Building law and regulation in Scotland during Covid-19

The Coronavirus Act 2020 became law across the UK on 26th March 2020.  Since Scotland has a devolved executive this legislation gives specific powers to the Scottish Government to exercise wide ranging powers to make orders to contain the virus. For construction purposes sections 49 to 52 give the Scottish government the power to close premises, restrict people from going to work and shut ports. This could affect construction sites, people working on sites and material to be delivered from ports.

Until the UK and/or the Scottish Government exercise these powers to shut down construction sites the Scottish construction industry has to adhere to health and safety standards including under the CDM regulations.  For some works it may not be possible to make sufficient changes to working practices which comply with 2metre social distancing guidance of the UK Government while complying with those regulations.

This matter has been largely dealt with on a UK wide basis. The UK government has introduced a number of different measures which assist the construction industry:

• A Coronavirus Job Retention Scheme
• deferring VAT and Income Tax payments
• a Statutory Sick Pay relief package for small and medium sized businesses (SMEs)
• small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
• the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
• a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
• the HMRC Time To Pay Scheme
• MOT exemption for six months
• an additional 3 months to file accounts at Companies House
• Gender-pay reporting deadlines are suspended for this reporting year (2019/20) due to the coronavirus outbreak. The decision means there will be no expectation on employers to report their data.

The two standard form contracts most commonly used in the Scottish construction industry are the SBCC and NEC. Both contracts approach the topic of force majeure slightly differently.

The SBCC 2016 edition lists force majeure as a Relevant Event, which potentially entitles the Contractor to an extension of time. Force majeure is, however, not defined in the SBCC contract and as such could be considered to include a pandemic such as coronavirus.  To claim relief for a force majeure event the Contractor must formally notify the Architect or Contract Administrator who will then decide the matter.  In the SBCC contract force majeure is not a Relevant Matter, which would grant the Contractor a potential entitlement to recover its losses.

Under the NEC contracts, the situation is different. Although force majeure is not a term used or defined in the NEC the concept of prevention at clause 19 and the compensation event at clause 60.1(19) set out criteria that need to be fulfilled to establish whether there is a force majeure type event. These criteria are:

• the event must either have stopped the Contractor completing the works or caused a delay;
• neither party could have prevented it; and
• an experienced contractor would have judged, at the Contract Date, to have had such a small chance of occurring that it would have been unreasonable for the Contractor to have allowed for it.

The change of law provision is optional at X2 in the NEC contract suite.  If X2 applies, then specific restrictions such as those under the Coronavirus Act 2020 would be a compensation event allowing time and money.       Under SBCC the Scottish Government exercising is emergency powers under the new Act with the effect of shutting down the Site and stopping work would be an extension of time claim under cl.2.27 on the basis that a change in law has caused delay which is a Relevant Event under cl.2.29.13. As with force majeure there is no equivalent Relevant Matter so the contractor would not be able to pursue a loss and/or expense claim under cl.4.23

Both the NEC and the SBCC contain provisions which would mean result in termination due to the coronavirus, but again they take slightly different approaches.

Under the SBCC contract either of the Relevant Events noted above (force majeure or change in statutory power) are also potential termination events if they prevent the carrying out of the whole or substantially the whole of the uncompleted works for a prescribed period agreed by the parties - 2 months in the standard SBCC. In those circumstances either party may give notice to be terminate.

Under the NEC contract only the Client can terminate the contract if there is a forecast to delay, due to force majeure, of more than 13 weeks. A bilateral termination right does exist in the event that the parties have been released under law from further performance of the whole contract. However, it may be difficult for either party to rely on this as an unchallengeable right to terminate where legislation has been implanted which would only temporarily affect performance of the contract.

The First Minister made a statement in the Scottish Parliament on 24th March 20 that “our advice right now is that we expect [construction sites] to be closed unless the building that is being worked on is essential such as a hospital”.  This caused some debate about whether it was a government requirement.  Whether the current government statements and guidance amount to a change in law may depend on the definition of 'law' in each contract. The prevailing view is that, where that contract definition does not extend to guidance, the statements to date do not amount to a change in law. When government measures are taken under the new Coronavirus Act 2020 these are likely to be actual changes in law for contracts that are already in place.

The Coronavirus Act 2020 gives separate powers to the devolved regions, Scotland, Northern Ireland and to a lesser extent Wales. While there has been no sign of this so far, it is in theory possible that these regions take different measures from the rest of the UK. The construction industry should therefore remain appraised of that possibility.