Covid-19: Pressure Points: Managing delay under JCT contracts (Global)

Quite separately from determining whether an extension of time event has occurred, in JCT contracts the contractor is also under an obligation to "constantly use his best endeavours to prevent delay" to the progress and completion of the Works.  

 

Under English law, there is no case law on the obligation to "constantly" use best endeavours, but the case law on best endeavours suggests that the standard of endeavour required by a party obligated to use best endeavours is a high one: to take steps which a "prudent, determined and reasonable owner acting in his own interests and desiring to achieve that result would take"⁵.  Keating, 10th Edition⁶ states:

 

 

This therefore suggests that a contractor might be required to incur some cost, albeit not "substantial" additional costs in taking all reasonable steps to avoid delay (for example the contractor should re-sequence its works, reschedule deliveries and drawings approvals, but it would not be required to undertake substantial acceleration measures).  However, there is a line to be drawn between taking such steps as part of constant best endeavours, and what should otherwise fall within the scope of a contractual change or variation provision.⁷  

Contractors are well advised to document carefully all steps taken and to follow the contract variation procedure closely to ensure that costs falling within the scope of a variation can be distinguished and thereby recovered.

While there is authority that "reasonable endeavours" carries with it a lesser obligation than to use "best endeavours"⁸ each case needs to be considered in view of the performance obligations as prescribed in the contract and the circumstances in which force majeure is being asserted.  The courts considered the contractual obligations to use "reasonable endeavours" to avoid or overcome force majeure and to use "reasonable endeavours" to remedy delays in performing the contract.⁹ They decided that these provisions required the party invoking force majeure to consider its own interests as well as the interests of the counterparty expecting performance and where, as in that case, the party seeking relief had an alternative means of performing the contract, it should have done so irrespective of the fact that it would cost money to do so.

 

Whether the implications of the Covid-2019 amount to force majeure is not as clear cut as one might suppose, and will be fact specific.  

A case of infection amongst site workers causing a site shut down for a period of time is probably likely to fall square within the definition. 

Where supplies from overseas are delayed due to disruption at ports or lack of vessels availability the position is rather less clear. Such events might be enough if the supply contract was entered into before the emergency became apparent. The contractor might need to consider whether it can take reasonable steps to try to obtain the same supply from alternative suppliers, even if it means breaking its original supply contract. But it should take into account any cancellation costs payable to the original supplier, the price of alternative supplies and the additional time it would take to obtain the alternative supply, relative to the anticipated delays to the original supply. Supply constraints in affected areas might cause capacity constraints elsewhere in the global supply market.

It may be less likely that force majeure relief will be available if the supply contract has not been placed.  One would expect the main contractor to try to obtain supplies from an alternative, more secure, source even if more expensive. 

On the other hand, if the contract specification requires the use of, say, Italian marble, a variation which permits an alternative will arise if substitution is instigated by the employer. If the contractor instigates the use of an alternative for the employer’s approval a variation does occur.  However, the employer may decide that the time saved by ordering a variation is a better outcome than for the contractor to sit out the delay claiming a force majeure event with no guarantee of when it will end.

Delays in the supply chain caused by government mandated shutdowns may well fall within the scope of a change in law provision providing specific remedies. The exact wording of those clauses will be key.  For example, in the main JCT 2016 forms the exercise of a statutory power by the UK Government or a local authority which "directly affects the execution of the Works" will qualify for time relief, subject to mitigation measures. Similar action by other governments might not qualify for relief. Other JCT drafting on change in law is somewhat “UK centric” and does not reflect the use of an international supply chain particularly well. One hopes that in practice a pragmatic approach will be adopted.