The cost of COVID-19: who is bearing the burden?
24 March 2021
We are now just over a year into the COVID-19 pandemic and although the construction industry has soldiered on through as best it can, inevitable delays, site closures and dips in productivity have occurred.
In light of this, many are wondering how much of an impact COVID-19 has had on contractual disputes. The short answer: it’s probably too early to tell!
What we know so far?
The CLC published research at the beginning of the year, designed to understand the force of impact COVID-19 has had on contracts, including the nature and extent of claims still to come. This research, based on a questionnaire and interview with a range of professionals and contracting parties across the industry, suggested that commercial behaviour initially changed in the wake of the pandemic and throughout 2020, with reports of greater levels of collaboration throughout the supply chain. However, the CLC concludes that as the pandemic continued, the commercial stance taken by parties became tougher. Over time it appears there was a greater focus on managing existing contracts, increased tendering, rising insolvencies and price increases.
What was made clear from the research is that firms see a real need for more robust, transparent contract provisions dealing with this issue.
Who bears the cost?
Ultimately, it seems clients are the ones who are bearing the weight of the COVID-19 burden, incurring the most financial losses.
Further research by Turner and Townsend found that 49% of contractors are attempting to improve their financial position by addressing potential COVID-19 related losses via tender submissions. And in terms of claims specifically; the CLC research reports a rise in the level of claims/notifications due to COVID-19. These are not just claims directly linked to the effects of COVID-19 itself, but also relating to legacy projects. As you might expect, parties appear to be looking more closely at their contractual entitlements as a means of boosting cash reserves.
This increase in the number of claims related to COVID-19 has, understandably, brought with it an increase in the number of rejected claims. It appears that whilst parties are likely to agree on an entitlement to additional time for completion of projects, there is an aversion to agreeing the extent of financial losses, costs and expenses which follow. In effect, contractors are getting time but not money.
It is too early to tell where these rejected claims will end up and if they will be pursued further in the courts. However, it is expected that they will lead to an increase in formal disputes throughout the year, particularly as contractors try to recoup COVID-related losses.
Whilst the end of the COVID-19 pandemic may be in sight, it looks like there is a real possibility of an influx of COVID-related claims being brought before the courts. This is particularly as more as and more projects entered into before the pandemic come to an end where the underlying contracts do not contain the robust, transparent contract provisions dealing with COVID-19 and its effects which firms are now seeking to rely on.
This article is from the March 2021 issue of Cornerstone, our regular newsletter for those working in the construction industry. To download the latest issue, please visit the newsletter section of our website. For further information please contact Sophie Thornley, Nicole Clifford or another member of Birketts’ Construction Team.
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 March 2021.