Caroline Hooton and Darren Fodey explore all the potential scenarios that Covid-19 might bring about
Readers will be all-too-aware that operating the UK’s railway network is a 24/7/365 operation. Depots run around the clock to perform essential maintenance to keep freight and passenger units in service. Infrastructure maintenance and upgrade works generally occur overnight and on bank holidays to minimise disruption to services and passengers.
Performing this maintenance and upgrade works requires the contractor to have access to the relevant depots, stations or infrastructure. Already, there is a fine balance between keeping the railway going and undertaking essential work.
Enter, Covid-19, making that already fine balance even finer. Social distancing and lockdown restrictions imposed by the UK government in response to the Covid-19 pandemic has made providing access to work sites even more difficult.
- Staff sickness may mean that there is no one physically able to open a site to grant access to spaces that are too sensitive to allow a contractor to hold keys;
- More stringent local or national lockdowns (including in accordance with the 3 tier structure) may prevent some stations, depots or other sites from opening altogether; or
- Social distancing guidance may no longer make it practicable to have multiple contractors working on the same site at the same time.
What are the consequences for a rail operator who engages a contractor to come on site but then cannot physically give them access? Well, the starting point is to review what – if anything – the contract says about rights of access and associated remedies.
Is there a contractual right of access?
Whilst of course it can vary from operator to operator and contract to contract, standard form procurement contracts typically used by rail operators will often contain a provision stating that the rail operator will grant site access to its own sites. Where the relevant site is under the control of a third party such as Network Rail, the rail operator may instead be required to obtain access for the contractor. Such provisions are usually uncontroversial. After all, where a site is under the rail operator’s control or where the rail operator has clear legal rights of access to a third party’s site, then it is reasonable to make these available to the contractor.
It is important to carefully check the wording, especially where the site in question is under the control of a third party. This is because typically access is only granted to the contractor to the extent the site owner has granted access to the rail operator. If the third party site owner has closed the site or is refusing or unable to let people in, the contractor will have no recourse because the rail operator can only grant what it has.
Reading the contract is fundamental. There are various standard forms of contract and many operators have their own bespoke versions. For example, depending on which document you are using from the JCT suite of contracts there could be an explicit contractual obligation on the rail operator to grant possession of the site. Alternatively, there could be an acknowledgment – such as in the Minor Works Contract – that the contractor will take possession to carry out the works. The NEC3/NEC4 suite of contracts is more explicit and contains an obligation on the rail operator to provide access by an agreed date.
What remedies may be available in bespoke procurement contracts?
Regardless of whether it is the rail operator or a third party denying access, it is rare for a bespoke standard form contract to set out an express remedy. Negotiating a mutually acceptable variation to capture any anticipated delay and payment of any additional costs incurred by the contractor is likely to be the best way forward – but only to the extent that such costs are unavoidable or cannot be mitigated.
If a variation cannot be agreed then other options may include:
- Change in law – these may be relevant where failure to grant access is due to a national or local lockdown or social distancing guidelines. Unfortunately, there is a clear distinction between ‘law’ and ‘guidance’ and it is usually only ‘law’ that counts, although this does depend on the wording of the contract. A change in law generally depends on legislation or a statutory instrument underpinning the rail operator’s inability to grant access. This might include the UK government using the Covid-19 legal framework to impose regional lockdowns or re-impose a full UK lockdown. On the other hand, if the rail operator is merely following government guidance such as the UK government’s former guidance to ‘stay at home’ and not take public transport, the ability to claim protection for not being able to offer access is likely to be more limited. A change in law provision at least provides the ability to force a variation. Change in law or variation mechanisms usually set out how additional costs are to be calculated, providing boundaries for the negotiation to take place.
- Force majeure – it is unusual for a rail operator, rather than a contractor, to seek to rely on these provisions. That said, if a pandemic or epidemic is specifically contemplated as a force majeure event, then a rail operator could invoke the protection to suspend performance of its obligation to provide access. This gives the rail operator time to put alternative access arrangements in place or, where this is simply not possible, to essentially ‘wait out’ the period of unavailability. Of course, the longer the inability to grant access, the greater the risk of the termination provisions being triggered.
If the rail operator is unable to provide access to its site for a prolonged period and no accommodation can be reached with the contractor, in a worst case scenario termination for material breach could follow. Again, this will depend upon the specific wording in the contract. This is very much a ‘nuclear option’ and typically used only where relations with the contractor have broken down completely. This could have significant implications for the rail operator – depending on what, if any, compensation becomes payable on termination. This could represent a significant cost to the rail operator: it could cover any breakage costs incurred by the contractor and, in the case of services, potentially redundancy costs as well.
What is the position under JCT contracts?
The position under the JCT suite of contracts is more straightforward. Unless specifically amended or deleted, any ‘impediment, prevention of default, whether by act or omission’ by the rail operator will be both:
(a) a ‘Relevant Matter’ entitling the contractor to recover loss and expense caused by the inability to access the site. Here the contractor must notify the rail operator of the effect on progress of the works and provide an initial assessment of the resulting costs/expenses in order to make a claim. It must then keep the rail operator updated of any further amounts to be incurred. There are stringent time periods for the rail operator to confirm the ‘ascertained sum’ back to the contractor in such a manner as to enable the contractor to identify any differences in the assessment; and
(b) a ‘Relevant Event’ entitling the contractor to delay completion and claim for any additional loss and expense incurred, provided it has complied with the notification requirements. The contract expressly prevents double recovery where the contractor has already recovered its losses and expenses as a Relevant Matter.
What is the position under NEC3/NEC4 contracts?
As with the JCT suite of documents, the position under the NEC3/NEC4 suite is also straightforward. If the rail operator fails to provide access by the agreed date, then this will be a Compensation Event unless specifically amended or deleted. Here too there are strict notification obligations on the contractor. Specifically it must notify the rail operator’s project manager within eight weeks of becoming aware of the Compensation Event – or such shorter period as the parties may have agreed by amendment – or else it will be prevented from making a claim. In practice though, access to the site should be readily ascertainable and such time limits should not pose any real issue in making a claim.
How can access risk be managed?
As mentioned above, probably the most effective way of managing access risk is to agree a variation to the contract. This could be a variation to reflect the delay and additional cost or, where access is affected by social distancing restrictions, a variation to reschedule the order in which works are done so as to maintain progress and attempt to keep to schedule.
From a practical point of view and in light of the fact that construction is one of the few industries permitted to continue working during lockdown (whether on a national or regional tiered basis), rail operators may want to explore providing contractors with key holding rights for non-sensitive sites within their control. The risk here could be managed through agreeing procedures for how keys should be held and stored and identifying specific persons within the contractor who will have that responsibility. Appropriate indemnities could also be included to the extent the rail operator suffers any loss as a result of a breach. If appropriate terms can be agreed, then such procedures could be expanded to make the contractor responsible for allowing other contractors on site where necessary although it is likely that appropriate reimbursement would need to be agreed for this, in light of the commitment.
For future procurements, rail operators should look at amending their existing access provisions to allow for flexibility in the event that access is restricted due to the pandemic and also review internal processes and staffing around the provision of access to see what, if anything, can be done to offset potential impediments. Holding discussions with contractors bidding for works/services would be beneficial here to see what their suggestions are for managing this risk and specifically identifying and sharing any practices that they have used elsewhere. Contractors should also ensure they have procedures and policies in place for managing this risk both in terms of deployment of its own employees and management of its own subcontractors (if relevant). Extraordinary times demand greater co-operation and a degree of flexibility from all parties if the railway network is to stay in operation.
Caroline Hooton is Senior Associate and Darren Fodey is Partner at international law firm Stephenson Harwood LLP