How do I suspend operations during the Covid-19 pandemic without being in breach of contract?

Coronavirus pandemic and its impact on construction contracts

Problem:  I have a situation that is no doubt going to be of huge interest to other contractors and companies allied to the construction industry (and indeed, all other sectors of the economy) – it is to do with the current coronavirus pandemic and the effect it is having on my building contracts.

My construction company turns over in excess of £10 million, mainly new build with roughly a 50/50 split between local government work and private client.  Since the outbreak of the coronavirus pandemic, I have been struggling with placing operatives on site (both with self-isolating and making sure operatives are kept away from each other), getting material and plant delivered, and with clients now looking at shutting the sites down because of staff and team shortages and ensuring that there are no gatherings or meetings.

All of the contracts are being administered under various forms of JCT contracts, and I really need to bite the bullet and suspend all operations for a period of time.  What I do not want to do however, is be in breach of contract that could result in termination or liquidated damages for delay.  Any idea how I can go forward?

 Response:  This pandemic is indeed unchartered territory for everyone (even for us lawyers), and it is very worrying, not only from a commercial perspective, but from a health perspective as well (which is the number priority).

In relation to the matter you are facing, there is no simple contractual or legal answer.  The closest ‘answer’ you have to your predicament is either the force majeure provision that is found in the JCT contracts and the common law doctrine of frustration, but neither will produce the result of suspension you are seeking, only termination.

You would need to seek expert legal assistance as to whether the coronavirus pandemic would constitute a force majeure event, as it will depend upon individual circumstances and when the contract was entered into.  To rely upon a force majeure clause, it must be shown that an event occurred was not foreseeable and beyond the control of the party seeking to rely on the clause, of which prevented the performance of its obligations under the contract.  Further, the party would need to prove that it had taken all reasonable steps to avoid or mitigate the effects of the event.

The common law doctrine of frustration concerns events which are not the fault of either party rendering the performance of a contract impossible and discharges the parties from further obligations, although this is by no means certain as the law of frustration has been interpreted by the courts quite narrowly.

That said, it could be different if the Government introduces a country-wide ‘lockdown law’, meaning that your building company could not go to site and complete the works.  That then could be on the road to be a force majeure event entitling to one party to terminate performance – but again, this is not suspension.

However, there is a more sensible solution, in my opinion.  That is, to see if you can reach a compromise to ‘pause’ the obligations under the contract with each of your clients, for say an initial 3-month period.  This approach would make practical and commercial sense in circumstances where neither your company not your clients are at fault and the ultimate aim is to resume performance of the contract at some later stage.

Best wishes and stay safe.

© Michael Gerard 2020

The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.

Author background

Michael is a Solicitor, Chartered Builder & Registered Construction Adjudicator, and is a director at Michael Gerard Law Limited, a solicitors practice regulated by the SRA.