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Practical responses to construction projects affected by COVID-19: Mitigation and Acceleration

  • United Kingdom
  • Construction and engineering - Articles
  • Litigation and dispute management

14-08-2020

This article follows on from our article on the Top 5 COVID-19 issues affecting construction contracts.

The majority of construction and engineering projects across the world have been affected by Covid-19 through site shut downs, reduced work force, additional health and safety requirements and revised working methods.

Delay, disruption and loss in productivity will inevitably make it more challenging for contractors to meet contractual completion dates. This will result in additional costs and if completion is delayed, and there is no right to additional time, delay damages being payable by contractors. They may also result in losses to employers, such as reduced income streams and risk of liability under upstream agreements, if not adequately covered by delay damages.

Parties will be seeking to avoid delays so far as possible. Contractors will be under contractual and common law obligations to mitigate any delays.  It may also be possible for contractors to accelerate works, by employing additional resources to make up any lost time. If properly implemented, acceleration measures can result in savings to both contractors and employers.

However, any acceleration measures need to be properly instructed by the employer and, if possible, agreed by the parties in advance to avoid disputes.

This note addresses the principles of mitigation, acceleration and the distinction between the two principles for the parties to consider in order to minimise the risk of disputes later down the line.  

The Contractor’s duty to mitigate

A contractor who seeks to establish that they are entitled to additional time or money for completion of their works will, in common and civil law jurisdictions, be under a duty to mitigate. This will require the contractor to consider how to progress the works to minimise the impact of the delays or costs for which it is not responsible.  The duty to mitigate does not require the contractor to expend additional costs.  

The SCL delay and disruption protocol (2nd edition) advises that the Contractor is not obliged to expend money in order to attempt to mitigate the effect of a delay event, nor to carry out any change in scope any more efficiently than the original scope; and that if an employer wishes the Contractor to take measures to mitigate delay (whether by adding extra resources, by working outside its planned working hours or otherwise), the employer should agree to pay the contractor for the costs of those efforts.

There may also be express obligations under the construction contract to mitigate. The unamended JCT form of building contract requires the contractor to ”use his best endeavours” to prevent delay, and under FIDIC, each party is required to use “all reasonable endeavours to minimise any delay in the performance of the contract”. The NEC suite of contracts does not contain an express obligation to mitigate, but the contractor is required to give an early warning notice once he becomes aware of a matter which could delay the works requiring the parties to hold an early warning meeting.

It is generally considered that the obligations of ‘all reasonable endeavours’ and ‘best endeavours’ are regarded as being more onerous than the common duty to mitigate. According to Keating on Construction Contracts (10th Edition):

“in some cases it might be the Contractor’s duty to reprogramme the Works either to reduce or prevent delay.  How far the Contractor must take other steps depends on the circumstances of each case, but it is thought that the proviso does not contemplate the expenditure of substantial sums of money” (20-152)

In the case of delays caused by Covid-19, contractors may be required to adopt the following reasonable mitigation measures:

  • engage alternative suppliers for goods, equipment and materials where supply chains have been disrupted;
  • replace staff on site who are unable to attend site due to health related reasons;
  • reschedule drawing approvals; and
  • follow, review and plan according to government guidance and industry best practice.

Acceleration

Employers may instruct contractors to ‘accelerate’ the works, so as to shorten the duration of remaining works. This may occur for a number of reasons, including: to protect its income stream; to mitigate exposure where delay damages do not cover the losses which the employer is likely to face; or to mitigate exposure under an upstream agreement between the employer and another entity.

Accelerating works can increase the contractor’s costs owing to increased workforce size, overtime, increased materials / equipment costs and other expenses due to different working methods.  

Where there is a clear express instruction to accelerate, the contractor would expect to recover its costs. Where the contract between the parties includes acceleration provisions, the contract may prescribe the basis upon which the additional costs will be calculated and paid, alternatively the contractor may look to agree separate terms for the additional payment (i.e. the additional payment may be in the form of a bonus for early completion or paid on a cost re-imbursement basis).

It is advisable that the parties think carefully when agreeing to acceleration measures, and agree upon and record in advance precisely what measures the contractor will be implementing, how long these measures are to exist for, and what additional sums the contractor will be paid.

Parties should also consider the practical impact on the programme for the works. There may be pre-existing delays to the project which are unrelated Covid-19 delays. Employers will want to carefully monitor the contractor’s progress to ensure it is genuinely accelerating its works. There will also be the potential for delay events occurring during any period of acceleration, which might impact the contractor’s ability to claim additional payment.

In order to minimise the risk of disputes, it is advantageous for the parties to update the programme in advance, agree responsibility for existing delays and a process for assessing any delay events going forward.  Parties should also consider allocating and recording the ongoing risk of COVID-19.

Implied acceleration and mitigation

There are contractors who seek to accelerate works to alleviate the impact of the Covid-19 delays without specific instructions from the employer or contractor.  There may also be the situation where contractors or sub-contractors have claimed for an extension of time to which the employer or contractor have not responded and it goes on to accelerate the works.  

These are however examples of implied acceleration and not mitigation measures.  Implied acceleration is not recognised in English law and as such there is a risk that the contractor will be unable to recover costs associated with implied acceleration. Claims for implied acceleration may be available in other common law jurisdictions, for example in the US and Australia. Furthermore, in many civil law jurisdictions, it will be possible to bring a claim for damages (including acceleration  costs) where the employer fails to grant an extension of time in breach of its contractual obligations and/or codified duties (such as good faith).

Contractors should only seek to accelerate the works where express instructions have been given by the employer, or where the costs of doing so are less than any potential exposure to delay damages which would otherwise be avoided through the acceleration. This is so as to avoid the risk that any costs incurred are deemed irrecoverable.

Practical considerations

Whatever steps parties are planning to take to mitigate delays or accelerate works, it is advisable that these are clearly communicated in writing.

In the event that there is express acceleration, the parties should look to agree an acceleration agreement which covers key aspects of payment, extensions of time, pre-existing and future delays. Contractors should be wary about incurring additional costs unless there is a clear instruction from employers.

All additional costs incurred by the contractor when taking mitigation or acceleration measures should be recorded separately from the ordinary project costs. Parties should also ensure that the programme is updated to reflect any agreements reached.