COVID-19 has caused a substantial dislocation to many (if not all) building projects since social distancing and other measures have been introduced in Ireland to further the fight against the virus.
There have been various articles written to date which look at potential bases of recovery and relief for building contractors under various forms of commonly used contract. The two common angles considered in preceding analysis have been in respect of entitlements regarding "Force Majeure" (or similar) and "Change in Law". Most building contracts will have provisions dealing with these matters. In this article Richard Stowe (Partner, Construction) outlines how each of the standard forms commonly used in Ireland (RIAI, PWC, NEC and FIDIC) deal with these bases of claim. To give context to the analysis, we open the article with a summary of the law that obliges compliance with government restrictions related to the COVID-19.
To date there has been only three pieces of legislation that have given legislative force to restrictions imposed to combat COVID-19:
- The Health Act 1947 (Section 31A - Temporary Restrictions) (Covid-19) Regulations 2020 (S.I. No. 121/2020) (these give force of law to various COVID-19 restrictions between the dates 8 April 2020 and 12 April 2020);
- The Health Act 1947 (Section 31A - Temporary Restrictions) (COVID-19) (Amendment) Regulations 2020 (S.I. No. 128 of 2020) (these extend the operation of the S.I. No. 121/2020) from 12 April 2020 to midnight on 4 May 2020); and
- The Health Act 1947 (Section 31A - Temporary Restrictions) (COVID-19) (Amendment) (No. 2) Regulations 2020 (S.I. No. 153/2020) (these extend the operation of S.I. No. 121/2020 to midnight on 17 May 2020).
Outside the period 8 April 2020 to 18 May 2020, there is no legislative coverage for any restrictions. Any compliance with government guidelines in respect of COVID-19 prior to 8 April 2020 could not be said to have been required by law. On this point, it is noted that The Health (Preservation and Protection and other Emergency Measures in the Public Interest) Act (2020) does not actually effect any restrictions relating to the virus but merely contemplates that regulations might be issued by the Minister which do (and it was pursuant to this Act that the regulations referred to above were issued).
Standard Form Provisions for Force Majeure and Change in Law
Set out below is a summary of the relevant claims provisions for Force Majeure and Change in Law contained in the various standard form building contracts in common use in Ireland. The utility of the analysis will of course depend on the degree to which a particular standard form has been amended for any specific instance. The extent to which "Force Majeure" or "Change in Law" relief for COVID-19 is available under a building contract will depend entirely on the specific terms of the relevant contract.
Time and cost relief in respect of Covid-19 under an (unamended) RIAI form is potentially available to the contractor under two main provisions:
- clause 4 (re legislative enactments); and
- clause 30 (delay and extension of time).
Clause 4 gives the Contractor an entitlement to cost and time relief, but strictly construed, the law can only be considered to have changed for the purposes of any claim under the clause for the period between 8 April 2020 and 18 May 2020. Stoppage of work prior to this period had not been mandated by law (albeit that the guidelines were first announced to operate from 27 March 2020) and there for may not be recoverable. In addition, time related costs incurred during this period may only be claimable to the extent incurred "...in the performance of [the] Contract". Thus the cost of idle resource may not be recoverable under this formulation.
Clause 30, provides for an extension of time where delay to the Works has resulted from "force majeure". The term "force majeure" is not defined under the RIAI form but it would be a courageous employer that sought to assert Covid-19 delay did not constitute such an event (based on any interpretation of the term derived from its common usage). The clause will entitle the Contractor to time relief only (clause 30 provides no entitlement to the recovery of cost for "force majeure" delay).
2. Public Works Contract ("PWC")
Under the PWC forms, unlike the RIAI, there is no express relief for "force majeure" or anything similar. However, Event 15 in Part 1, K of the Tender and Schedule for each of the main PWC forms establishes as a "Delay Event" the following:
Delay to the Works caused by the order or other act of a court or other public authority exercising authority under Law, that did not arise as a result of or in connection with an act, omission or breach of Legal Requirements of the Contractor or the Contractor’s Personnel or a breach of the Contract by the Contractor.
This event entitles time relief only (it is not a "Compensation Event" which would otherwise entitle recovery of costs as well). It is likely that the relief would not be dependent on any government guidelines having the force of law. To entitle relief the contractor would only have to point to "…an order or other act of a … public authority exercising authority under Law". Thus, relief would likely be available as and from the date on which the government guidelines suggesting work place shutdowns were first announced.
There is also a "Change of Law" provision included in the Price Variation clauses under the PWC forms (PV1 at clause PV1.1.4 and PV2 at clause PV2.4) where applicable. These provisions seem only to entitle adjustments to the Contract Sum where a change in Law changes VAT, customs or excise duties, particular license requirements or Pay-Related Social Insurance (but where this is established, all of any increase in the cost of performance seems to be claimable, not just increases in VAT, etc). It is suggested that this would not apply to current legislation and no relief under the clause would currently be available.
Notwithstanding the absence of a strict contractual entitlement in respect of contractor recovery of COVID-19 delay costs, the Office of Government Procurement has issued a Note on COVID-19 which proposes an ex-gratia payment in respect of the period of any stoppage pursuant to government pronouncements on COVID-19.
Similar to the RIAI standard form, the latest forms of the FIDIC suite of contracts (Second Edition 2017) include provisions dealing with:
- "Adjustments for Changes in Laws" (in clause 13.6 of each of the suite forms); and
- "Exceptional Events" (in clause 18, previously labelled as events of "Force Majeure " with corresponding defining language in the First Edition of the suite).
Clause 13.6 provides that the contractor would be entitled to time and cost relief resulting from a change in "Law". However, on a strict construction, the entitlement would be limited to the period during which any adopted restrictions were mandated by force of law (ie the period between 8 April 2020 and 18 May 2020) and would only entitle recovery of an increase in "Cost" to the extent that such increase was incurred "…in performing the Contract" and would not include any allowance for profit (see the definition of "Cost" in clause 1.1.19). Again, the cost of idle resource may not fall within this formulation.
Clause 18 provides that the contractor is entitled to time relief for delay arising from "Exceptional Events" the definition of which is likely to include the consequence of Covid-19 restrictions (and probably whether they were mandated by law or not, although this might be an area of dispute). Cost relief is provided for certain "Exceptional Events" but the list of these (in clauses 18.1(a) to (e)), it is suggested, would not include Covid-19 related delay.
Clause 60.1(19) of the NEC4 Core Clauses establishes broadly described events amounting to what might be labelled as "force majeure" as compensation events. The language would cover Covid-19 delay (and likely whether mandated by law or not). Where a compensation event is 'implemented' (in the language of NEC4), then "…the Prices, the Completion Date and the Key Dates are changed accordingly" (clause 66.2). Thus, there is likely to be an entitlement for the contractor to both time and cost relief (and the broad language used in this clause is the more contractor friendly of any of the standard forms). The term "Price" is also not defined by reference to costs "…in performing the Contract" or similar (see clause 11.2) and the potential issues in relation to recovery for idle resource do not arise.
Note that the secondary option clause X2 A establishes as a compensation event any "change in the law of the country in which the Site is located … if it occurs after the Contract Date". It is likely that this clause would only provide cover for the period of mandated restrictions (currently the period from 8 April 2020 to 18 May 2020). Where applicable a change in law is established as a compensation event under the form.
The above summary analysis does not consider whether specific instructions or directions issued by the employer (or its representative) in respect of COVID-19 during the carrying out of works will give rise to an entitlement for a contractor claim. Where such a direction amounts to a variation of the contract or would otherwise give rise to its breach (including, for example, a breach of employer obligations to provide access to the site), a contractor would likely have grounds to claim for both time and cost under most forms of contract. Obviously enough, employers must be careful in any statement made to their contractor counterparties in the context of the crisis.
For more information please get in touch with Richard Stowe (Construction).
To discuss any other COVID-19 related issues impacting your business, please get in touch with Damian Maloney (Corporate and Commercial), Edward Evans (Corporate & Commercial), Gerry Gallen (Commercial Property), Sandra Masterson Power (Employment), Paul Gough (Employment), Dorit McCann (EU, Competition & Procurement), Aidan Marsh (Commercial Property), Fidelma McManus (Housing), Barry Cahir (Litigation and Insolvency), Thomas O'Dwyer (Litigation), Sharon Delaney (Litigation), or your usual Beauchamps contact.