The Olympics delaying other projects: the legal issues

As reported in Building on 27 January 2012, the implementation of the Olympic Route Network (ORN) over the six weeks of the Olympic and Paralympic Games will cause significant headaches for any construction project in the capital.

Since the introduction of the London Olympic and Paralympic Games Act 2006 (the Act) there was always the likelihood that the government would effect road closures and or restrictions during the Games. The first proposed route was published in 2008 with a further route published by the Olympic Delivery Authority on 29 July 2010.

Even if the contractor can establish the delays were caused by a “relevant event” he would only be entitled to relief from liquidated damages

With TfL launching its “Get Ahead of the Games Campaign” and advising road users to avoid large parts of central London during the Games, the impact of the ORN on construction sites in the Capital is there for all to see.

The Games will clearly have an effect on the delivery of goods and materials to construction sites in and around London. Activities such as large scale concrete pours or activities reliant on a high turnover of traffic, such as excavations, will also be impacted, not to mention the difficulties workers will face in getting to and from sites using London’s public transport network.

Some contracts may have specially drafted clauses to deal with possible delays caused by the Games, however, most will not. So who bears the risk of all this?

Extensions of Time

Under a JCT, these delays could fall under a number of relevant events entitling the contractor to an extension of time. However, the event contractors will most likely rely on will be the exercise of a statutory power by the government after the “Base Date”, which “directly affects” the execution of the works.

The implementation of the ORN and closing of roads would be considered the exercise of a statutory power. However, the difficulty for contractors will be establishing:
1. when the government exercised its statutory power; and
2. when the exercise of the statutory could be said to have a “direct affect” on the works.

It could well be argued that the implementation of the Act in March 2006 could be treated as the date on which the government exercised its statutory power, and unless the “Base Date” in the contract is prior to March 2006, the contractor would not be entitled to an extension of time.

An alternative argument could be that the government did not exercise any statutory powers until it published the ORN on 29 July 2010 and that at this date it “directly affected” the execution of the works. If this is accepted, a contractor is unlikely to be awarded an extension of time unless the contract “Base Date” is prior to 29 July 2010.

Finally, it may be argued that until the ORN / road closures are actually implemented during the Games, the government has not yet exercised a statutory power which has a “direct affect” on the works. If this argument is accepted, a contractor is unlikely to be awarded an extension of time unless a contract “Base Date” is after 25 July 2012, the first date on which the ORN / road closures will be implemented.

An entitlement under force majeure / act of god may be possible, but given the other relevant events identified in the JCT, the meaning of force majeure is likely to be interpreted restrictively and not entitle the contractor to an extension of time.

If the costs of possible delays and or re-programming are substantial, the parties could consider an instruction to accelerate the works, or critical elements of it, prior to or after the Games

Even if the contractor can establish the delays were caused by a “relevant event” he would only be entitled to relief from liquidated damages. Any loss and expense arising from the delay will be at the contractor’s risk.

Turning to NEC3 contracts, unless there is specific provision for compensation events due to the impact of the Games, the risks of delay and additional costs are, again, likely to rest with the contractor.

One could try to argue that the Games prevented the works continuing or delayed the works, which neither party could prevent (a compensation event under NEC clause 60.19.). However, the contractor would also have to show that on the contract date an experienced contractor would have judged the event (road closures due to the Games) to have such a small chance of occurring that it would have been unreasonable to have allowed for it.

Whether the event will be considered to have had “such a small chance of occurring” is likely to be determined by the date on which a contractor should have known that road closures may impact their works. Whether it was reasonable to allow for it is likely to be determined by factors such as the location of the works and the activities and levels of deliveries programmed to be carried out during the Games.

Mitigation

Regardless of which party bears the risk of delays, the contractor should mitigate any delays, losses and expense.

It may do this by re-programming critical deliveries and or activities reliant on site traffic to periods outside normal working hours. Issues may arise here as deliveries outside of normal working hours may well require consents and licences from local bodies. It is likely that there will also be restrictions in place that limit noise outside of normal working hours.

Any move to out of hours working is also likely to increase staff costs due to overtime payments.

If the costs of possible delays and or re-programming are substantial, the parties could consider an instruction to accelerate the works, or critical elements of it, prior to or after the Games.

Alternatively, the employer could defer possession of the site or suspend the works. However, any employer considering these options should consider whether any third party agreements (such as funding or development agreements) restrict their ability to defer/suspend the works.

Conclusion

It seems incontrovertible that the Games will impact upon London life and construction sites in particular. Part of this impact can be ameliorated by sound forward planning; however, one would expect those who suffer losses to explore avenues of possible recovery.

Steven Carey is a partner and Michael O’Connor is a solictor in the real estate, construction and engineering team at Speechly Bircham LLP