Larry Fenelon: Builders beware – the cost of compromise on public works contracts
Larry Fenelon, co-founder and managing partner at Leman Solicitors, responds to new measures affecting public works.
The Minister for Finance has confirmed that building contractors working under public works contracts are entitled to claim some expenses resulting from site closures in response to COVID-19 public safety measures.
It is a welcome gesture to an industry under pressure but fundamentally it is a political calculation designed to limit the State’s exposure under public works contracts.
Under the public works contracts, if it has become impossible to carry out works on a site, or it is contrary to law, then the employer’s representative should issue an opinion directing that works be suspended. Undoubtedly the new laws restricting site work would meet the impossibility and contrary to law criteria. However on many public works sites there is a stand-off between the employer (the State) and building contractors as to who decided to close the site.
The reason for this stand-off is because if the employer is deemed to have suspended works, then the contractor can claim financial compensation from the employer for the duration of the site lockdown. Whereas if the employer does not suspend works, then there is only an entitlement to additional time to complete the contract programme. This stand-off on many public works sites will lead to costly litigation or worse to a financial collapse of well-known building contractors and subcontractors on the State’s watch. Not good politics.
The Minister is making a decision to avoid the litigation and existential risk to building contractors operating on tight margins. It is a public compromise between the employer’s interests and building contractors. So claim for the actual expenses incurred in continuing to maintain the mothballed site, such as security, insurance, light and heat but don’t be claiming for anything on top.
Main contractors and subcontractors will have to cover the costs of their preliminaries and additional costs incurred offsite as a result of site lockdown. However, The Irish Times reports that the State has agreed to cover “agreed reasonable non-pay fixed costs” incurred during the time that sites are closed: “The ex gratia payment 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.”
So the employer’s representative will have regard to the tender to assess the contractor’s preliminaries and then establish a daily rate to pay the contractor during the lock down. It excludes labour. Will it include additional costs incurred by some of the contractor’s personnel working from home for instance?
The real issue is who covers the additional costs and delay incurred when contractors and subcontractors return to site with inevitable delay in the supply chain and reduced productivity and increased costs due to social distancing on site? Another day’s discussion. There will be blood yet.