There has been considerable news coverage devoted to COVID-19 in recent months.  So much so, that I was in two minds whether or not to add to the commentary.  There are, however, some important questions that need to be addressed, such as:  How has COVID-19 affected construction projects in the UK and across the globe?  How has the supply chain been affected?  How will construction sites be affected? And will there be a rise in the number of construction disputes?

How has COVID-19 impacted the construction industry?

On 16 March 2020, the British Prime Minister asked the public in the UK to stop all non-essential contact with others and to stop all unnecessary travel and asked those who could do so, to work from home.  There was, however, no specific advice for construction workers, causing mass confusion for the industry.

The UK lockdown announcement was then made one week later on 23 March 2020, with the stark instruction that the British people “must stay at home.”  The majority of non-essential workers have remained at home, whether still working or furloughed, but some construction workers have continued to work throughout the lockdown period in the UK, with Scotland being an exception. [1]

In order to ensure that construction sites were protecting their workforce and minimising the risk of spreading infection, the Construction Leadership Council published the Site Operating Procedures (“the SOP”) on 23 March 2020.[2]  Importantly, the initial SOP stated that if an activity could not be undertaken safely then non-essential physical work, which required close contact, should not be carried out.

Confusion arose and direct guidance from the UK Secretary of State for Business, Energy and Industrial Strategy was provided on 31 March 2020.[3]  According to the guidance, it was clear that despite advising that, wherever possible, people should work at home, construction workers could continue to travel to their place of work.  The letter, addressed to “everyone working in the UK’s construction sector”, paid tribute to all those who continued to work tirelessly and advised that, in order to ensure safety in the workplace, workers should follow the guidance as articulated in the SOP.

Following the initial issue of the SOP, which was subject to industry criticism over the lack of clarity in relation to the two-metre distancing rule, subsequently, an updated version was published on 2 April 2020.[4]  The revised SOP made it fundamentally clear that where it was not possible to adhere to the two-metre distancing rule, then work should not be carried out.

The revised SOP reportedly caused somewhat of a disturbance within construction firms, as strict adherence to these guidelines would have resulted in the closure of all UK construction sites, contrary to the Government’s advice.  The practical implications of adhering to the two-metre distancing rule on construction sites resulted in productive work becoming nigh-on impossible.  Consequently, the updated version of the SOP was withdrawn shortly following its issue.

This is perhaps why Public Health England provided further guidance on 7 April 2020, as follows:

“Where it is not possible to follow the social distancing guidelines in full in relation to a particular activity, you should consider whether that activity needs to continue for the site to continue to operate, and, if so, take all the mitigating actions possible to reduce the risk of transmission”.[5]

One week later, on 14 April 2020, version number 3 of the SOP was issued, and provided further guidance on close proximity working, as follows:

“If you are not able to work whilst maintaining a two-metre distance, you should consider whether the activity should continue and, if so, risk assess it using the hierarchy of controls below and against any sector-specific guidance”.[6]

The hierarchical guidance provides clear instructions for workers where social distancing measures cannot be adhered to.  Those working on site within 2 metres of each other must adhere to the following rules:

  • Stay together in teams, without changing workers within the teams;
  • Keep the teams as small as possible; and
  • Keep away from other workers, where possible.

With the above points in mind, it would seem that UK construction sites did not have clear guidance of close proximity working until 14 April 2020.  This was nearly one month after the Prime Minister requested that the public should avoid all non-essential contact.  Seemingly, clear and practical guidance of how to administer close proximity working on UK construction sites took time to be fully considered.

In the event, however, it seems that the decision to close sites within the UK has been discretionary, rather than compulsory, and the approach to remaining open varies from company to company.  In some instances, construction firms have temporarily closed its sites so that they could accommodate the changes implemented by SOP (i.e., enhanced cleaning, staggered start and finish times and ensuring workers remain 2 metres apart in all communal areas).  Other companies have been more cautious and have simply closed for the foreseeable future.

By comparison to England, Scotland has been firmer in its direction and, on 23 March 2020, the Scottish Government advised it was to close all construction sites, with only the repair and maintenance of civil infrastructure being permitted and essential public services to remain open.  Even so, the essential construction sites still had to adhere to specific health and safety guidelines, which were issued by Construction Scotland on 6 April 2020.[7]

It is interesting to note how different countries across the world have approached the crisis.

France has endured a tighter lockdown procedure by comparison with the UK[8] and prevented all construction work from taking place, from 16 March 2020 until 2 April 2020, when the French Government published new guidelines for health and safety in the construction industry.  The guidelines limited the number of workers on site and limited close proximity working.  If close proximity working is required, then specialist personal protective equipment (“PPE”), including specific surgical masks, are to be worn.

In Dubai, construction is one of the sectors exempt from the Emirate’s 24-hour restrictions on outdoor movement.  Contractors within the region, however, remain concerned that onsite works will slow as a result of the pandemic.  One of the factors causing a slowdown is the impact upon the supply chain of materials sourced from outside of the country.  Recent headline news is that Emaar Properties has taken the decision to suspend work on its major projects in Dubai, including work on the Dubai Creek Harbour Tower – which is billed to be taller than the Burj Khalifa when completed.[9]

Meanwhile, Singapore began to feel the effects of COVID-19 earlier than Western Europe due its reliance on foreign labour, including workers from China.  Construction firms were reportedly seeking legal advice as a result of not completing on time due to labour shortages in February 2020.  As a country, however, in the period to April 2020, Singapore had been successful in avoiding an outbreak of the virus[10] with construction sites remaining open for business.

Since early April 2020, however, the number of cases has begun to rise in Singapore, the increase of which seems to have originated from the densely packed foreign workers’ accommodation.  Singapore is only allowed to hire workers from certain countries including China, India, Bangladesh, Sri Lanka and Thailand.  It is understood that these foreign workers reside in densely-packed dormitories, with shared bathrooms and cooking facilities and, in some instances, have up to 12 people sharing a room.

As recently as 6 April 2020, Singapore quarantined 20,000 foreign workers as the number of COVID-19 cases increased,[11] in a country where foreign workers are critical to the progress of the construction and shipping industry.

Having successfully avoided COVID-19 for months, on 7 April 2020, Singapore introduced a partial national lockdown.[12]  In recent days, the situation has escalated, and a 14-day stay-at-home notice has been issued to all construction work permit holders, affecting around 180,000 workers, effective from 20 April 2020.[13]

So, whilst Singapore had successfully evaded COVID-19 for a period, it would seem that the drive for the continued progress of construction projects in the country has driven the spread of the virus, owing to the cramped living conditions enforced upon its workforce.

Taking the above into consideration, it would seem that no country is safe from the far-reaching devastation of COVID-19.  What does differ from country to country is the position on enforcing shutdowns and the implementation of safe working practices on the construction sites.  Seemingly, Singapore is a rarity, in the sense that the construction industry is experiencing a ‘double-dip’ of COVID-19 issues.  Singapore was indirectly affected by a shortage of labour from China earlier in the year and is now facing a direct rise in the spread of the pandemic through the foreign construction workforce based in the country.

What is happening with the supply chains?

It is all well and good stating that construction sites should remain operational in the UK, but if the sites cannot buy consumable materials from builders’ merchants and other suppliers, then progress will, inevitably, be adversely affected.  It is apparent that some of the UK’s largest builders’ merchants have closed their branches and are only accepting orders by email or telephone, even then, these orders are limited to essential projects only.  The following statement was on the front page of Travis Perkins’ website:

“In order to support the national effort to contain the coronavirus (COVID-19) our branches remain closed and we are not taking orders online, however, we are delivering from selected branches to support our country’s essential services”.

In terms of “essential services”, Travis Perkins continues to deliver to sites that require emergency repair or maintenance, or essential new construction projects such as hospitals and schools.  Certain infrastructure sites, such as nuclear decommissioning or underground services installations, are also considered to be essential.  Consequently, trying to purchase construction materials for a non-essential project (location dependent) will prove to be a difficult, if not impossible, task.

Other builders’ merchants have suspended trading altogether.[14]  It would appear, therefore, that construction projects that have taken the decision to remain open will struggle to purchase materials, consumables and hire plant which will, inevitably, hinder progress and cause delays.

Such reduction in services has resulted in suppliers engaging in a comprehensive furloughing of staff.  The concern is that the longer the lockdown continues, particularly in Scotland, the higher the risk of the construction industry going into a state of paralysis.  This comes with the potential for long-term damage to both the construction industry and the economy as a whole.

Compounding matters, it is a real threat that some small and medium-sized enterprises (“SMEs”) will close due to cashflow issues, even with the Government’s financial assistance and furloughing scheme.

How will COVID-19 result in delays on site?

In the first instance, there is the threat of COVID-19 being brought into a construction site.  A site or office worker, or someone with whom they have been in close contact, who has tested positive for COVID-19, might result in a site or office closure.  Due to construction workers who have had symptoms and have heeded the Government’s advice to self-isolate, numbers of workers on site might be insufficient, such that it cannot be operated safely and, thereby, result in its closure.

Furthermore, the travelling workforce might not be able to source accommodation near the site.  I understand that some contractors for example are only allowing its workforce to travel 2 hours each way – thus restricting who can physically get to site.  Again, insufficient numbers on site might result in site closure.

Some materials might be sourced or manufactured in a country that might have been affected heavily by COVID-19, such as China.  Some material deliveries will have been delayed or cancelled altogether.  The effect of these cancellations could potentially cause delay to the progress of the works.

The new guidelines (the SOP) introduced by the UK Government might simply be impractical to adhere to and result in the temporary closure of construction sites.

If SMEs do go out of business, then contractors could be in a situation where a subcontractor, or numerous subcontractors, go into administration requiring the appointment of replacement companies who have been able to weather the storm.  There may be price increases due to demand, and then there is the time it takes to procure a replacement subcontractor and agree a new start on site date.

This leads to the next question…

Will contractors be due an extension of time award as a result of COVID-19?

In relation to this, in the UK, the JCT has provided a guidance note in relation to COVID-19.[15]  The JCT guidance is clear in respect of the do’s and don’ts in terms of a JCT contract.  It makes absolute sense that a contractor should not be rash and walk off site, causing a repudiatory breach of contract.  The guidance note also advises that the parties should remain open in terms of communication and attempt to navigate a way forward within the parameters of the contract.

Due to the unique circumstances that COVID-19 presents, and the difficulties in isolating a delay event that may well be considered to be concurrent, the guidance note suggests that a “pragmatic approach might be appropriate in some situations.”  Without a clear understanding of the status of the project at the time, however, the introduction of a “pragmatic approach” may well mask the true impact of certain culpable delays already encountered.

Of particular importance is the fact that most construction sites will be delayed as a result of the virus itself and/or the Government’s response.  The timing of the Government’s response, or action, is an important factor to take into consideration, as this is defined as a Relevant Event within JCT contracts.

Careful consideration, therefore, needs to be given to distinguish the effects caused by the virus and those caused by the Government.  For example, if a shortage of labour and materials has occurred as a result of the virus (and not by Government intervention) then this remains the contractor’s responsibility.  The timing of the World Health Organisation labelling the virus as a pandemic is relevant.  In such an instance, the Relevant Event most likely to be applicable is force majeure (all circumstances beyond the will of man and which are not in his power to control).

The impact of Government intervention (such as the introduction of the SOP) will vary from site to site.  The effects of the SOP on a site that is piling foundations in an outdoor environment will most likely be limited, whereas, a residential project at internal fit-out stage is more likely to be impacted by the requirements of the SOP, in particular the social distancing element (i.e., using lifts or congested work fronts).  Both projects, however, are still required to continue, unless the implementation of SOP becomes totally impractical.  In the event a contractor cannot continue because it cannot adhere to SOP guidelines, then the applicable Relevant Event will be Government intervention.

If the contractor fails to implement the measures set out in the SOP, then it might be subject to enforcement action.  Should a site be shut down as a result of the contractor’s default, then it would not be using its best endeavours to prevent delay (i.e., a requirement of a JCT contract when seeking an extension of time).

Furthermore, the contractor will also need to demonstrate that it undertook all reasonable endeavours to mitigate against the effect of the delay.  An important point to note is that contractors will not be entitled to recover loss and expense in respect of an extension of time for force majeure or an act of the UK Government.

It would appear that careful consideration is required to distinguish between delays caused by the virus itself from those caused by Government intervention.  The timing of the delays are also important, as is the status of the works at the time the delay was experienced.

The key question is…

Will this result in an increase in construction disputes?

The definition of a pandemic is: “an epidemic of disease that has spread across a large region, for instance multiple continents or worldwide, affecting a substantial number of people”.[16]

As a result, major economies across the globe have been affected.  The localised effects vary from country to country but, in my opinion, the impact upon the construction industry will be profound.

The difficult part to predict is the impact on each project, given the fact that every construction project is unique, as are the relationships between the contracting parties.  For example, a project which previously enjoyed a good working relationship between the parties, which might even have a framework agreement for future projects, might adopt a pragmatic approach in relation to the issuance of an extension of time as a result of COVID-19.  Furthermore, taking a confrontational approach, rather than a pragmatic one, might ultimately cost more at a time when cashflow is limited.  Maintaining goodwill between contracting parties, in such difficult times, might pay dividends in the future once the outbreak has eventually passed.

On projects where the relationship between the parties pre-COVID-19 was already frayed, and significantly delayed, the response might be more unpredictable and the outbreak might just tip the balance, resulting in a formal dispute.  As ever, there will then be the inherent knock-on effects going up or down the line between the employer, the contractor and its subcontractors.

Conclusions

It is evident that we are living and working (if we are fortunate enough) in unprecedented times.  As a result, the Government and global companies have had to make unprecedented and difficult decisions in order to save lives.

It would appear that construction sites are not only being delayed and disrupted by a shortage of labour but also by a shortage of materials.  Even essential projects are likely to be delayed.

The majority of the focus of this article has been on the issues faced in the UK and Singapore, the main difference between the respective approaches being that Singapore shut its construction sites as the number of COVID-19 cases began to increase.  This firm approach has been implemented as a result of its construction workers harbouring and spreading the virus.  This goes to show that every project and country differs in how it has been affected by the virus.

In my opinion, it is likely that the number of construction disputes will increase as a result of COVID-19.  As a company, Blackrock Expert Services has already begun to encounter its first COVID-19 related enquires.  As it can take time for disputes to crystallise, it is likely that the number of enquiries will increase over the forthcoming months.

In recent years, it is evident that the most popular cause of construction disputes in the UK has been a failure to administer the contract properly.  Given the ambiguous category that COVID-19 falls into, contractors seeking an extension of time might see their claims being denied at a time when contractors are cash-starved, leading to a commercially aggressive response.  Furthermore, it is likely that there will be an increase in disruption or loss of productivity claims, simply on the basis that labour, and materials are unable to be transported around sites efficiently due to the COVID-19 restrictions.  Every project is different, but I foresee a rise in the number of adjudications in the short-term, owing to the short timeframes associated with getting a (albeit) non-binding decision and hence help possible cash-flow issues using this form of dispute resolution.

As ever, the onus will be on contractors to adequately demonstrate that COVID-19, and necessary actions taken because of it, impacted the critical path of the works.  Difficulties will arise in identifying an appropriate Relevant Event within the Contract and will, no doubt, be a contentious issue in its own right.  Accordingly, employers should also be dutifully prepared for the inevitable delay and disruption claims.

[1] The Scottish Parliament was formed as part of a process known as devolution.  This is a system which allows decisions to be made at a local level.  This includes construction and, as such, Scotland decided to close construction sites from 23 March 2020.

[2] Site Operating Procedures, Version 1, dated 23 March 2020.

[3] The Rt Hon Alok Sharma MP letter dated 31 March 2020.

[4] Site Operating Procedures, Version 2, dated 2 April 2020.

[5] https://www.gov.uk/guidance/social-distancing-in-the-workplace-during-coronavirus-covid-19-sector-guidance#construction

[6] Site Operating Procedures, Version 3, page 5.

[7] https://www.cs-ic.org/media/3960/cs-site-operating-guidance-issue-01-dated-06-04-20.pdf

[8] But similar to Scotland’s approach.

[9] https://realty.economictimes.indiatimes.com/news/industry/dubais-emaar-suspends-construction-projects-due-to-virus-sources/75007588

[10] With just 1,000 confirmed COVID-19 by 1 April 2020.

[11] https://www.bbc.co.uk/news/world-asia-52178510

[12] https://www.nst.com.my/world/world/2020/04/582116/dead-city-singapore-enters-month-long-lockdown

[13] https://www.gov.sg/article/tackling-transmissions-in-migrant-worker-clusters

[14] I note that Selco Builders Warehouse has planned to reopen its online services from 6 May 2020.

[15] https://corporate.jctltd.co.uk/wp-content/uploads/2020/04/Coronavirus-Covid-19-and-JCT-Contracts-v3.pdf

[16] https://en.wikipedia.org/wiki/Pandemic