COVID-19 – Contract Claims

COVID-19

We would like to reassure you that it is business as usual for MPG.  However we have received a number of concerned calls from clients and in response have drawn up the help list of bullet points below:

Look at the operational provisions of your contract:

  1. Are you obliged to submit a revised programmed due to disruption or notify your client;
  2. Does your contract obligate you to give early warnings of delays, if so you must do so promptly;
  3. Does your contract require regular progress reports, if so clearly set out impacts the disease has on the project.

Can you make a claim?

The starting point for your rights and obligations, should you find yourself affected by Coronavirus, will be your contract. None of the standard form contracts (e.g. JCT and NEC3/4) refer expressly to epidemics or spread of diseases.

Outbreak of illness does not fall within the meaning of “excepted risks” used in most of the standard forms so, contractors may have to rely on other clauses in the contract such as suspension, force majeure and prevention, or change in law.  Contractors may not be able to point to one clause for a full remedy, and may have to rely on multiple provisions – used in conjunction with the common law – in order to be granted both time and money.

What about common law remedies?

Contractors may also consider common law remedies but the primary basis of entitlement should be the relevant and applicable terms of the contract.

Is it Force Majeure?

Does your contract contain force majeure clauses, unexpected circumstances outside a contracting party’s reasonable control.  Check what events this covers and you may be able to claim costs arising from the impact.  Check also with regards to any subcontractors you may have.

What if the contract doesn’t contain a force majeure provision or what about claiming Impossibility/ Frustration/Prevention?

Can you argue the effects of Coronavirus itself or of government action aimed at combating it (such as mandatory quarantines) have prevented or frustrated the parties’ performance of your contract, or made performance impossible? If you can’t make a claim or classify Coronavirus as an event of force majeure, you might be released from further performance.  Prior to asserting either the occurrence of a force majeure event, or that a contract has been frustrated, it is very important to take legal advice.

What is the position under an un-amended NEC3 Contract

If you have entered into an un-amended NEC 3 contract Coronavirus may be a Compensation Event under 60.1 (19).  This covers an event which stops the contractor completing the work at all or by an agreed date, an event that couldn’t be prevented, would have been judged as an event with such a small chance of occurring it would be unreasonable for the contractor to consider it when entering into the contract.

What about an unamended JCT contract?

Clause 2.26.14 of the JCT Design and Build Contract identifies “force majeure” as a Relevant Event which entitles the contractor to an extension of time and  entitles either party to terminate the construction contract under clause 8.11.1, it is not a Relevant Matter and gives no entitlement to losses and expenses.

What about insurances?

If your operations are impacted by Coronavirus, you may have in place insurance that responds to at least some of your losses. Business interruption insurance policies in particular may cover disruption caused both by the disease itself and by public policy responses to it, such as enforced quarantines. However, there are often exclusions in such policies. it is important that you notify your insurers promptly.

Conclusion
There may be a number of remedies under your contract that can be used to grant relief from performance if the coronavirus has an adverse impact on any of your construction projects. These may be e.g. force majeure or claims for extensions of time and relief from liquidated damages. However, it will very much depend upon the exact wording of the contract itself and the impact of the virus on the project and any other surrounding circumstances.

For further more detailed information please contact us directly and we will be able to provide advice specific to your circumstances and contract.

Legal ruling highlights importance of preparation

Preparation is crucial when taking a construction dispute to court, a new legal ruling has underlined.

Construction consultancy MPG says the High Court decision should also serve as a reminder to contractors that they need effective programmes in place before commencing a contract in case there is a dispute in future.

The claimants in Clutterbuck and another v Cleghan lost because they failed to call an important witness, and the court refused to allow them to plug gaps in expert evidence at the last minute.

Michael Gallucci, managing director of MPG, said: “This is a wake-up call for anyone contemplating legal action, and their litigation team, that you must be fully prepared before you walk up the steps of the court building.”

Mr Gallucci, who advises leading construction companies and speaks internationally on contract law, said contractors must also prepare to protect themselves in the event of a dispute before even beginning work on a project. “Programmes are absolutely vital when claiming for delays or combating counter-claims,” he said. “They become yardsticks against which to measure the effects of delays, which are a frequent cause of disputes.”

An RICS accredited mediator, Mr Gallucci said too many property and construction disputes end up in court. “Instead of rushing headlong into what should be the last resort, the parties in a dispute should seek to resolve their problems through mediation, which is quicker and less expensive,” he said. “The Clutterbuck trial lasted 11 days in the High Court, no doubt racking up a big legal bill for the claimants who in the end walked away empty-handed. There is no way of knowing if they would have had a better outcome if they had settled by mediation, but in most cases, it is a better and less painful way to reach a conclusion.”

He added: “Settling out of court with the help of a qualified mediator can even mean that the parties don’t fall out irrevocably and can work together again. That’s rarely the case after an acrimonious court battle.”

Court ruling set to impact construction disputes

A new court judgement will have a major impact on disputes involving companies in liquidation, says leading construction consultancy MPG.

The decision in the Technology and Construction Court (TCC) means that companies in liquidation will not be allowed to use adjudication to settle financial claims.

Michael Gallucci, MPG’s managing director and an RICS accredited mediator, said: “Companies in liquidation and their advisors have often sought to settle claims through adjudication, even though they have generally been unsuccessful. This judgement will put an end to those kind of claims, saving time and costs for the courts and respondents.”

The case of Michael J Lonsdale (Electrical) Ltd against Bresco Electrical Services Limited (in Liquidation) related to claims and counter-claims between the two companies over a sub-subcontract.

When Bresco began adjudication proceedings to identify its financial entitlement, Lonsdale responded by calling on Bresco to withdraw the proceedings and also requested that the adjudicator, who had already been appointed, should resign, based on an earlier judgement. After Bresco and the adjudicator both refused to withdraw, Lonsdale took the case to the TCC.

Because Bresco was in liquidation, Mr Justice Fraser QC ruled that the claims and cross claims could not be separately enforced. Instead, under the Insolvency Rules, there was a single claim to a net balance once the various claims and counter claims were set off against each other.

This meant that the claim could not be settled by adjudication proceedings because it was not a claim “under the contract” and therefore an adjudicator would not be authorised to rule on it.

The effect of the judgment is that companies in liquidation will not be allowed to use adjudication proceedings to pursue financial claims where there are claims and cross claims between the parties.

The Court also awarded a permanent injunction against Bresco pursuing such an adjudication against Lonsdale.

Mr Gallucci added: “It is likely that any adjudicator appointed in a similar case would now resign if a respondent requested that he or she should do so based on the TCC judgement.”

Construction law expert qualifies as mediator

An international expert in construction law, Michael Gallucci, has qualified as an RICS mediator.

Michael Gallucci

Mr Gallucci, who runs London-based consultancy MPG, advises clients in the UK and the Gulf on construction law. A regular speaker at global conferences, he firmly believes that more businesses in the real estate sector should mediate to find a resolution to their disagreements.

“The construction sector sees a large number of disputes, often to do with late payment, and eight out of ten times when they do go to court, the parties will be instructed to go away and seek an out of court settlement,” he points out. “So it makes sense to go to mediation first and avoid the costs of a court case.”

As well as advising on legal matters, Mr Gallucci, a qualified RICS surveyor, and his team also act as management consultants on behalf of organisations involved in major construction projects. These have included the $30 billion Business Bay in Dubai where MPG provided contract administration, project management, quantity surveying, cost management and other services, and the £242 million Aquatics Centre for the London Olympics where the company provided contract administration, quantity surveying and cost management services.

He recently completed a successful speaking tour in the Middle East, including as a speaker at Big 5 in Dubai, the region’s largest construction industry event.

Nearer home, Mr Gallucci has joined the Civil Mediation Council, and is volunteering his mediation services to resolve family disputes via a St Albans charity. He is also mentoring two young professionals through their dissertations towards qualification as RICS surveyors.

As an RICS Accredited Mediator, Mr Gallucci’s name will be added to the list of qualified mediators managed by RICS Dispute Resolution Services.

Resolving construction sector disputes with arbitration

Arbitration is a proven way to solve disputes in the property and construction sector. Here are four examples of how our services helped clients in the arbitration process.

  • New Town Development – Quantum Expert Reports and Claims Management for Civil Contractor in Abu Dhabi on dispute heard at DIAC. Dubai, disputed sum AED53m
  • New Build Residential Project – Preparation for Arbitration in Dublin on Residential Scheme for MEP Contractor, disputed sum €2m
  • Hospital Scheme – Preparation of claims for prolongation and loss and expense for Hospital Project in Dublin and submission and preparation for Arbitration
  • Specialist Heart and Chest Hospital – Re-drafting of Variation documents for Claim submission and preparation of £250k Insurance Claim

Preparing a claim in a construction dispute

Preparing claims in construction disputes is among the services that we provide to the property sector under the heading of dispute resolution. Here are a dozen times we prepared claims to help clients win their cases.

  1. Defence Dockyard – On behalf of the employer assisting the quantum expert on a dispute with a main contractor associated with a nuclear submarine dry dock, specifically involved with analysing contractor’s alleged delays with a view to determining culpability associated with the engineering services aspect of the works, contractor’s claim for damages approximately £9m
  2. Military Bunker for Trident – On behalf of a mechanical and electrical subcontractor, providing advice and quantum information to the legal team relating to a military bunker, specifically involved with the production of documentation to assist with the valuation of the variation account and analysing the documentation to establish the basis of entitlement relating to prolongation, subcontractor’s claim for damages approximately £5m
  3. Specialist Eye Care Hospital – On behalf of contractor compiling a loss and expense claim including details of causation and quantum, claim value £660k
  4. Academy for Dramatic Arts – Assessing a controls subcontractors account and reporting on the further particulars required relating to the demonstration of the events that caused the delays and quantum particulars, claim value £1m
  5. Hotel Project (5 star) – Assessing a contractor’s account and reporting on the further particulars required in order to enable ascertainment to take place, claim value £1 .2m
  6. Media City – On behalf of an engineering subcontractor, general assistance to demonstrate that they were not culpable for specific delays, i.e. the demonstrating that the dominant cause rests with, for example, variations, delays in builders work activities, claim value £11m
  7. Hotel and Residential Project – Preparing a brief demonstrating causation to form part of a request for an extension of time, a preliminary assessment of the quantum that may flow there from, on behalf of contractor assessed claim value and preparation of final account £18
  8. National Sports Stadium – Drafting an acceleration narrative and quantum and preparation, negotiation and settlement of final account including draft of deeds of agreement, £53m
  9. Airport Terminal – General advice on projects in progress. i.e. when to issue non–completion notices, certificates, valuations, variations under NEC 3 contracts
  10. London Underground – Full Quantity Surveying services including the preparation of Claims amounting to £6m
  11. Residential Project – Independent valuation of variation account and reporting on Quantum. Prolongation and Disruption, totalling £1m
  12. Underground Station Project – Negotiation with LUL representatives, re-drafting variation submissions and checking Quantum for Dispute Team, £11m

Adjudication Services

Our experience in adjudication services covers a number of spheres in the property and construction sector. Here are some examples.

  • Residential Project – On behalf of subcontractor defending Adjudication proceedings relating to the variations aspect of the final account, including providing alternative quantum valuations in the event that the adjudicator decided on liability that we would fail, value of dispute £950k
  • World Airport – Preparation for Adjudication of six account and claims submissions for contracts terminated by Airports Authority in Dubai, disputed sums AED200m
  • M&E Adjudications – Preparation of quantum particulars on 4 adjudications for Contractor on M&E issues

Using expert services to resolve construction disputes

Our expertise in construction matters means our dispute resolution services are often utilised to provide Expert Determination and Expert Reports in order to solve property sector disputes.

Examples of our work in Expert Determination include

  • Redevelopment of Arts Centre – Undertaking an expert determination relating to valuation of circa 400 engineering services variations, value approximately £3m
  • Central London Buildings – Providing assistance to court appointed expert. £9m

We have prepared Expert Reports in a number of cases including

  • Data Centre – Quantum Expert reports on Data Centre project in Dublin, disputed sum €8m
  • Office Building – Expert Reports for Property Owner in Temple London regarding Chiller Systems and Fan Coil Unit Installation and Expert Reports for Property Owner in Lombard Street, London regarding Chiller System and Lift Installations

Consultancy services for legal claims in construction

Over the years, we’ve provided a number of services to help clients through the litigation process. Although we believe litigation should be the last resort to resolve property and construction disputes, we also recognise that the process must be managed properly. Here are three examples when our services helped clients pursue legal claims successfully.

  • Religious Building – On behalf of the Audit team preparation of Due Diligence reports for live contracts, £30m
  • Dockyard Project – Expert report preparation for a litigation case totalling £180m
  • Military Barracks – Quantum preparation on 54 separate clam issues to the total value of £8m. Also acted as a Witness of Fact on Variation disputes in Court of Technology Litigation