the initial hiccups in March 2020 when it was unclear whether construction sites should (or indeed could) remain open and if construction suppliers were classed as essential retail, construction operations have continued to progress, albeit at a reduced capacity.

Coronavirus has shown just how vital construction is to the UK economy and the functioning of society. The construction sector is a large contributor to the UK’s GDP and the industry’s swift response to the requirements of dealing with a pandemic, such as designing and constructing the NHS Nightingale Hospitals in a short timeframe, demonstrate its importance.

Employers, contractors and sub-contractors have worked collaboratively for the most part for the benefit of projects to ensure that they are able to finish as close to on time and on budget as they can. It is in all parties’ interest to make sure that cash flow is maintained and that projects can progress in the current circumstances. This has likely been helped by the insolvency moratorium whereby a party is restricted from bringing winding-up petitions unless they have reasonable grounds to believe that Coronavirus did not have a financial effect on the company.

The difficulty for suppliers is that new legislation now prohibits ipso facto clauses whereby a supplier has the ability to terminate a contract on the insolvency of the customer. This means that should a contractor become insolvent (e.g. where the cause of insolvency was not Coronavirus related) a supplier will be expected to continue to carry out its duties under the supply contract. In practice, given that currently there are a minimal number of construction insolvencies which fall outside of the moratorium this does not seem to have had a material impact on construction suppliers to date. However, going forwards suppliers may wish to consider if their terms and conditions will need to be updated to enable termination of a contract prior to a customer going insolvent.

The insolvency moratorium is due to end on 31 March 2021 but it is widely expected to be extended to summer 2021. It remains to be seen if the collaborative approach will continue once the moratorium ends but in the meantime parties should ensure that any delays or disruption are properly documented and dealt with in accordance with your building contract.

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