Weather: A British obsession with financial consequences

When carrying out a construction project there are lots of variables to make provision for and chief amongst these is the weather. It’s probably fair to say that if you don’t make proper provision for what happens if bad weather strikes, the fall out can be fairly catastrophic. We need only look back to this time last year to get an idea of the scale of costs involved.

Winter 2013-2014, hailed as the wettest winter since records began in 1766, caused large sections of the country to be knee deep in flooding and came as something of a nasty surprise. The Association of British Insurers (ABI) set estimates of the cost of damage caused by the storms and flooding to be as much as £1.1bn and apparently, between 23 December 2013 and 28 February 2014, ABI members received 17,500 flood claims and 421,500 storm damage claims. The weather was so severe that the construction industry output figures actually dipped at the start of the year with the Office for National Statistics showing that construction output was down 2.8% when compared to January, which equated to a £270m drop. 

Of course, last winter is an extreme example but unfortunately, bad weather causing damage to construction projects is nothing new. For example, the Local Government Association estimated that the cost of local road repair following storms and heavy rain in 2009 and 2012 totalled an estimated £400m and £338m. 

Even if the weather qualifies as bad enough under the contract and the contractor gives all the right notices and evidence on time, whether it is successful in its claim for time and/or money will depend upon whether the delay was really caused by the weather

So until the dim and distant future when technology advances allow accurate long term weather forecasts, what can be done in the meantime to sensibly manage the risk it poses?  For existing buildings, the answer is insurance. Property owners should  make sure that they have the right type of insurance in place which covers storm damage taking care of course to check the policy small print for exactly what weather constitutes “storm damage” and what damages can be recovered. Watch out for exclusions for damage caused  by poor property maintenance, defective materials or bad workmanship.

For ongoing building projects which have not yet reached practical completion, the fundamental problem is that obviously bad weather is no one’s fault but nonetheless the contractor is likely to be delayed and suffer loss and expense to boot (although this is not to say that steps can’t be taken to make damage less likely, for example, by monitoring the weather and having plans in place for what to do if bad weather strikes).

If the contract doesn’t deal with the weather, the contractor will have to bear the losses and expenses and will probably have to pay liquidated and ascertained damages (LADs). While employers at first sight may regard this as a good solution, the reality is that it really isn’t. The danger is that the contractor may try to claw back the costs in other ways and of course such losses could affect contractor insolvency. So it is wise to make provision in the contract for what happens if bad weather strikes. Consider whether the contractor should be entitled to an extension of time as well as money. Make sure you are clear on what you mean by “bad” weather and consider also what evidence should be submitted with contractor claims for time (and money). Finally, any subcontracts should dovetail with the main construction contract. 

In practice, what normally happens is that the contractor will be entitled to an extension of time but not to any money to cover his loss. JCT provides that the contractor is only entitled to extra time whereas NEC allows the project manager to decide whether the contractor should receive compensation. Of course, even if the weather qualifies as bad enough under the contract and the contractor gives all the right notices and evidence on time, whether the contractor is successful in its claim for time and/or money will depend upon whether the delay was really caused by the weather. So as you may imagine, this is a particularly fruitful area for claims.

Make sure that a contractor’s All Risks policy is put in place to cover storm damage. Again, take care to read the small print. Make sure that it is a joint names policy and that any subcontractors are recognised as insured. Be aware that typical exclusions include loss or damage due to wear and tear and any design or workmanship defects.

Of course, taking care to take out the right insurance and draft contracts carefully only remedies the symptoms and doesn’t treat the condition.  Fortunately, there now seems to be widespread government backed recognition that our infrastructure requires future-proofing to more effectively withstand future weather onslaughts. Hopefully, the required investment in such advances will be made which will mean that the financial devastation caused by the weather in the past few years may eventually become a thing of the past.

Laurence is a partner in the construction and engineering group at Taylor Wessing