This article examines the impact that the emergency legislation introduced in March and April 2020, collectively referred to as “EMPI legislation” will have on the standard form construction contracts in Ireland.

Who will bear the burden of any delay or costs incurred as a result of the current lockdown measures will be answered primarily by examining the wording of contracts.

What restrictions are in place from a construction context?

The EMPI legislation empowers the Minister to make regulations “for the purpose of preventing, limiting, minimising or slowing the spread of COVID-19 (including the spread outside the State) or where otherwise necessary, to deal with public health risks arising from the spread of COVID-19”. Such regulations may include restrictions imposed on travel to and from the State, restrictions on travel within the State and restrictions requiring persons to stay in their homes for a designated period of time.

Although measures restricting the activities of the construction industry are not expressly provided for in the EMPI legislation, the impact of the legislation and the public health measures announced on 27 March 2020, means that construction workers have been unable or are restricted from attending sites (save for some exceptions set out in the public health measures). The travel restrictions combined with mandatory social distancing requirements have resulted in construction sites being forced to close until the lockdown measures are lifted and further guidance is issued by the Government.

Is construction an “essential service”?

One of the exemptions outlined in the public health measures announced by the Government is where “essential services” are being provided. Construction projects will be deemed to be essential services under the new public health measures, where the project falls into one of the following categories:

1. essential health and related projects relevant to the COVID-19 crisis, and supplies necessary for such projects;
2. repair/construction of critical road and utility infrastructure; or
3. delivery of emergency services to businesses and homes on an emergency call-out basis in areas such as electrical, plumbing, glazing and roofing.

The measures provide that builders contracted by Government Departments or Public Bodies will be advised as to whether a project is deemed essential. For example, a process has been set out by the Department of Housing, Planning & Local Government to designate certain social housing projects as essential projects within the meaning of the EMPI legislation and the public health measures.

The criteria set out by the Department includes whether the housing project is essential to prevent, limit, minimise or slow the spread of COVID-19 and whether the housing project can be completed and be available for allocation/occupation by 29 May 2020. This includes all social housing projects – construction, turn-key, refurbishment and leasing projects. Prior to recommencement of any construction activity, the Department recommends that all local authorities should advise contractors, consultants and their respective agents working on the project to adhere to the public health measures for COVID-19 and any other relevant health and safety regulations, guidelines or protocols applicable to the construction sector. This recommendation will remain until further guidance is issued by the Government.

Does the EMPI legislation amount to a Change in Law?

Depending on the terms of the contract, a change in law clause might also provide an alternative avenue for relief in the current climate. Some questions to ask:

• Does your contract include a change in law provision?
• If so – who bears that risk?
• If the employer bears the risk – are there any constraints on the extent of the employer’s obligation?

RIAI Contract

Clause 4 of the RIAI Contract deals with variations arising from “legislative enactments” and provides that “where the cost of performance of the contract is increased or decreased as a result of any legislative enactment, rule or order or the exercise by the Government of the powers vested in it, whether by way of the imposition of new duties or tariffs or the alteration of existing duties or tariffs or the restriction of licences for the importation of any commodity, or by way of affecting the cost of labour or otherwise, the amount of such increase or decrease as certified by the architect shall be added to or deducted from the Contract Sum as the case may be”.

Given that construction projects are not deemed to be essential services (save for limited exceptions), most if not all construction sites are now closed on foot of a “legislative enactment”. Contractors may therefore seek an adjustment to the contract sum in line with the change in law clause. An employer might seek to resist that the EMPI legislation will come within clause 4, on the basis that the change in law must come within one of the express examples set out and presumably parties will have different views on how this clause should be interpreted. However, the inclusion of the wording “by way of affecting the cost of labour or otherwise” is arguably broad enough to encompass the impact of the EMPI legislation on the cost of construction projects.

Public Works Contract

The Public Works Contract (PWC) form of contract includes separate definitions for Law and Legal Requirements. Law is defined as “enactments and statutory instruments, each as defined by the Interpretation Act 2005, and regulations, directives and decisions of the EU having direct effect in Ireland”.

The definition of Legal Requirement includes the term Law but is much broader in scope. It is defined as “a requirement that applies to the Works as a result of a Law, a Consent, a decision of an Irish Court, the ECJ or the ECFI, the requirements of any person having authority in connection with the Works under any Law, the requirements of any person with whose systems the Works will connect or the legal rights of any person.”

The contractor is obliged to perform the contract in compliance with all Legal Requirements.

The EMPI legislation is a legislative enactment and would therefore satisfy the definition of Law and/or Legal Requirements under the PWC form of contract. However, the clauses relating to a change in Law under the PWC form of contract will only apply where a Law changes “[whether by alteration, addition or removal] VAT, customs or excise duties, requirements for a licence to import or export any commodity or Pay-Related Social Insurance”. On this basis, the EMPI legislation would not constitute a change in law under the PWC form of contract. However, there are other avenues of relief that a contractor could explore under this form of contract (for example, by claiming a Delay Event).

Government ex-gratia payment under State funded projects

The PWC form of contract does not provide a clear entitlement to the contractor to recover costs associated with a delay arising from site closure in the current lockdown. However, as sites remain closed, contractors continue to incur liabilities and have ongoing fixed costs associated with securing the site, maintaining insurance on the works and making lease payments on certain items of plant, machinery and site welfare infrastructure. On this basis, the Government announced (press release dated 14 April 2020) a suite of measures to manage these risks in the short term, safeguarding the integrity of Project Ireland 2040 and providing for a timely restart to construction, when circumstances and public health measures allow.

Included in these measures are details of an ex gratia payment to be made to contractors engaged under the conditions of the standard PWC forms of contract to cover “agreed reasonable non-pay fixed costs” incurred for the period that the public health measures extend. The ex gratia payment will be determined as a daily rate with reference to the contractor’s fixed costs as set out in their detailed price break down on a case by case basis. This announcement will come as a great relief to many contractors in the current climate and might avoid a raft of disputes being instigated under the PWC form of contract, in the short term at least. For further information see.

Conclusion

Securing an extension of time claim or cost recovery will be of critical importance for contractors in light of the impact of the EMPI legislation and the ongoing public health measures imposed by the Government. However, it appears that the options for claiming such relief will be more favourable to a contractor under the RIAI Contract than a PWC form of contract. Bespoke contracts should be reviewed carefully to determine what relief is available. Parties should also familiarise themselves with the various notice provisions under their contracts when considering making a claim.

It is important that contractors and employers understand the implications of the EMPI legislation and how this will affect their contracts going forward.