For the latest article in our ‘contract clinic’ series, Bill Bordill answers a question about how contracts treat delays caused by the pandemic.
The question
I am working on a contract under JCT. A delivery of steel has been delayed due to Covid-19, and prices are changing rapidly. What should I do, and how does the JCT deal with changes in costs?
The answer
Nobody can have missed the huge challenges faced by construction’s international supply chains over the past two years. From ships trapped in the Suez Canal to global lockdowns resulting from the pandemic, via rising fuel costs and Brexit, project delivery is under pressure like never before.
So, what if you have a project that has suffered from delays or cost increases? What are your options, and how can you avoid or minimise the risks?
As always, begin by checking your contract. Is there a clause in the conditions that will allow you to deal with changes in cost or supply chain? In this case, working with JCT, there are three fluctuation clauses that may be included with the JCT form:
- Option A allows for changes to tax or other levies the contractor is required to pay.
- Option B allows for changes in labour and material costs relevant to a ‘base date’.
- Option C allows for a formula to be applied – this is the most complex option and depends upon the type of work being undertaken.
“You will need to be able to identify why the delay for which you are not contractually liable entitles you to any compensation or extra time. To achieve that, you will need thorough records.”
Fluctuation clauses exist in many standard contracts, to allow for adjustments to what is usually referred to as the ‘base’ cost. They will generally not allow for unlimited change, but for a certain degree of calculated risk to be allocated to the employer. As outlined above, such clauses will often follow a formula or calculation based on price indices or inflation.
If you experience delays to progress or to completion of a project, then you may need to formally apply for a remedy. The likely contractual recourse will be to notify of a relevant event or apply for an extension of time.
But remember the late arrival of the steel by two weeks will be unlikely to lead to two weeks added to your project completion date. You will need to be able to demonstrate:
- Entitlement. Look at the contract, what entitlement do you have to claim for delayed delivery? Is there anything in the contract to help you?
- Cause and effect. Contractors will often think that because things are two weeks late, they’re entitled to two weeks extra. That’s not the case. You will need to be able to identify why the delay for which you are not contractually liable entitles you to any compensation or extra time. To achieve that, you will need thorough records.
Much will depend on what you can prove, and what the contract says, but if you can maintain good relations with all the parties involved in a project, there’s a much greater chance of potential success.
Bill Bordill is a director at Decipher.
