The new normal for construction contracts: CLC Future Proofing Guidance and model clauses 

The Construction Leadership Council has recently supplemented its Covid-19 Contractual Best Practice Guidance, which looked at ways of dealing with issues arising on live contracts, with “Future Proofing Guidance” offering suggestions on risk allocation and model clauses for new contracts being made in the time of Covid-19.

Earlier guidance

In our earlier Law-Now on guidance issued by the Cabinet Office and the Construction Leadership Council (“CLC”) (see here), we mentioned that whilst both focused on dealing with issues on live projects, neither offered suggestions on dealing with future contracts in a post-pandemic world. Since then, the effects of Covid-19 continue to be felt worldwide, and parties are looking for ways to manage this in their contracts in an environment where the advice is changing fast and the future is uncertain.

In an effort to help parties contract in this environment, the CLC has published its “Future Proofing Guidance”, offering different risk allocation options and suggested amendments to give effect to them in a JCT or NEC contract.

Future Proofing Guidance

On 14th July 2020 the CLC released the Future Proofing Guidance in response to a survey that suggested that industry users wanted guidance on amendments to contracts yet to be entered into dealing with the impact of Covid-19.

The guidance puts forward some suggested amendments to two commonly used contracts, the JCT Design & Build Contact 2016 edition and the NEC 3 and 4 Engineering & Construction Contract, around three different risk profiles:

1. a “Pandemic Event” entitles the contractor to time but not money;
2. a “Pandemic Event” entitles the contractor to time and money; or
3. a “Pandemic Event” entitles the contractor to time and a predetermined percentage of money.

Any party looking to this guidance to assist it in drafting future contracts must bear in mind the following:

1. the suggested drafting is designed around unamended versions of each contract and may need adapting for use in projects where these forms are being used, but amended;
2. the amendments offer relief in respect of any pandemic, and not just Covid-19;
3. the amendments assume that the programme and prices do not already allow for the more difficult working environments that currently exist.

The last point above may be particularly relevant as it seems unlikely in our view that many contractors will be programming and pricing, at least for jobs due to start in the foreseeable future, on the basis of pre-Covid conditions. Where contractors are already tendering on the basis of restricted working, the guidance sensibly identifies that parties might consider whether to make no amendments, or even to allow for acceleration and reimbursement of costs in the event that current restrictions are eased.

Another important point for the parties to determine, referred to at the second point above, is what event triggers relief. The definition of “Pandemic Event” in the guidance is very wide, and includes the occurrence of a pandemic (any pandemic, not just Covid-19), any measures, recommendations, regulations and legislation in relation to a pandemic, and any consequences of a pandemic outside the contractor’s reasonable control which affects the works, including by way of access, availability of materials, or availability of resources. This of course would need to be taken in the context of a contractor’s obligations to avoid or mitigate delay, and to establish causation, but nonetheless is a broadly cast definition.

Finally, the guidance provides minor amendments to introduce a right to terminate the contract after a specified period in the case of a Pandemic Event (which is not necessarily the same period as for other non-fault events such as force majeure).

Conclusions

The CLC’s future proofing guidance provides a helpful starting point for parties that wish to introduce some protection against Covid-19 (or other pandemics) into their contractual negotiations, but it is not (nor can it be) one size fits all, and as with all negotiated terms, parties will need to thoroughly consider the principles and the drafting as it relates to their own project.

References: CLC Future Proofing Guidance.