Main contractors are being called to account for using COVID-19 as an excuse to withhold payment, illegally ignoring key NEC3 contract clauses designed to protect the rights of subcontractors.

The impact of the Coronavirus pandemic has had a major impact on all segments of the construction industry. It seems however that main contractors are trying to recoup their losses by passing the burden on to their subcontractors. If this has happened to you, then you’ll want to know the key clauses in a typical NEC3 contract which can be used to enforce your payment rights. But first, a few questions.

  • Are you being prevented by the main contractor from achieving your programmed completion date?
  • Has the sequence of work changed, with other trades performing to the Contractors’ own sequence of work?
  • Have you carried out an analysis of how disruption and delay have impacted your direct and indirect costs?

If the answer to the first two questions is yes, then you need to address point three without delay. This is important because, whilst understanding main contractors need to reduce their risks in line with the government’s social distancing rules, any measures taken must still reflect the provisions of the contract. For example, in a typical NEC3 contract you’ll find:

  • The main contractor is required to instruct the subcontractor on how to deal with events that ‘stop’ them from completing the works on time (or at all) where such events could not be foreseen or prevented by either party
  • The main contractor is also required to act fairly and impartially in so doing and must assess the impact of the event on the prices, programme, completion date and other key dates
  • An instruction to stop work, not to start work, or to change a key Date would provide an entitlement to both time and money

Compensation Events

It is clear that an event such as Coronavirus, unless specifically allowed for under Force Majeure, should be treated as a Compensation Event under NEC3 when the following conditions exist:

  • The subcontractor is stopped from completing the Works by the date shown on the accepted programme
    and it is something which
  • neither party could prevent
    and
  • An experienced subcontractor would have judged at the contract date for it to have such a small chance of it occurring that it would have been unreasonable for him to have allowed for it

It is clear from work we are already carrying out on behalf of a number of our construction clients that one of the major issues is that the main contractor and others are not themselves working within the times shown on the Accepted Programme. It also seems that there is a lack of clarity in communications, instructions are not being received within agreed timeframes, and assumptions are being made which are not allowed for within the provisions of the contract.

Additional Costs Incurred

For many subcontractors, it is clear that the pandemic has resulted in uneconomical working patterns. Works can no longer be executed in accordance with the programme and planned labour resources can not be properly utilised. In addition, operatives are frequently being required to revisit areas of the building where work had previously been completed in order to undertake additional/delayed works.

This all results in constant planning, re-planning, and rescheduling of work and resources to accommodate work arising from numerous and frequent delays. These are all costs which the subcontractor cannot afford (and should not be asked) to bear and therefore must be compensated for.

What Next?

If you have been affected by the pandemic and are being asked to shoulder the burden of any additional costs arising from delays and rescheduling of works, it’s time you spoke to PJE International. Contracts are there for a reason. They can and should be enforced and your payment rights protected.