Author: Mary-Ann Goodier

What is Site Investigation?

Site Investigation is the whole process for examining and obtaining information on the ground and groundwater conditions beneath a site.

Whilst no Standard can entirely prescribe the scope and extent of investigation required for any development, the UK and European standards, developed over many years, give excellent comprehensive and inclusive guidance on this. A 3-stage approach to site investigations is recommended including:

1. Desk Study – collection of existing information and site reconnaissance to provide a high-level understanding of ground conditions. Useful for outline design at feasibility stage, and to inform the scope of the detailed investigation.
2. Detailed Investigation – including intrusive “ground investigation” to indicate ground conditions, and laboratory testing to define characteristic soil parameters.
3. Construction Review – Confirmation or amendment to understanding of the ground engineering design based on as-encountered conditions. This includes observation and quality assurance testing/monitoring.

Unforeseen Ground Conditions Still Exist

It is usual for the Employer to undertake a site investigation as part of the initial design phase.

Irrespective of the form of contract (e.g. design & build; design-bid-build), to varying degrees construction contracts attempt to pass responsibility for ground conditions from the Employer onto the Contractor, with reliance being on what a competent contractor might reasonably assume from the information provided.

There is no, and probably cannot be, consensus on what is reasonable in this respect, and when it comes to dispute reliance on contract clauses that pass over ground condition responsibility to the contractor becomes something of a lottery.

For instance, is it reasonable for a contractor to consider that the ground conditions are fully described in the Employer’s pre-tender site investigation? Or is it reasonable for a competent contractor to have an insight beyond the Employer’s site investigation, or undertake its own due diligence? Either way, the definition and demonstration of what is reasonable is going to vary for every site. By example, a literally identical pre-fabricated hotel design used on two different sites is likely to require different levels of investigation, and what is reasonable on one site may not be on the other.

Alternatively, consider a residential development extending over several hectares on a greenfield site with good ground conditions anticipated. It would be quite normal (and therefore reasonable) to undertake a site investigation including exploratory holes on, say, a 50m grid pattern. However, by so doing only about 0.04% of the soil relevant to the engineering design is sampled. The sub-samples that are tested in the laboratory will constitute about 0.00002% of the soil.

Turning this on its head, that 99.96% of the ground is unknown may not appear so reasonable.

When things go awry, based purely on the extent of intrusive work, different appointed geotechnical experts may correctly and quite legitimately describe almost any site investigation as either reasonable or unreasonable. However, the level of attention and skill provided to the interpretation by the Contractor’s geotechnical engineer comes to the fore where this takes cognisance of all available information, including qualitative (desk study and walk over survey) and quantitative data.

Development of Site Investigations in the Noughties

Experience gained within the industry over the years has led to UK developers having a good understanding of the benefits of site investigation. Yet it remains the case that issues of unforeseen ground conditions arise, and the adequacy of the site investigation is invariably brought into question.

Determining commonality between different sites is never going to be straight forward for the very reason that ground conditions are so variable. Further, some trends that can be seen are more man-made than ground related.

As the requirement to utilise brownfield sites for development has increased over the last two- or three-decades, issues of ground contamination have become increasingly prevalent. This is reflected in the attention placed on contamination by planning authorities.

Planning Conditions invariably, and rightly, include for attention to be given to the definition and appropriate treatment of contamination as a necessary part of the development of sites. Developers are very aware of this and require the site investigation to adequately address these issues to smooth the planning process.

Possibly resulting from local authorities’ divestment of building control responsibilities to third party organisations (e.g. NHBC), a similar emphasis tends not to be included for geotechnical considerations. Arising from this, it has become normal for the Desk Study to be exclusively geared towards contamination issues. This probably arise due to the common wording in planning conditions requiring a Preliminary Conceptual Ground Model of the site relating to contaminated ground.

Following into the interpretation of the detailed ground investigation, attention to contaminated ground issues is likely to occupy an overwhelming predominance in the report text. For those of us who have compiled or read many site investigation reports, the text used at the site investigation stage tends to be very similar whether there are contamination issues or not. Complications of contaminated ground tend to be addressed with further focused intrusive investigation followed by remediation.

It is especially noticeable with investigations for small and medium sized developments that geotechnical issues are often relegated to a series of short paragraphs each providing a comment on, say, building foundations, road foundations. earthworks, retaining walls etc. with little or no explanation on the basis for or limitations of such recommendations.

Whilst issues of ground contamination do arise in disputes, in my experience these are (numerically at least) insignificant compared to geotechnical related claims.

In the early years of the routine inclusion of contaminated ground studies as part of site investigations, it was a convenience for geotechnical engineers to drift into the new science, which initially required little specialist knowledge to follow through the limited guidance that was available at the time.

In 2002, with the introduction of the Contaminated Land Exposure Assessment (CLEA) framework, it became clear that dealing with contaminated land was no longer going to be an add-on skill for the geotechnical engineer. The site investigation industry recognised this, and environmental scientists were increasingly established as an integral part of the site investigation process.

However, all too often this appears to have come about at the expense of detailed and knowledgeable consideration of the geotechnical issues at sites.

A common misconception appears to have developed in certain quarters that automation can fulfil the engineering interpretation, especially with respect to use of pro-forma report styles, and reliance on software in the determination of common recommendations, such as bearing and pile capacity. Other aspects especially relating to earthworks parameters and road foundations are commonly reported in a generic fashion based on few test results that do not necessarily reflect the wider ground conditions at a site.

The Outcome in Disputes

Despite the ready availability of some of the world’s best guidance, and a generally informed and responsible approach from developers, there remains a common occurrence of earthworks and foundation issues arising in disputes. These issues may be avoided (or at least forewarned) if consideration of the potential geotechnical variability is appropriately forecast at the desk study stage, and location of the intrusive investigation tailored towards this variability. Additional investigation of contamination hot spots identified from the initial intrusive investigation are quite routine, yet it is far less common to re-visit site to further investigate geotechnical anomalies.

When dealing with matters arising in disputes it is often a simple task to draw attention to such issues. A rather different skill is required to pick them up during the site investigation, and one that is not served by non-specialists filling blank spaces in a pro-forma report, nor by blindly inputting values into pile capacity software, without cognisance of the geological conditions and processes that may, and so often do, radically impact on the recommendations given.

Research in 1972 showed that the average site investigation represented 0.21% of the capital cost for developments (the range for buildings was 0.05% to 0.22%, and earthworks 0.5% to 2%). Despite the addition of geo-environmental aspects into site investigations in recent years this remains little changed today. Whilst this undoubtedly reflects benefits of automation it also indicates a reduction in geotechnical input over time.

It is especially the case for small and medium scale developments, that cost is an over-riding consideration for site investigation contractors and success at tender can come down to only a few pounds. In this, clients have a role to play and need to always be aware that the site investigation serves a vital design function and is not just a document to placate planning officials. The inclusion of a fully detailed geotechnical discussion in site investigation reports does not necessarily require a significant (or any) increase in cost, but it does require input from a sufficiently qualified and experienced geotechnical engineer.  

If you require any further information, please contact Jonathan Palmer at jonathanpalmer@hka.com.

As published in Practical Law Construction Blog, 25 September 2020

For many years, the construction industry has suffered more than most with insolvencies. In 2018, it was the hardest hit economic sector, with construction insolvencies representing 17% (3,001 from a total of 17,454). This trend continued into 2019, with provisional figures indicating construction insolvencies accounted for 18.6% (3,198 from a total of 17,197)[1].  These statistics are regularly translated through the media as there never seems to be a month that goes by without news of contractor insolvency – from high profile industry names to historic brands to specialist contractors – no one appears to be safe.

Heading into 2020, and even before the Covid-19 pandemic changed the world, many industry analysts were warning that the construction sector should prepare for distress within the supply chain as market analysis indicated a falling demand, rising input costs and lower margins.

In addition to the already precarious market, Covid-19 is having a significant impact on the construction sector at large, with pressure on the labour, supply chains and finances of all companies involved. The environment in which these organisations are having to operate is ever-changing, with regular advice from the Government and the Construction Leadership Council (CLC) about how to keep sites open, whilst ensuring that contractors comply with the Government’s social distancing requirements. Notwithstanding the emergency support measures introduced by the Government, and the continued efforts of the construction industry to be open for business, it is inevitable that the financial health of all companies will be impacted, and despite best efforts, some will be fatally wounded.

Given the current climate, there is a growing need to be alert to the fragile market, with contractors displaying early warning signs of distress. The challenge is for employers to identify these early warning signs and to act quickly wherever possible.

Pre-Insolvency – Warning Signs

Site Issues – these warning signs broadly relate to numbers of staff/labour, the quality and progress of workmanship and availability of materials. Examples of common issues are set out below:

1. A high turnover of staff
2. A general decrease in labour on site
3. A slowdown in the progress of the works / not achieving project timescales or milestones
4. Poor quality workmanship/increase in defects
5. Removal of plant, equipment and/or materials from site

Commercial Issues – these warning signs relate to steps that a distressed contractor may take to improve its cash flow and generate cash collection.

1. Requests from the contractor for changes to the payment mechanism
2. Inflated applications for payment / unsubstantiated claims
3. Complaints from subcontractors regarding payment
4. Lack of response to correspondence
5. Late filing of statutory accounts and annual returns

If any of these warning signs start to manifest themselves and the risk of insolvency for a contractor increases, it is essential that you act quickly to protect yourself. With this in mind, there are some simple “do’s and don’ts” which can be adopted to help safeguard your position and ensure that you do not fall victim to a number of pitfalls.

Pre-Insolvency – Simple Do’s & Don’ts

Don’ts

Without taking legal advice, the don’ts include:

1. Not terminating, novating or assigning contracts
2. Not appointing a new contractor to carry out relevant work
3. Not paying sub-contractors directly
4. Not making advance payments or make payments for off-site materials

If the prospect of insolvency looms, it is critical that you have a clear understanding of your contractual rights and obligations, and that you comply with all relevant provisions. Issues related to termination, the appointment of new contractors and payments at this time are fraught with danger and need careful manoeuvring so that common mistakes, such as the termination prior to formal appointment of the administrator/liquidator or termination notice not in accordance with the contract terms and/or issued to the wrong contractual party are not made, which would potentially expose the employer to considerable financial consequences.  

Notwithstanding the above, there are several steps that an employer can take to ready itself for the potential insolvency of a contractor.

Do’s

1. Ensure that you have a complete set of contract documents – including warranties and guarantees – it is often the case that these documents are not conveniently stored and /or incomplete which causes problems
2. Establish a full list of the contractor’s management team
3. Identify subcontractors that are critical to the timely completion of the works, check whether you have collateral warranties in place.
4. Clarify your rights and obligations (in the event of an insolvency) – i.e. do you have step-in rights?
5. Schedule and, if possible, safeguard any plant, equipment and materials that you have paid for
6. Get your paperwork in place – instigate full monitoring of progress and determine the scope and value of the work remaining – mark up drawings, take photos, etc.
7. Prepare a contingency plan in the event of the contractor’s insolvency.

The basis of these steps is to ensure that the employer has a robust contingency plan in place in the event that the contractor becomes insolvent. In order to develop this plan, it is necessary that it has access to all relevant contractual documentation, a working knowledge of key contractual provisions and has a detailed record of the progress of the works and materials/plant that has been paid for.

So, in summary, given that the market is under pressure it is vital that employers remain vigilant, know your contract, and be prepared and ready for a potential insolvency. As we have seen over the years, even the biggest can fail!

If you require any further information, please contact Paul Cacchioli at paulcacchioli@hka.com.

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[1] GOV.UK Insolvency Service Official Statistics (https://www.gov.uk/government/collections/insolvency-service-official-statistics)

Can Lessons from the COVID-19 Crisis Help Reduce Design-Related Disputes in Construction?

Introduction                                                    

Recent advances in technology have brought about significant improvements in how we deliver construction projects.  However, design-related failures remain stubbornly at the heart of construction disputes. 

Despite numerous initiatives over the years, design errors, omissions, and late submissions continue to be a principal cause of disputes in construction.

But why should this be the case?  And does technology have a further role in finding a solution?  Might the changes in working practices brought about by Covid-19 lead to a long-term change in approach to design, and what impact might this have on the construction industry?

The CRUX reports and the insight they offer

In 2018, HKA issued its ground-breaking Crux Insight Report – “Claims and Dispute Causation – A Digital Perspective”.   This provided detailed analysis of claims and disputes in major capital projects around the world.  This was followed a year later by the second Crux report entitled “Claims and Dispute Causation – A Global Market Sector Analysis” which provided an updated and refined analysis based on a larger dataset.

Between them, the two reports provided a detailed insight into the complexities of dispute causation, identifying and ranking key causal factors and commenting on appropriate measures to address and reverse identified trends.

Analysis of the data identified that design issues ranked highly as matters which led to disputes between contracting parties.  Three particular causation factors relating to design appeared time and again: incorrect designs, incomplete designs, and late design issue.  Combined, they top the league table of dispute causation.

Why does design continue to be a primary cause of disputes?

The list of reasons why design issues are so often a cause of disputes is long and complex, and this makes it difficult to identify any correct primary cause.  Furthermore, the way in which design is executed has changed considerably over time – solving some problems but creating others.

For example, the introduction of Building Information Modelling (BIM) has enabled better collaboration and communication, improved clash detection, more accurate programming, better project visualisation, and an ability to resolve issues before they reach site.  In time, this will lead to improved accuracy and more timely delivery.

On the downside, procurement strategy has become increasingly fragmented in recent decades, with design services often re-tendered at each stage (concept, preliminary, detailed), resulting in a loss of continuity of personnel through the process.  Furthermore, nowadays we all tend to change job much more frequently than our forebears.  The days of working for one company from college to retirement are largely gone.  This can lead to a significant loss of project knowledge by the time a project reaches site.

Focusing resource on design to reduce disputes

Typically, the cost of design is only a small part of the total cost of a construction project, and smaller still when the whole lifetime costs are considered.  But the impact of correcting errors may be disproportionately high, with some studies suggesting that a 20% increase in costs due to design errors is not unusual.  This dwarfs the typical profit margins generated by the industry.  So, if clients wish to identify where to target resources for the best outcomes, they need look no further than the design stage!

Design is invariably complex and involves the inputs of multiple parties and interests.  Typical examples of the problems which occur repeatedly are:

• Clashes between technical disciplines.
• Clashes with existing infrastructure and services.
• Items omitted.
• Items designed but not transferred onto drawings.
• Calculation errors.
• Ground conditions not properly understood.
• Inexperienced designers.
• Insufficient checks.
• Insufficient time.
• Late changes.

Can digitisation reduce design as a primary cause of disputes?

The increased use of BIM in the construction industry has promised significant improvements in the design process.  As a method for creating and managing information on a construction project throughout its lifecycle, the BIM model is the whole project in electronic form.  It is not simply another tool – it is a different way of working.  It is a database and a method of communicating.  Its benefits extend to all users of the model and to all stakeholders.

Used correctly, BIM has the ability to reduce errors and clashes.  These may be:  hard clashes – for example, an elevator that doesn’t fit in the shaft constructed for it; or soft clashes – such as permanent works that intrude into a maintenance zone, or clashes in time – perhaps the inability to install cladding because scaffolding is in the way.   Such errors could be identified much earlier in the design process and certainly before they delay or disrupt progress on site.  With a comprehensive digital model of the design, such problems should eventually be eliminated. 

BIM also enables us to look at more options, obtain answers faster, coordinate between disciplines, share information effectively, and to give managers better control.  All of these should help reduce errors.

One significant advantage of BIM is the ability for designers to access the model from anywhere in the world at the touch of a few buttons.   The need to assemble a design team in a project office is much reduced.  The BIM model has become the project office!

Properly used, BIM should furnish the design manager with a greater level of control, and better control equals less mistakes.  But care must be taken to ensure that increased use of BIM does not blur the lines of responsibility between the stakeholders, particularly the designer and the contractor.

In addition to BIM, other technologies are also driving change – increasingly complex scheduling software, virtual reality, centralised remote documentation management systems, drones for surveys and inspections, etc.   The use of enhanced systems for records production and retention, both for project management and archiving purposes, is tackling the construction industry’s reputation for poor record-keeping, which has historically fuelled otherwise straightforward issues of dispute.

Many of these new technologies enable design to be progressed simultaneously by multi-disciplinary teams disbursed around the globe on an almost 24/7 basis.  As the sun sets in the far east, it rises in Europe, followed by the Americas, and then back to the far east again, enabling design to be a continuous process. 

Furthermore, technology enables all stakeholders to be brought together – not just different technical specialists, but contractors, suppliers, and end-users.  Rather than each interested party developing its input independently, the process of design and reviews becomes collaborative and coordinated.  It facilitates multi-disciplinary input from the outset by all parties rather than a design being prepared first and then circulated for comment.  This encourages a ‘right-first-time’ approach and reduces the need for amendments and corrections. 

Will the Covid-19 outbreak accelerate change?

The Covid-19 outbreak in the Spring of 2020 has had a greater impact upon contractors than designers.   Social distancing rules forced the mothballing of many construction sites worldwide, but the traditional design offices of decades past have, thanks to the advance of technology, given way to a more flexible environment where remote working has temporarily replaced the company office, and ‘Zoom’ and ‘Teams’ have replaced conventional meetings.  Many design consultancies have not only survived but thrived under this new method of working.

So, could this temporary situation become the new permanent?  Although many currently home-based designers may be yearning for the social interaction of an office, few will miss their commute and its associated costs, or the discipline of office hours, business attire, etc.  Furthermore, given the high cost of fixed office space, employers will be scrutinising productivity levels over this period of enforced isolation and asking whether the traditional working approach is now ripe for change?  Location is no longer critical to many jobs.  Those office-based staff who previously enjoyed working the occasional day from home may, in future, just work the occasional day in the office. 

As to how extensively this occurs, as always in business, the answer will be determined by the economics.  But the current crisis has demonstrated that alternative working methods are not only possible, but considerably advantageous – reduced costs, improved communications, and even happier staff.

Why should this reduce design-related disputes?

Covid-19 has revolutionised the way in which we work, with the use of technology for communications rising to new levels. In many cases, project design has continued undisrupted as the digital design model sitting on a central server may be worked on by anyone, anywhere, at any time.  Ten years ago, most designers would have been furloughed!  Digitisation through BIM combined with modern communications technology has saved many designers from this fate.

With Covid-19 a new era has dawned. Much of the technology that hitherto had just been useful is now essential to daily business. Teleconferences are now several per day rather than a few each week.  With the right hardware available, designers can now execute their trade from the kitchen table as easily as from the company office.

In the struggle to reduce design-related disputes in construction, this increased reliance on the technology can only have benefits.  Technology provides the opportunity to document and record processes and procedures, check for mistakes, identify errors.   BIM does more than just detect clashes in designs – it improves coordination, it reduces drafting errors, it encourages teamwork and cooperation, enables checks on practicability and constructability, and facilitates information sharing.   All these factors collaborate to reduce error and delay – and hence to reduce disputes.  The more commonplace they become in the construction industry, the greater the reduction in design as the cause of disputes.

It would be stretching matters to suggest that Covid-19 will lead to the elimination of errors in design, but history may yet credit it for accelerating progress by a decade or so.

Conclusions

Erroneous and late designs continue to be primary cause of construction disputes.  Digital technology offers a way forward as it can eradicate many human errors and introduce processes directly focused on quality and timely delivery. In so doing it has the potential to considerably reduce industry’s costs. 

Currently there exists insufficient historical data to demonstrate the effectiveness of digital technologies in reducing construction disputes.  However, in time, HKA’s Crux database will have the potential to identify developing trends by applying year-by-year analyses and provide evidence-backed outputs to demonstrate the impact of technology on disputes.

Dispute reduction relies on change in working practices, and Covid-19 has forced the pace of such change.  Remote working has demonstrated how communications technology can enhance delivery.

Disruption from Covid-19 is set to continue.  A lot has been written about dealing with delay and increased costs for projects on site, but what about those in gestation?  Those which are part of long-term strategic planning, and which might be covered by framework agreements.

Under a framework agreement the prices might be set by a schedule of rates or a list of time-charges, and the only permissible adjustment could be the addition of inflation up to the date when an individual contract is awarded.  Public sector clients (those that form the bulk of employers using frameworks) and contractors could, therefore, be locked into a long-term agreement with no obvious means of dealing with Covid-19 issues. 

Public sector clients cannot renege on existing arrangements as they have to adhere to government and EU procurement rules, and although contractors are not obliged to enter into individual contracts, refusal could mean serious reputational damage. However, there are opportunities to be flexible …  

Help from the Government

Being mindful of possible short-term and long-term impact, the government has responded quickly, issuing several ‘Procurement Policy Notes (‘PPNs’). These offer guidance on how clients can balance the actions needed to protect their projects, contractors, and supply chain, with their duties under procurement and public law.

PPN 01/20 and PPN 02/20 – dealing with immediate concerns

PPN 01/20 was published in March 2020, and was designed to address the procurement of goods, services and works that were required with ‘extreme urgency’.  Using this guidance might have allowed some of the usual constraints applying to public sector procurement to be dispensed with.  However, it is unlikely that such urgent situations could still exist – four months after lockdown, so the time for applying PPN 01/20 has passed.

PPN 02/20 was also published in March 2020 and included, amongst other things, a suite of documents including model payment terms, advice on contingent workers impacted by the pandemic, advice for state-funded schools, and model terms for construction.  The guidance applied until 30 June 2020, and has now been superseded by, or subsumed into, PPN 04/2020.[1]

PPN 04/20 – transition and planning for the future

PPN04/20 – entitled ‘Recovery and Transition from Covid-19’ – updates and builds on PPN02/20 and is effective from 1 July 2020 to 31 October 2020. The focus is on formulating transition plans.

Notably, this guidance does not have contractual force and each contract is to be considered on its merits.  It warns that some contracts may not be operationally relevant due to Covid-19, or may be commercially unsustainable and may need to be terminated. Any decision to terminate should, of course, be taken with great care, because re-tendering takes time and often the outturn cost is higher.  It might be better, therefore, to negotiate to avoid this scenario.  

Relief is not automatic, and contracting authorities must still consider the Public Contracts Regulations. For example, there must be no duplicated relief – such as if the workforce earmarked to deliver the project has been furloughed.  In addition, the PPNs are not designed specifically for Framework Agreements and advice should be sought on their applicability.

Conclusions

Public sector clients might not be able to extract themselves entirely from framework agreements, because, quite rightly, they need to stick to government and EU procurement rules. However, there is the possibility to negotiate using the proposals set out in PPN 04/20.

PPN 04/20 demonstrates the government’s desire to return to the ‘new normal’.

Whatever decisions are taken, detailed records should be kept to justify future actions, and to track how and when payments are made.

Actions for Contractors

If clients are able to negotiate, there will be some key points for consideration by contractors. Trade bodies have published a lot of information, links to which are given below.[2] Unsurprisingly, the advice focusses on health and safety, and to a certain extent it is a distillation of the government advice – in a digestible form.  It is worth remembering that a failure to mitigate the risks arising from Covid-19 or a failure to complete appropriate risk assessments could constitute a breach of health and safety law.

Contractors could be working on sites that are not open to the public, and things that could give rise to increased costs include:

• Limiting the number of workers on site at any time. Social distancing should be observed if possible.
• Staggering start times, having one-way flows and limiting how many workers are allowed in vehicles.
• Providing handwashing facilities or hand sanitiser at every entry and exit point.
• Discouraging non-essential trips between sites, reducing job and equipment rotation, and holding meetings outdoors if possible.
• Recommending workstations are moved further apart and arranged side-by-side rather than face-to-face.
• Keeping the workplace and vehicles clean.
• Using PPE.

When working in occupied premises, for example when completing work in social housing, things that could give rise to increased costs include:

• Maintaining social distancing on arrival and departure.
• Keeping work areas hygienic and clean.
• Using fixed teams for each job.
• Holding daily briefings to remind workers about health and safety.
• Nominating a ‘coronavirus coordinator’ to be responsible for keeping records of who is on site and reporting any instances of illness or breaches of the guidance.
• Keeping written records.
• Using PPE.

Conclusions

Where possible, negotiate to take account of the effects of Covid-19.  Clients are aware of the challenges, and talking is preferable to disputes.

Consider factoring the following points into the discussions: the works period or completion date; the price for the works; the quality and quantity of materials due to limited supplies; and working hours and methods.

Plan for future restrictions.

Appreciate that the climate remains uncertain and that things will continue to evolve. 

If you require any further information, please contact Duncan Grimshaw at duncangrimshaw@hka.com.

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Parties to a contract inevitably focus on the express terms of the contract and overlook implied terms. However, implied terms can substantially impact on the parties. This article centres on some common implied terms in construction contracts and how they may be construed by the courts in terms of the business efficacy test.

As the world remains in ‘lockdown’, construction contracts are delayed, disrupted, and are incurring additional costs associated with Covid-19. Existing construction contracts were not drafted with the unprecedented times we are faced with in mind, and as can be seen below, it may be difficult to incorporate implied terms to recover the cost or time associated with Covid-19. Therefore, the article also examines the importance of incorporating express terms to manage Covid-19 risks.

Construction Contracts & Implied Terms

Implied terms can be enacted through statute and common law. Statutory obligations are those obligations that do not arise out of a contract but are imposed by law. A party to a construction contract cannot usually choose to ignore the statute law that is applicable to the construction contract.

Important statutes which could imply terms into construction contracts are:

Housing Grants Construction and Regeneration Act 1996 includes requirements for parties to construction contracts that must be complied with. The act enforces the parties right to adjudicate at any time, interim payments, notices for payment and a parties right to suspend works due to non-payment. The Act also makes “pay when paid” clauses unenforceable except when a party is insolvent. A recent case identifies that Covid-19 may not prevent adjudication proceedings from progressing.[1]

During lockdown, ‘cash is king’ has never been more pertinent.The Late Payment of Commercial Debts (Interest) Act 1998 allows parties to claim interest on late payments for goods and services. Parties can also recover fair costs for recovery of the debt. However, if the contract contains a “substantial contractual remedy’ for late payment then the parties can agree to dismiss the rights to interest.[2]

For parties performing work with no written agreement, or where there is no agreed price or mechanism for calculating prices, statute implies:[3]

• Work is performed with reasonable care and skill
• Work is performed within a reasonable time
• The party executing the work will receive a reasonable payment

As related to payment, the definition of ‘reasonable’ is dependent on the facts of the case. Therefore, contractors who find themselves in this position may be at an advantage in relation to Covid-19, as when calculating what constitutes a reasonable payment they can consider the facts of the matter at hand (e.g. lockdown and government restriction on sites and travel).

Given the number of construction companies that ceased trading during the 2008 financial crash, unfortunately it is likely that we will see a similar trend as a consequence of Covid-19. Statute creates an entitlement for an individual, outside the contracting parties, to implement terms of that contract in his own right where the contract grants a benefit on the third party.[4] Parties can place limits or restrictions on those rights or alternatively contract out of these provisions.

Common law or case law is capable of being implied into construction contracts. If either party wants to impose different obligations, then express terms are required.

Some interesting examples of implied common law terms and related cases are:

Carrying out the Work

During the Covid-19 lockdown, some employers have instructed contractors to suspend their work, or imposed restrictions that may prevent contractors from completing their work without disruption of some sort. When looking at extensions of time from an employer’s breach, an implied term may be imposed for the employer not to prevent the contractor from proceeding with the works in a regular and orderly manner or prevent completion.[5]

Obligation to Co-operate

Common law examples of implying terms require obligation to co-operate that may be appropriate to Covid-19 issues are:

• the employer will do everything possible to allow completion of the work[6]; and
• the employer must give possession to the contractor in a fair time.[7]

Completion of the Work

There is no doubt that Covid-19 has, and will continue to cause widespread disruption to projects, which may require contracts to re-sequence their work. It is a common misconception that a subcontractor will execute its work in line with the contractor’s programme. However, this is not always the case, a sub-contractor is obligated to finish the work by the completion date. The method he employs is entirely at his own discretion.[8] This may be particularly relevant where contractors require re-sequencing of work following the lifting of lockdown restrictions etc.

The Practicability of Implying Terms & COVID-19

Primarily, when attempting to imply terms into construction contracts the correct test is to ask if a reasonable person, viewing the contract from when the contract was established, rather than when the dispute occurs) would deem the term so obvious, that it would go without saying, that it is needed for business efficacy.[9] This may therefore present issues for contractors wanting to imply terms relating to Covid-19, specifically where Covid-19 may have been unheard of at the time of entering the contract.

Case law identifies five conditions to satisfy the validity of an implied term[10]:

• it should be reasonable and equitable;
• it should be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
• it should be obvious and “goes without saying”;
• it should be capable of clear expression;
• it should not contradict any of the express terms of the contract. It is not possible to decide whether a further term should be implied until the express terms of the contract have been construed.

An obstacle in implying terms because of Covid-19 events is also apparent in a 2018 case. The Court of Appeal reminded us that you cannot imply a term if, in hindsight, it makes sense to.[11]

However, in some instances where contractors are, for example, working on verbal agreements and/or there is no agreed price or payment mechanism. The Sales of Good Act 1982 may imply terms and allow recovery of the cost and time associated with the pandemic.

Implied and Express Terms in the ‘COVID Era’

Existing contracts may, and often, include entire agreement and exclusive remedy clauses that if properly drafted can prevent terms being implied. The standard form contracts were not drafted with Covid-19 impositions in mind. It can therefore be difficult or even impossible to imply terms to existing contracts or rely on the standard forms in their unamended format to adequately accommodate Covid-19 risks in future contracts.

If the contract is silent on specific issues, this is likely to create conflict between the parties and in the event of a formal dispute terms may eventually be implied by the Courts under statute and common law. It is therefore key to ensure that all the required terms are expressly agreed in writing and obtain contractual advice when drafting agreements.

As we begin to emerge from the Covid-19 lockdown, parties should consider the new challenges Covid-19 has imposed on the industry. In new contracts, and where possible, in existing contracts (through deeds of variation) the parties should expressly identify mechanisms to avoid or allocate the risks associated with Covid-19.

The Cabinet Office has reacted to the impact of Covid-19 on existing public sector contracts by updating its Procurement Policy Note 02/20: Supplier relief due to Covid-19 (PPN 02/20) to include guidance notes and ‘FAQ’s’ specific to construction contracts, along with model deeds of variation for the NEC3 Engineering and Construction Contract and the JCT Design and Build Contract 2016. Whilst drafted for use in the public sector, they can equally apply to private sector agreements for variation of existing construction contracts. Any amendments to the underlying contract forms would need to be considered as well as any amendments agreed outside the scope of those provided for in the model deeds.

When reviewing and drafting agreements parties need to consider that some implied terms, principally statute, cannot be ignored and will form part of the agreement. Where specific rights and obligations are to be excluded/included from the contract, clearly drafted express terms should be used. Importantly, do not rely on implied terms in place of well drafted express provisions; you may not get what you had expected.

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