Managing and maintaining cash flow is a constant pressure in the construction industry. This is recognised by the payment regime set out in the Housing Grants, Construction and Regeneration Act 1996, which provides the framework for dealing with interim payment disputes in a way that allows projects to be completed.
The effects of both the Covid-19 outbreak and the Government's measures in response have been felt throughout the construction industry. Even though the standard forms of contract deal with events that affect the progress on projects and 'force majeure', the effect of Covid-19 goes beyond what most parties would have anticipated when they were negotiating their contracts.
As the economic effects of Covid-19 become more acute, contractors and employers now potentially need to look beyond their strict contractual positions. In many cases, the successful delivery of a project will not depend upon the original contractual terms, but on managing the relationships between the parties involved in the project and the wider supply chain.
The Government approach
The Government has publicly taken a lead on this approach. Through the Cabinet Office's procurement policy notes covering construction and Covid-19, it has set out the reliefs that contracting authorities might provide for contractors working on public contracts for the delivery of works. This includes:
- making accelerated payment of invoices;
- continuing to certify interim valuations based on the rate of progress of the works prior to Covid-19
- increasing the regularity of payments; and
- making advance payments to suppliers.
To reinforce this proposed approach, the Cabinet Office has now released model contractual forms. These set out the contractual basis for contractors to be eligible for relief and consequential amendments to undertake the necessary reconciliations once any Covid-19 relief periods come to an end. This includes requirements for suppliers to act transparently and with integrity and in good faith.
The private developer approach
Private developers will not have the same level of concern as the Government for maintaining the construction industry. Nonetheless, in many cases they will recognise that in some respects Covid-19 has aligned their own commercial interests.
Employers therefore need to start balancing their exposure to risks largely outside their control about whether their project will be completed and, if not, what their position will be.