Is the construction sector really going to ‘play nice’ in the wake of the COVID-19 outbreak?
12 May 2020
Payment has always been a contentious subject within the construction sector.
Many schemes have been introduced in an attempt to deal with fair payment, such as the 2014 introduction of the Government’s Construction Supply Chain Payment Charter (the Charter), which set out 11 fair payment commitments. It is safe to say that the Charter never really got off the ground and following both the 2016 and 2018 revisions, just 35 companies had signed up.
Of those 35 companies, it was found that all of the Tier One contractors (generally large national main contractors) were failing to adhere to the Charter. One key commitment of the Charter is to make payments to the supply chain within 30 days; guess how many of those Tier One contractors routinely make the required payments to the supply chain within 30 days.
Despite the continuing COVID-19 outbreak, the construction sector is being encouraged to remobilise (to the extent it ever really demobilised). With this, it is anticipated that delay and a severe tightening of the purse strings will see an abrupt increase in disputes. It is likely sub-contractors will be hardest hit in the coming months. We have already seen, by way of example, one house builder seek to arbitrarily reduce payments to its sub-contractors by as much as 50% ‘on account of the coronavirus’.
In anticipation of this, and in a bid to prevent the construction sector turning further into something reminiscent to the wild west, a number of leading construction bodies have got together to develop the ‘the Conflict Avoidance Pledge’ (the CAP). The development of the CAP has been led by the Royal Institution of Chartered Surveyors and other industry bodies such as the Institution of Civil Engineers, and the Royal Institute of British Architects, and it has been endorsed by the Construction Leadership Council. Some major employers, including Transport for London and Network Rail, have signed up.
The CAP essentially requires its signatories to commit to working collaboratively with others to highlight potential disputes and resolve those disputes amicably throughout the supply chain. While this approach must be commended, its success can only be measured by those who are a party to it and act according to its own voluntary commitment. Judging by the (lack of) success of the Charter, the CAP must be viewed with caution and a degree of scepticism. Its success will have to be judged over the coming weeks and months, although even then it will take time for its effects to filter through even if it is widely adopted and upheld – many disputes will already have arisen and the supply chain will already be feeling the pinch.
Even if it is a success, or partial success, the CAP must be not be seen as an alternative to adhering to the contractual requirements of any given project. Indeed, the Charter and CAP are not compulsory nor is there anything preventing one party withdrawing from the process before its natural conclusion in order to pursue more litigious methods of dispute resolution. The CAP therefore requires the construction sector, as a whole, to ‘play nice’ in instances where there may be significant delays and cash flow concerns on both sides – easier said than done.
While it’s possible that the CAP will become commonplace in the industry in the coming months, no one should be under any illusions that it will be the antidote to decades of construction disputes. Ensuring you have a signed contract, know what it says, and are operating it – including issuing the relevant applications and notices – remains as important as ever even if there is an outbreak of reasonableness and prompt payment in the industry.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2020.