Along with the more pleasant festive traditions, this winter saw yet another series of floods causing chaos throughout the country. December 2015 was the wettest calendar month on record since 1910 and it is estimated that the cost of this winter’s floods will exceed £5 billion. According to the Met Office, extreme weather has become more frequent since 1950 and, in light of increasing global warming, such extremes are likely to become more frequent in future.
Contractors and employers alike have been affected by the seasonal severe weather, and many will be poring over the terms of their contracts to see what relief is available when bad weather strikes. With this in mind, I thought it high time to revisit how JCT and NEC3 deal with severe weather and to take a brief look at the government’s scattergun response, to see if this is likely to be of any real help. I’ll conclude with some practical steps that parties to a construction contract can take to try and stem the loss flowing from flood damage.
What do the standard forms say?
Construction projects can be particularly at risk of flooding. Given the potential severity of the consequences in terms of time and cost, contracting parties do not always give this risk the attention it deserves. Many employers assume that contractors will allow and price for a certain level of bad weather, including flooding. However, it is also generally recognised in the industry that, if projects are affected by weather which is so bad as to be considered “exceptional”, contractors should be entitled to some form of relief.
Except for the Minor Works forms, all of the JCT 2011 editions list “exceptionally adverse weather” as a “relevant event”. Accordingly, the contractor may be entitled to an extension of time if such weather causes, or is likely to cause, a delay to the works.
Unhelpfully, “exceptionally adverse weather” is not defined in the JCT forms. Therefore, it is not clear when weather would be considered “exceptionally adverse”. A common practice is to use Met Office records to determine if the weather in question is exceptional for the time of year and/or location. This test should be applied when works are actually carried out, not when they were programmed to be done. The courts have also held that the test to apply is whether the weather itself was “exceptional’” not the delay which resulted from it (Walter Lawrence v Commercial Union Properties (1984) 4 Con. L.R. 37).
Even if the contractor can produce evidence of exceptionally adverse weather, it is still at the contract administrator’s discretion whether or not to award an extension of time. In addition, exceptionally adverse weather is not a “relevant matter” under JCT contracts. Therefore, contractors are not entitled to be paid direct loss and expense, even if they are granted an extension of time.
The NEC3 suite of contracts takes a slightly different approach to JCT. Under NEC3, a compensation event occurs if a weather measurement is recorded which, in comparison to local weather data, is shown to occur less frequently than once every ten years. Accordingly the contractor may be entitled to both an extension of time and, in contrast to JCT, financial relief as a result of extreme weather.
NEC3’s intention is to provide a more measurable and objective means of determining whether particular weather is exceptionally adverse. The employer decides at tender stage where the weather measurements will be recorded, what measurements will be taken, who will supply them and against which historical data the measurements will be compared.
However, NEC3’s approach has its own limitations. For instance, it is unlikely that the historical data will have been recorded at the site of the works. Therefore, both parties take the risk that what may be exceptionally adverse weather for the site where the historical data was recorded may not be exceptionally adverse for the site of the works, or vice versa. Also, the employer selects where and what weather measurements will be taken. While the contractor may seek to amend the data selected by the employer, and/or price the works accordingly, in practice its scope to do so may be limited.
Government response: any help?
As flooding continues to be a hot topic, the government has announced fresh initiatives to counter the problems occurring, seemingly on a weekly basis. Key measures include a major review of the UK’s flood prevention strategy, and £2.3 billion is to be spent on flood defences in this parliament alone.
However, there are concerns that such initiatives are nothing more than “quick wins” which will have limited long term effect. Furthermore, many of them are aimed primarily at protecting homeowners, rather than commercial construction projects. For example the much-publicised Flood Re, a not-for-profit reinsurance fund intended to provide insurance protection for flooding similar to that offered by Pool Re for terrorism claims, will only be available to residential property owners.
Given the relative lack of government assistance, what precautions can employers and contractors take to protect themselves from problems caused by flooding?
One obvious answer is insurance. Most “All Risks” policies will cover damage caused by flooding. However, insured parties should check that flooding is not excluded from their particular policy. If a project is damaged by flooding, there may be other related factors which have also caused damage, such as storms or damaged infrastructure. Some of these may not be covered by the All Risks policy or may not be qualifying events entitling the contractor to an extension of time or additional money under the building contract. In any event, the situation could be quite complex and could take some time to unravel.
At a more basic level, parties may wish to carry out more extensive research in relation to a site’s propensity to flood before committing to a project. At the very least, particular consideration should be given to projects in areas where local authorities require developers to carry out site-specific flood risk assessments. That is, areas at risk of flooding or sites of more than one hectare.
Extreme weather conditions appear likely to affect many UK construction projects for the foreseeable future. Employers and contractors should be aware of the risks of flooding in connection with particular projects and should carefully consider the question of which party should take the risk for flood damage, and extreme weather in general.
This article was first published by Practical Law Construction as part of our regular construction blog series in which we share our practical experiences of working in construction and engineering and give our opinion on the current and future legal developments that shape and will shape the industry. To read more from the series, visit the Practical Law blog.