Covid-19 – Government decision for State Construction Projects

This note is part of a series that the lawyers of Reddy Charlton will issue on the major legal, personal and business issues that will confront us all during the Covid-19 crisis.

This article discusses the very recent decision by the Minister for Finance Paschal Donohoe that contractors on State building projects will be paid to cover the maintenance of those sites during the Covid-19 closure.

As a result of the Government announcement on 27 March, all non essential work was to cease. This closure included construction projects, both State and private sector with certain limited exceptions as we discussed in our recent article – click here

The closure has had a profound impact on a previously thriving construction sector and it was inevitable that attention would turn to the question of who will foot the cost of this closure? Will it be the Employer, the Contractor or indeed in this crisis will it be the State through Government intervention that ultimately covers the cost of the site closures? In private projects, the terms of the particular contract and the interplay of such legal principles as Force Majeure and Frustration and the policy decisions made by the Government will likely determine who will carry the cost burden.

The answer is a little clearer in State projects where the Government is the actual Employer. Projects such as the national roads network upgrade, National Children’s Hospital and the DIT Campus are a few of the current large scale State projects now closed. But the Government has decided to act with regards to these State projects and Mr Donohoe announced on 14 April that the Government will pay contractors working under its public works contracts (PWCs) to cover “agreed reasonable non-pay fixed costs” incurred during the time that sites are closed

What does this announcement mean, practically?

In summary, the announcement means that for State construction projects, the Government will pay maintenance costs of the site for the period 12th April to 04th May. It is likely that these maintenance costs would include such items as charges for insurance, security, essential maintenance, ongoing equipment/machinery leasing and health and safety measures. The Minister’s statement clarified that these costs will be “determined as a daily rate with reference to the contractor’s fixed costs as set out in their detailed price breakdown on a case-by -case basis”. Therefore, a detailed review of the Contractors tender will likely be undertaken to determine the ‘daily rate’.

Why has the government taken such a decision?

Like all large scale decisions, the rationale is complex. Considerations by the Government possibly included the need to have the projects ready to restart immediately once the closure order is lifted or that it is a reasonable act by a reasonable Employer or that this measure is a generous effort to accommodate Contractors during this crisis by providing some much needed cash flow. These are all valid, but what is possibly the strongest consideration in the Government’s decision matrix is that it is an effort to mitigate the risk of costly litigation that may arise in the short term. Future litigation from this scenario will likely be distilled down to the question of who is responsible for the closure of the site and the delays, the Employer or the Contractor. That responsibility for the closure and delay triggers financial implications.

Under the clause 9.2.1 of the PWC, if there is a suspension directed by the Employer, the Contractor shall “protect, store and secure the affected Works Items against deterioration, loss and damage and maintain the Insurances”. Clause 9.2.2 continues that if such a suspension arises under 9.2.1 it may lead to an adjustment of the “Contract Sum or an extension of time because of the suspension…”. In the current crisis, it would be difficult for the State to argue that its various decisions during the Covid-19 crisis and in particular its announcement of cessation of all but non essential work on 27 March do not amount to a suspension of works. Therefore it is likely that the Government decision is an effort to minimise a potential litigation exposure by indicating at this juncture that it is willing to cover the reasonable costs of maintaining the site. There may be arguments about what is a ‘reasonable cost of maintaining the site’ but the Government has opened the conversation and indicated that it will deal with these sites on a case by case basis.

Were there any other construction related decisions made by the Government?

Yes, it is clear that the Government is very keen to ensure that construction will be rebound quickly and has announced a number of measures. These include continued planning and preparation for Project Ireland 2040 developments, extending tenders by six weeks to allow those bidding to assess and consider the cost of restrictions and also ensuring that pre-construction design work continues.

How can we Reddy Charlton help?

During this Covid-19 crisis, Reddy Charlton Solicitors are eager to support, encourage and guide your business. If you have any queries or seek further information on the Government announcement or any other area of construction or commercial law, please contact Paul Keane at pkeane@reddycharlton.ie or Elaine McGrath at emcgrath@reddycharlton.ie