Exit Strategies: Construction & Engineering UK

By Vijay Bange and Tanya Chadha

It was announced on Sunday 5 April that Keir Starmer was selected as leader of the Labour Party. Whilst the current Covid-19 outbreak has no basis for political jostling, he raised a very important question, namely, what is the government’s “Exit Strategy” to eventually get us back to a sense of normality.

The point raised by Keir Starmer is of wider economic relevance. Save for key workers, most other business sector activities have come to a halt. This is largely (but not exclusively) the case for construction and engineering projects.

At some point, hopefully, the number of Covid-19 infections will be dramatically reduced, at least from our shores. From news reports, we are told that Wuhan (China) has now relaxed its lockdown and the city is slowly getting back to normal social activity.  The restrictions caused some sites and building projects to come to a halt fairly abruptly.  Whatever the eventual Exit Strategy is with relaxations of social distancing measures and restrictions on movement, those in the construction industry will need to have plans in place as to how they propose to get back up and running.

People throughout the country have demonstrated an outpouring of a common goal to help each other, and it has been a period of personal reflection for all as to what we consider important human values.

Those in the industry may perhaps be utilizing this time to agree/negotiate a position on risk and liability outside the parameters of the contract.  Discussions over financial accounts and payments may also be taking place.  Any agreements reached ought to be recorded for certainty. Parties need to ensure that acts or omissions are not construed as waivers of otherwise agreed contractual rights or obligations.

If the expectation is that parties will simply go back to projects, and pick up where they left off, unless there are exceptional relationships, this is unlikely to be the case.  Disputes and differences between the parties are likely to arise over this uncertain period.  Pragmatic parties may however choose to at least try to resolve such disputes and differences amicably, now.  A commercial resolution would avoid the time, cost and uncertainty that formal dispute resolution might bring.

Failure to achieve certainty and agreement now may well increase the risk of later disputes. There is a possibility that the present spirit of working together, and the more reflective ‘us’, may not last when commercial normality resumes.  Any desire to achieve an amicable resolution, and any goodwill, may no longer remain post-pandemic.

Cash flow is crucial in this industry. Developers and contractors coming out of this may not have the same financial health, or skilled workforce if there have been redundancies or furloughed employees. From the green light for relaxation of social distancing measures, for contractors and developers they will be waiting another month before they put in an application for payment for work done, and then further time for certification and payment. Government financial support may go some way to alleviate or mitigate the effects on cash flow. That notwithstanding, parties may have entered into projects fully able to undertake contracted work, but this position may have changed now for obvious reasons.

Whilst it is for the Government and special advisors to comment on when the social distancing measures will be relaxed, and what the “Exit Strategy” will be, it would be prudent for those in the construction industry to consider and review their own strategies as to getting back to what they do. It is unrealistic to assume that developers, contractors or sub-contractors can simply pick up where they left off, and simply resume work. It may therefore be an opportune moment to carry out a risk review of projects, and consider the following:

  • to what extent are force majeure, prevention and frustration relevant considerations to any potential claims? Understanding the position now (and how that position might change) will be an important step in assessing risk and exposure;
  • where projects have not actually started, parties might wish to explore agreements to defer start dates for a project;
  • can your supply chain still perform contractual obligations and what are the options if the answer is “no”?
  • will you still be able to cash flow the project and if not, what government or other support can you utilize?
  • what steps should you take now to document and record the position to aid any future claims that cannot be settled amicably?
  • can parties reach an agreed position on contractual notices that were not issued/ served strictly in accordance with the contract? An “amnesty period” could be agreed from social distancing implementation to the green light for a restart?
  • are there any limitation periods approaching? If so parties might consider entering into standstill agreements.