Construction contracts: dealing with civil unrest

The recent instances of civil unrest were arguably the worst that the UK has seen for a decade. Rioters took to the streets of many major cities, in many cases leaving behind a path of destruction in their wake. The damage and disorder caused are the visible consequences, but they are not the only ones. It may ultimately seem trivial and must be viewed in the context of the obvious human consequences, but when the dust settles, what of the unforeseen ramifications for businesses? From a construction perspective, how do parties ensure that their interests are protected, and what happens when projects are delayed or disrupted?

This article considers this question through the lens of the two most widely used contract suites in the UK construction industry, the JCT and NEC. To one degree or another, they both incorporate provisions which attempt to answer some of the questions that arise in times of civil unrest.

The JCT approach

As many of you will know, the JCT has recently started to publish its new 2024 suite of contracts – the versions currently available are the Design & Build, Intermediate, and Minor Works contracts, with further editions being added over time. If you are interested in what changes have been made in the 2024 editions, check out our summary here.

Like its predecessors, the JCT 2024 suite generally includes a list of “relevant events”, which are the events potentially giving rise to grounds for the contractor to claim an extension of time to the works completion date. This includes:

“civil commotion or the use or threat of terrorism and/or the activities of the relevant authorities in dealing with such event or threat”; and

‘force majeure’.

There is also a Relevant Event relating to changes in legislation after the ‘base date’ – normally specified as the date of the contractor’s tender. Changes in legislation is now widely defined and can include the publication of guidance.

To understand why these “relevant events” are, well, relevant we need to look at how relevant events work and what the parties to the contract are entitled to claim when one arises.

Relevant Events under the JCT entitle the contractor to claim an extension of time. Meaning that if the contractor follows the procedures outlined in the contract, the date for completion of the works would be extended. A consequence of such an extension being that the contractor would avoid liability for liquidated damages for delay for the equivalent period. In some circumstances the contractor may also be entitled to claim their additional costs incurred.

Importantly, it is the contractor’s responsibility under the default JCT wording to make the employer aware of any likely delays and their estimated effect of the delay on progress of the works. The employer then takes the information given to it by the contractor and grants an extension which it believes to be “fair and reasonable” under the circumstances.

Under the default JCT wording, the contractor will not be entitled to any additional costs incurred by them due to the ‘civil commotion or unrest’ or ‘force majeure’ Relevant Event (where the force majeure is the civil unrest). There is the option for the parties to choose in the contract whether a change in statutory requirements after the Base Date (including publication of guidance) would entitle the contractor to its additional costs.

The NEC approach

The NEC contract suite is known for its more co-operative approach to the contracting process. It is meant to be used as a project management tool, as such it aims to have a more active role throughout the construction operation.

NEC contracts have their own approach when it comes to dealing with delays to completion and the associated costs incurred. A list of ’compensation events; is set out in the contract, which can give rise to entitlements both to time and money. There are initially 21 compensation events provided for, with the option of adding additional events in the contract as required.

Although civil commotion is not specifically mentioned in the list of compensation events, the NEC adopts a broad approach. Compensation events which could potentially cover the civil unrest scenario include:

‘(2) The Client does not allow access to and use of each part of the Site by the later of its access date and the date for access shown on the Accepted Programme’.

This could be relevant if the client took the decision to close the site due to the threat of civil unrest.

‘(14) An event which is a Client’s liability stated in these conditions of contract.’

This could give rise to compensation for the contractor as the NEC also provides a list of the client’s liabilities, including:

“loss of or damage to the works, Plant and Materials due to… Strikes, riots and civil commotion not confined to the Contractor’s employees…”

In addition, the NEC contains a compensation event akin to a ‘force majeure’ situation, whereby a compensation event could arise if an event occurs which (i) stops the contractor completing the works, (ii) neither party could prevent, and (iii) was not reasonably foreseeable by an experienced contractor.

The NEC form is very prescriptive about the process for notifying compensation events and granting relief. Failure to comply with the process can result in loss of relief, or relief being granted where perhaps that would not otherwise be an equitable outcome.

Where the contractor becomes aware of a compensation event arising, they have eight weeks to notify the client’s project manager. The project manager then has one week (or longer if the contractor has agreed to this) to reply to the notification.

The two parties will meet to discuss the ways of dealing with the compensation event and the contractor will then submit a quotation within three weeks. This quotation includes proposed changes to the timeline of the works and the Prices payable as a result of the compensation event.

Within two weeks of the quotation being submitted, the project manager must reply either accepting the quotation, requesting a revised quotation or notifying the contractor that the project manager will be making the assessment themselves.

Following the acceptance of the quotation, the dates (including the completion date and any key dates) and the Prices are revised in the final contract.

As any losses or damage due to civil commotion and riots are client liabilities, they will be expected to have insurance to cover any losses arising from such events.

The Birketts view

Whether you are contracting under a JCT, NEC or another building contract it is likely that contractors will be entitled to claim additional time, and potentially their additional costs, for any delays that arise as a result of civil unrest.

One key takeaway for contractors is that you should let the employing party know as soon as possible when you are aware that a delay has or is likely to take place, paying particular attention to any longstop periods for notification. Failure to comply with this, and any other pre-condition in the contract (particularly in the case of the NEC forms), could negate any entitlement you may otherwise have had.

If you or your project have been affected by the civil unrest taking place in the UK, it is important to review your building contract to find out what your obligations are and what you may be entitled to.

If you have any questions or concerns about anything mentioned in this article, please do not hesitate to get in touch.