The Times They Are A-Changin'
COVID-19 and change in law under NEC4
02 July 2020
Since the beginning of the COVID-19 pandemic, contractors have been dusting down their contracts and reviewing the various provisions to consider what protection they offer in the context of the current crisis.
Whilst current lockdown restrictions are beginning to ease, this note examines whether contractors are likely to be able to claim a compensation event under clause X2 (changes in the law) of contracts based on NEC4.
Firstly, X2 is one of the ‘secondary option clauses’ under NEC4 and will need to be selected in the Contract Data in order to apply. X2 states that “a change in the law of the country in which the Site is located is a compensation event if it occurs after the Contact Date”. Where there has been a change in the law and option X2 has been selected, the contractor will be entitled (subject to compliance with procedures regarding notification etc.) to an extension of time to the key dates and the completion date and / or to an increase in the prices. As such, the question is whether there has been such ‘a change in the law’ as a result of the COVID-19 pandemic which would lead to entitlement of the contractor under this clause.
‘Change in law’ is not defined and the NEC guidance notes state that ‘law’ would include “a national or state statute, ordinance, decree, regulation (including building or safety regulations) and a by-law of a local or other duly constituted authority or other delegated legislation.”
In response to the COVID-19 pandemic, the Coronavirus Act 2020 (the “Act”) was enacted by the UK Government. Subsequently, by virtue of Section 48 of the Act, the Department of Health (by agreement of the Northern Ireland Executive) put in place the Health Protection (coronavirus, restrictions) Regulations (Northern Ireland) 2020 (the “NI Regulations”), which became law and came into operation on 28 March 2020.
The NI Regulations imposed a number of restrictions (e.g. restrictions on movement (Regulation 5) and restrictions on gatherings (Regulation 6). Social distancing was not included as part of the Regulations, but was a part of subsequent Public Health England guidance. Despite the NI Regulations imposing restrictions on the movement of people, the NI Regulations did not specifically mention construction sites and did not require the closure of construction sites.
As such, whilst the NI Regulations are new legislation they are unlikely to trigger the change in law provisions X2 under the NEC4 contract as they do not impose a statutory obligation restricting travelling to or working on construction sites in Northern Ireland and would therefore not appear to impact on construction operations.
There has also been a variety of guidance produced in relation to construction operations and the measures to be considered and implemented in relation to COVID-19. Whether this guidance qualifies as a ‘change in the law’ under secondary option X2 is less clear. The most recent guidance produced by the UK Government “Working safely during coronavirus (COVID-19) - Construction and other outdoor work” (“UK Guidance”) was updated on the 24 June 2020. Other guidance has also been produced by the Construction Leadership Council (“CLC”) which has issued Site Operating Procedures (“SOP”) which are based on Public Health England guidance. The SOP is the key document for construction companies operating in Northern Ireland and is supported by the HSENI. The most recent version (version 5) of the SOP was updated on 1 July 2020. Whilst the UK Guidance and the SOP contains guidance regarding social distancing and procedures to be put in place, neither the UK Guidance nor the SOP (or any previous versions) specified a mandatory shutdown of construction sites.
Contractors also have duties in regards their employees under health and safety law. However, this raises the question as whether compliance with the various guidance regarding COVID-19 as it pertains to construction operations mean that there has been a ‘change in the law’ (and thus a compensation event) under NEC4. As for any employers, the three overlapping health and safety duties for a contractor are:
- The duty to protect the health, as well as safety, of their employees;
- The duty to protect others who may be exposed to health risks as a result of the employer's activities, including members of the public, service users and contractors; and
- The duty to manage the health and safety risks from workplaces under the employer's control.
The obligation in respect of these duties is for the contractor (as employer) to do everything so far as reasonably practicable to manage these risks. On balance, it would appear that on the basis that Option X2 is triggered by a change in the ‘law’ and not by governmental guidance, advice or instruction, that compliance with the various guidance regarding COVID-19 (as it pertains to construction operations), means that it is more likely than not that no change in the law has been implemented that can be relied upon as grounds for a compensation event under Option X2.
For example, ‘social distancing’ is not a mandated legal requirement but is required to be considered in order for employers to comply with their existing obligations under health and safety legislation.
The circumstances of the current situation (and the situation of the past few months) regarding COVID-19 restrictions, is likely best characterised as one where the facts have changed so that the existing law applies differently to construction sites than before, rather than a situation where the law has changed. The governmental and quasi-governmental action has come in the form of guidance rather than an actual change in the law itself. As a result, relief may not be available under contracts such as NEC4 that contain Option X2 that only refer to a ‘change in the law’ rather than a more general reference to government action.
As this point, there is no authority from the courts as to whether the COVID-19 restrictions and the NI Regulations would amount to an entitlement for a contractor to a compensation event under NEC4 Secondary Option X2. It may be once this aspect has come before the courts that more light is shed on it following the interpretation of the courts.
It should also be borne in mind that various other compensation events under NEC4 may be (and may become) relevant as the COVID-19 outbreak continues. Also, on a practical level (and as envisaged by the NEC4), the emphasis is for the contractor, employer and project manager to act in a spirit of mutual trust and co-operation and to work together to mitigate the adverse effects of the COVID-19 pandemic.
For further information about this or any other construction matter please contact Carson McDowell’s Construction team.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.