Ireland:
Guidance From The Office For Government Procurement Regarding The Public Works Contracts And Covid-19
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Following the Government’s announcement on 27 March 2020
(and later enacted into law by the Health Act 1947 (Section 31a -
Temporary Restrictions) (Covid-19) Regulations 2020) (the
“Measures“) all construction
projects engaged in non-essential construction services were
required to close. Construction projects engaged in essential
construction services were permitted to continue. A list of
what constitutes “essential” and non-essential”
projects has been published by the Government. Unsurprisingly, the
Standard Form Public Works Contracts
(“PWC“) do not specifically cater for
pandemics and there was uncertainty in the industry regarding a
contractor’s entitlement to additional time and costs under the
PWCs as a result of Covid-19.
On 14 April 2020, the Office for Government Procurement
(“OGP“) issued updated guidance to
Employers and Clients using the Public Works Contracts and the
Conditions of Engagement for projects impacted by Covid-19 (the
“Guidance“). On 22 April, OGP published
a model form supplemental agreement for use to make an ex gratia
payment to contractors. This note summarizes the Guidance. The
Guidance applies to public works contracts only, but it may inform
how the private sector will deal with the similar issues being
experienced in the private sector.
Construction Contracts – Standard Form Public Works
Contracts (PWC)
The OGP advised the following with respect to projects engaged
in essential and non-essential works:
Essential Works: The Measures permit
essential projects to continue in compliance with HSE guidelines
and so the pace of work on essential works will be unavoidably
slower. Other issues such as labour and material shortages may also
impact the progress of the works. In these situations, the OGP
refer parties to the delay provisions already in the PWCs and
advise them to work within those contract provisions to manage any
delays to the Works, highlighting the early warning provisions and
the ability of the Employer’s Representative to request
proposed instructions. The Employer may consider, in consultation
with the Contractor, whether adjusting the period between interim
payments would be beneficial in assisting cashflow.
Non-Essential Works: Those sites that
have had to close are most affected by the Measures. The OGP
provided the following guidance in respect of these projects:
- Interim
payments
Employers should ensure interim payments for works carried out as
at the date of closure are up to date. As site visits are not
possible during this time, the payment could be an estimate based
on previous interim payments verified by alternative means agreed
with the Contractor. - Time
The PWCs already provide for events of delay. Item 15 of the
Schedule, Part 1K provides for an extension of time to be granted
to the Contractor where the Works are delayed by “order or
other act of a court or other public authority exercising authority
under Law“. The OGP advises the parties to work within
the applicable conditions of contract with respect to the
notification and management of delays arising from the Measures.
Due to the “exceptional circumstances currently facing
contractors” the OGP go one step further and advise that the
extension to time to be granted the Contractor under the PWCs
should be treated as having commenced on the date the site was
required to close (28 March 2020) rather than from the date of the
change in law (being 8 April and the implementation of the Health
Act 1947 (Section 31a – Temporary Restrictions) (Covid-19)
Regulations 2020). - Cost
The PWCs do not entitle a Contractor to recover costs for changes
in law. The OGP advises that employers will make an ex gratia
payment to the Contractor for the period of the site closure.
The “Applicable Period” for the purposes of
calculating the ex gratia payment is from 12 April to 4 May. The
Guidance does not state why the Applicable Period is over 2 weeks
later than the date from which the delay event is deemed to have
commenced (from 28 March), however it may be because only a portion
of the costs are to be covered by the Employer. Also, the
Applicable Period ends on 4 May and so the ex gratia payment does
not seem to include additional costs which may be incurred by a
Contractor once sites reopen in adjusting its working practices to
comply with health and safety guidelines. We understand the
Guidance will be updated by the OGP as public health measures are
updated by the Government and such updates may address slower rates
of working once sites reopen.The OGP emphasise that the ex gratia payment does not constitute
an admission of responsibility on the part of the Employer for such
costs or alter either party’s rights or duties under the
Contract or create a precedent.The ex gratia payment will be in respect of a portion of the
contractor’s preliminaries (e.g. costs associated with
insurance premiums, maintaining security of a closed site,
performing on-going health and safety obligations) where
unavoidably incurred, reasonable and vouched by the Contractor. The
Guidance contains a formula to assist parties in calculating the
appropriate payment and expressly excludes certain items from the
ex gratia payment such as a bond premium and any allowance for
profits and overheads.The amount of the ex gratia payment is determined at the
prerogative of the Employer. In order to avail of the payment,
Contractors are asked to make their records and all relevant
material to vouch for permissible costs available, including
providing a complete and full break-down of the tendered Contract
Preliminaries on a transparent and “open book” basis.
Parties should work collaboratively in agreeing the ex gratia
payment and, once agreed, the amount of the payment must be
recorded in a supplemental agreement. The ex gratia payment should
then be included in the Contractor’s next scheduled interim
payment. - Supplemental Agreement
The model agreement is in the form of a letter to be exchanged
between the Employer and the Contractor.The Contractor is required to give some warranties relating to the
cost information provided to the Employer including that the ex
gratia payment does not cover any costs already addressed through
the Government’s Temporary Covid-19 Subsidy Scheme. If there is
a bond in place, evidence is required from the bond provider that
it consents to the agreement.The agreement makes provision for claw back of the ex gratia
payment if the Contractor breaches the terms of the
agreement. While the Contractor is not required to waive any
claim under the contract in connection with the Public Health
Measures or the related Regulations, if such a claim is successful,
the ex gratia payment will be deducted from any amount determined
to be due to the Contractor.
Originally published by Ronan Daly Jermyn, April
2020
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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