We have several clients that were suffering from poor performance by Contractors prior to the outbreak of Covid-19. The situation now is that the poor performance remains, and Contractors are citing Covid-19 as the reason for performance problems. It is undeniable that the impact of Covid-19 has had a massive impact on site productivity, but how do you separate this from other performance issues and most critically, how do you deal with resolving the issues?
The reality is that Covid-19 does provide cover for Contractors and clients need to tread very carefully when challenging performance in the current environment. The JCT contract allows for termination by the Employer if the Contractor ‘fails to proceed regularly and diligently with the performance of their obligations’; but the onus of proof will be much higher in the current circumstances. While right now it may appear that the Contractor is failing to perform, in a year’s time when an adjudicator is assessing a Contractor’s claim for unfair termination, they may see it as an outcome of Covid-19 and not the fault of the Contractor.
It is therefore essential to evidence poor performance and ensure clear communication with the Contractor on the shortfalls and how they can be remedied. You and your team should try and work with the Contractor to support them in overcoming the issues, as this may help resolve the matter, or, in the worst case, provide greater evidence that you tried everything before heading to the last resort.
Below we have set out some practical steps on how to deal with the two leading areas of performance issues: progress and quality.
This is undoubtedly the most challenging area to unpick, as Covid-19 has had a significant impact on site operations and caused significant impact on productivity. It is important to establish how the Contractor has been impacted and what steps they are taking to manage the situation.
Contractors need to set out their plans on how they are operating within the restrictions of Covid-19. In addition to their standard reporting, Contractors should be requested to focus on:
- Impact on levels of labour productivity, including levels of labour on site and limitations for close working.
- Supply chain issues, both in the supply of materials and the activities of Sub Contractors.
- Loss of resource due to Covid-19 related issues, e.g. illness, quarantine, self-isolation.
- Short and long-term programmes / activity schedules, indicating duration of key activities and milestone dates.
- Summary of key risks and challenges to programme delivery, including third party stakeholders (e.g. development and building control, utilities, etc) and the proposed mitigation strategies.
This information provides the base from which your project manager can assess performance. For this to be effective, the project manager needs to commit to having a site presence. It will be difficult to prove a failure in performance if no-one witnessed the issues on site. The project manager should develop their own record in terms of the performance indicators described above and ensure that they are discussing discrepancies as they arise with the Contractor.
If you and your project manager can take a collaborative approach and work with the Contractor to help overcome any progress issues, this will benefit the project and ultimately, if matters escalate, demonstrate that you have tried to take a reasonable approach.
The project manager should clearly document all discussions regarding progress performance. There is always a risk where dialogue is only verbal. Typical areas for recording evidence include:
- Regular PM progress reports supported by photos, labour records, site information and programmes.
- Email correspondence regarding progress issues and actions to remedy.
- Meeting minutes including progress meetings, risk reduction and early warning meetings.
- Formal letters and notices.
Unless there is practically no progress on site, it will be extremely hard to terminate due to poor site progress. The remedy for delay is likely to be limited to liquidated damages claims for late completion, but Contractors will seek extensions of time to limit this, and a force majeure claim against Covid-19 is an obvious choice. It may be hard to argue against this, but the provision of robust evidence by the project manager will strengthen your position.
Quality is an issue that can arise at any time and Covid-19 may increase the likelihood of issues arising. Disruption caused by breaks in the supply chain, loss of key labour and the practicalities of meeting site operating procedures will all have an effect. There is an increased risk of a reduction in quality of both materials and workmanship as Contractors seek to reduce costs to mitigate losses.
Again, a strong client site presence will help to deal with the matter, particularly if an effective Quality Management Regime is put in place. Firstly, the Contractor needs to set out their quality management plan, which should be agreed by the project manager. This plan will form the basis of the Contractor’s monthly quality report and they should be obliged to table any site quality issues.
You should introduce a quality management process to protect you and ensure the building work is of the appropriate quality. This is achieved through regular inspection by appropriately qualified individuals, such as designers, building surveyors or clerks of works. This enables a schedule to be produced, recording where works have been deemed compliant, or where they are not to an acceptable standard. This team should also review any Contractor design information to identify whether it meets your requirements.
This approach enables early discussion to be held with the Contractor to assess any works deemed non-compliant. We recommend acting in a collaborative manner, working with the Contractor to identify an acceptable solution and timescale to resolve the issue. It is then more likely that the Contractor will acknowledge that the item does not meet the defined level of quality and seek to remedy.
In the scenario where the Contractor does not remedy the item, or refuses to acknowledge it as a defect, then you have the right to instruct them to remove work or materials that are not in accordance with the Contract. If the Contractor still refuses to rectify the matter, this will provide grounds for terminating the contract.
If you believe there are grounds to terminate the contract, it is vital that you have a high level of confidence that you can defend your position. A sensible approach when this type of dispute is developing is to introduce an independent third party to assess the disputed works. Their assessment will provide clarity on the quality of work and provide a stronger defence if the work is deemed defective.
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