Pandemic, construction materials shortage and the JCT: What can you do?
The UK construction industry is in the middle of a materials procurement and shortage crisis, with key building materials like timber, cement and steel becoming much more expensive and difficult to source. This is understandably causing pricing issues and severe delays on many projects.
The question of whether it is possible for contractors to pass the cost of these issues on to their employers under existing contracts is not clear cut and as always, will depend on the express wording of the contract itself. For example, some standard form JCT contracts include optional “Fluctuation” provisions which, if stated by the parties to be applicable, may entitle the contractor to be reimbursed for certain price changes to specified items throughout the duration of the project. In the case of “fixed price” JCT contracts with no “Fluctuation” provisions agreed, there are usually only very limited circumstances in which a contractor can seek to claim additional costs. For instance, in the event of an instructed variation to the works, or if the contractor is entitled to claim loss and expense pursuant to the terms of the contract.
Extended lead times for materials is likely to delay completion of the works and expose contractors to the risk of liquidated damages. If any of the contractual “Relevant Events” set out in the JCT occur, contractors can claim for an extension of time to the completion date. However, successfully arguing that the current materials shortage crisis amounts to any of the Relevant Events that are contained in the standard/unamended form of JCT contracts would be extremely difficult. The problem contractors are likely to face is that there are a number of uncertain, disputed and complex causes of the current “materials shortage crisis” gripping the UK, and a contractor is unlikely to be able to argue that any of the Relevant Events have caused the delays with sufficient certainty.
What if an identifiable element of the works is not procurable?
Under the JCT Design and Build Contract 2016, the contractor is obliged to carry out and complete the works using the materials specified in the agreed technical contractual documents. However, Clause 2.2.1 makes it clear that that obligation is insofar as those materials are “procurable”. What “procurable” means in this context is unclear – and there are likely to be arguments about whether this would have to entail the impossibility to procure materials or simply a longer lead-in time. However, this wording suggests that a contractor should not be penalised if those materials, through no fault of their own, cannot be realistically procured.
Unless amended, Clause 2.2.1 of the JCT Design and Build Contract 2016 requires the contractor to seek the employer’s consent before substituting any materials for alternatives. Accordingly, whilst a contractor could seek an instruction under Clause 2.2.1 due to the fact that certain materials are no longer “procurable”, an employer would appear to have the discretion to withhold its consent to any substitution. In those circumstances, a contractor would be left with the option of trying to argue that the employer’s failure to consent was unreasonable and constituted an act of impediment or default, however, our view is that given the JCT’s wording, such an argument is unlikely to succeed.
In the current climate, contractors are likely to be wary of agreeing to the standard form JCT provisions without any amendments – as these are unlikely to provide any relief against the time and cost implications of materials shortages on projects. Employers are therefore likely to find a landscape where the terms of the contract are much more heavily negotiated for specific reliefs and remedies in the event of any price/delay issues for key materials. Employers would be well advised to try and ensure that any such clauses are drafted very carefully to ensure that the transfer of risk in price increases and delay is kept to the minimum where commercially possible.
On any project, if issues arise caused by delays/price increases to the works, proactive and cooperative communication between the parties in an attempt to resolve the situation will normally be the most sensible solution.