COVID-19: Next steps in Construction and Engineering
As the Government’s Roadmap to ease COVID-19 restrictions and reopen Ireland’s economy and society envisages a resumption of construction, engineering and maintenance activities where it is safe to do so, we look at some key legal and contractual considerations.
The Roadmap requires business to take a risk-based approach in bringing employees back to work, which necessitates keeping up-to-date with latest public health advice (from the Health and Safety Authority, Department of Health and Health Service Executive). The Government published a Return to Work Safely Protocol which applies to the construction industry. Construction industry bodies have also examined how work can resume safely. Here are examples of guidance:
CIF – New Standard Operating Procedures (SOPs)
RIAI – RIAI Proposals for Reopening of Construction Sites to Promote Suitable Protocols for Working Environments.
FIDIC – Guidance Memorandum: FIDIC COVID-19: On-site working and project team organisation.
What are my statutory health and safety obligations?
Businesses must review legal obligations with COVID-19 in mind. They should update occupational health and safety risk assessments and their safety statements as well as site specific method statements. Some relevant points are summarised below.
The Safety, Health and Welfare at Work Act 2005 (the “2005 Act”)
– Section 8 sets out obligations for businesses who must ensure, so far as reasonably practicable, the safety, health and welfare at work of their employees. This duty extends to persons who are not your employees but who work under your direction or control.
– Businesses have obligations to a broad category of third parties at workplaces who are not their employees. Sections 12 and 15 in particular are relevant.
– Section 13 places duties on employees including in relation to the safety, health and welfare of any other person who may be affected by their acts or omissions. Similarly, Section 14 imposes a broad obligation on all persons, individuals and companies to not intentionally, recklessly or without reasonable cause, place others at risk.
– Sections 19 and 20 provide for hazard identification and risk assessment and require preparation of a written safety statement.
– Section 21 imposes on contractors and subcontractors a duty to co-operate and coordinate actions where they share a place of work.
Safety, Health and Welfare at Work (Construction) Regulations 2013
– The practicalities of complying with health and safety law as sites become active will be the responsibility of all parties involved, all of whom will be subject to the duties set out in the 2005 Act, as well as duties under these regulations. In practice, the contractor/project supervisor construction stage (PSCS) will have the heaviest burden for the site and will be required to ensure there are additional site rules and that revised working methodologies are followed.
– ‘Clients’ under the regulations will also have obligations. In particular, they must remain satisfied that the PSCS, contractor and design team are all competent to discharge their roles and have the resources required to meet COVID-19 adaptations. Clients should remain satisfied the PSCS and the contractor (likely the same entity) can carry out the works safely and in compliance with COVID-19 adaptations.
In March 2020, the focus was on contractual mechanisms designed to manage cost and time arising from site shut downs (see our previous article: www.tinyurl.com/y6uzgpv2). Several organisations have now published COVID-19 guidance, for example:
Public Works Contracts. RIAI. FIDIC. NEC. Construction Leadership Council (UK)
The industry is encouraging cooperation: contractors need to communicate to employers the site-specific adaptations required; employers need visibility of time and cost implications; and parties need to agree responsibility for costs and revised delivery programmes.
The current situation is unprecedented, but fair and proper management of contracts is vital. It will help parties to engage constructively to preserve their existing rights and entitlements, to avoid breaches of contract, and to reduce the potential for costly disputes.
Contracts may contain clauses that require or facilitate cooperation. For example, Clause 4.1 of PW-CF1 requires parties to support reciprocal cooperation. In its Note on procurement and contractual matters associated with the COVID-19 Response Measures:(www.tinyurl.com/y7modw4q), the OGP recommends that this clause be used as a vehicle to assess impact of COVID-19 measures.
Where parties wish to agree a new mechanism or relief not contemplated in their contract, it is usual to enter into a variation or supplemental agreement. It should be clear between parties whether they are in discussion or whether they have reached an agreement by which they intend to be bound. If discussing/negotiating, careful use of language is important (for example “without prejudice”, “subject to agreement”, or stating that rights and entitlements under the contract are reserved, as appropriate).
Does my contract have health and safety obligations?
In addition to the statutory obligations (which apply regardless of what the contract says), contracts may contain obligations to comply with health and safety law, and law generally. Failure to comply may lead to a breach of contract in respect of which the non-defaulting party may seek damages for loss sustained (for example, if a site is shut down because of the contractor’s failure to implement COVID-19 adaptations).
What about extension of time (“EoT”) to complete the works?
The Contractor’s entitlement to more time will depend on the terms of the contract. Many contracts provide for extensions of time where ability to perform obligations is impacted by force majeure, legal requirements, or changes in law. COVID-19 is an evolving situation and various issues may cause delay, so be aware of all circumstances in the contract that entitle the contractor to an EoT. For example, Clause 30 RIAI provides that if Works are delayed by a number of events, the Architect shall make a fair and reasonable extension of time for completion of the Works. The ‘events’ include force majeure; instructions issued under the Contract; inability of the Contractor to secure labour and materials; and delay on the part of other contractors engaged by the Employer.
Who pays costs of shutdown, re-starting, new working procedures, revised schedules and supply chain disruption?
How the impact of COVID-19 is dealt with depends on the terms of the contract and any compromises the parties make. Cost implications of re-starting and progressing works will be more complex than those of site shut down. It is important to identify and keep under review all contract mechanisms that contemplate price adjustment.
Standard form contracts are often amended. If amendments limit the entitlement under a contract such that the contractor is not fairly paid for the steps required to resume work safely, parties may wish to agree a sum that more accurately reflects the scale of change required by COVID-19. For example, the OGP’s Note on procurement and contractual matters associated with the COVID-19 Response Measures recognises that the Public Works Contracts do not provide an entitlement to the Contractor to recover costs associated with delay arising from site closure in the current circumstances, so provides guidance for ‘an ex gratia payment’. This is an example of how an arrangement not contemplated in contracts may be taken to safeguard project viability; other employers will wish to consider the most suitable approach for their project.
Be mindful of formalities
If parties fail to comply with contract formalities, they risk being deemed to have agreed a variation with cost/time implications, or losing an entitlement to more time, money, or to being excused from failure to carry out obligations. Employers can expect contractors to be submitting claims to make sure they do not lose potential entitlements.
What if I am negotiating a new building contract?
COVID-19 is a continuing pandemic, so certain mechanisms like force majeure (depending how they are worded), are unlikely to be triggered in new contracts solely as a result of COVID-19.
It may be possible for contractors to build into tendered prices the cost of complying with COVID-19 adaptations. Social distancing is likely to impact the number of workers who can be on site and this may impact delivery schedules, necessitating a longer than usual construction period and different target and long stop dates. Depending on the project, a discretionary approach may be taken by planning authorities to working hours (as indicated in Circular PL 06/2020: www.tinyurl.com/yd8ouxky).
It is difficult for parties to forecast at this stage the time and cost implications of meeting COVID-19 adaptations, so they need to be satisfied that their contract mechanisms can manage and allocate risk associated with the type of disruption that may occur.
What are we seeing in practice?
Parties are actively engaging and cooperating to reach agreement where possible, particularly since health and financial risks have to be managed on a day-to-day basis. The full impact of the pandemic cannot yet be understood and will vary depending upon the nature and stage of each project. Parties will generally be incentivised to reach an agreement on the way forward for the sake of completing the project, as costs and losses will be greater if the project or any of its participants fail.
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Authors: Niav O’Higgins, Partner and Head of Construction and Engineering, Karen Killoran, Partner, Construction and Engineering and Katrina Donnelly, Professional Support Lawyer, Arthur Cox, Construction & Engineering Group. www.arthurcox.com
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