Life after lockdown Part 5: Laying the blame for completion delays

With construction work all but halted during the COVID-19 pandemic, delays in completion are inevitable – and that means breaches of contract. In the fifth part of our special post-pandemic series, we ask whether we will see an increase in disputes as lockdowns are lifted

The figures are stark. Earlier this month (June), the Office for National Statistics (ONS) reported that GDP in the UK had contracted by 20.4% in April, the first full month of lockdown due to the COVID-19 pandemic. Construction, however, was far harder hit. According to the ONS, the construction industry shrank by 40.1% over the same period.

That is a quite eyewatering statistic and one that has implications that will take a long time to play out. With work on many sites ceasing or at the very least reducing substantially, it is already clear that a great many projects will not be completed on time, something that inevitably involves a breach of contract.

However, Eleanor Kilminster, head of construction at law firm Winckworth Sherwood, reports that in her experience so far, developers and contractors are doing their best to ensure that disputes do not escalate. “The general theme we’re getting is that nobody wants to be particularly contractual at the moment,” she says.

That doesn’t mean that those extensions are actually being granted. Rather, the can is being kicked down the road. “At the moment, they’re still in a position where they are trying to keep their powder dry because, obviously, we don’t yet know what is to come,” Kilminster adds.

“So, there are concerns that if they waive rights that they have in their contracts to enforce certain things from contractors then it becomes a precedent going forward and they’re stuck with that position.”

The need for trained professionals

The opposite side of the coin is that many sub-contractors report that they are simply not being paid, and that they are finding it difficult to get their claims dealt with by main contractors and/or clients. The financial implications of this can be devastating.

“As the construction industry emerges from lockdown, it is envisaged, by government, that there will be lots of disputes,” says Martin Burns, head of ADR research and development at RICS. “Parties will need professionals to advise and guide them through dispute resolution procedures, and represent them in adjudications, mediations, etc. The RICS Dispute Resolution Service is helping to ensure there is a plentiful supply of professionals who are properly trained and experienced to undertake the role of professional representatives in dispute resolution.”

The opportunity for occupiers

Of course, delays to completion dates also have knock-on implications for occupiers who were due to move into new buildings but are now stuck. Again, that can lead to a breach of a lease agreement and provide occupiers with an opportunity.

“You could have tenants that were due to occupy a big building and because of the crisis and the economic consequences and people’s requirements for space going forwards, this is giving people an opportunity to renegotiate, says Mathew Ditchburn, partner and head of real estate disputes at global law firm Hogan Lovells.

“They’ll have signed the lease a couple of years ago at the top of the market and they will now be thinking that they won’t pay a 2018 rent in 2020. If the developer has missed their delivery date and there is a possibility of a breach of contract, that is obviously giving you leverage to renegotiate something or even get out of it entirely if you don’t want it anymore.”

Anti-litigation law

In Singapore, the government has tried to ward off the danger of litigation by signing the Covid-19 (Temporary Measures) Bill into law, which is “intended to provide temporary relief for parties experiencing difficulty in performing their contractual obligations by enforcing a moratorium on the commencement or continuation of legal proceedings”, according to David Leckie, partner at law firm Clyde & Co.

In contrast, the UK government’s response has been far less interventionalist. At the beginning of May, it published a document entitled 'Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency', which urged all parties to “act responsibly and fairly, support the response to COVID-19 and protect jobs and the economy”.

It’s good to talk

The guidance carries no legal weight. But Tracey Summerell, managing practice development lawyer at global law firm Dentons, urges all parties to seek constructive dialogue wherever possible, although she recognises this will require a change in mentality for the notoriously combative construction industry. RICS’ forthcoming advanced-level training programme to equip RICS members to act on behalf of clients and employers in disputes could be of help on that front.

Summerell adds: “Transparency throughout the supply chain is needed along with a willingness to collaborate, share the risks and find financial and practical solutions,” says Summerell. “In practice, collaboration means working with others onsite to implement the COVID-19 guidance, reviewing contracts to check they are still appropriate post-COVID-19, and ensuring risks are allocated – or reallocated – fairly.”