Covid-19 Compensation Event clause

Covid-19 Compensation Event clause

Covid-19 Compensation Event clause

Before we knew anything about Covid-19, the effects would be claimable by the Contractor as a compensation event under clause 60.1(19) as a “force majeure” type event. However, we all know about Coronavirus now as a potential future risk, so it is less likely to fall under that category as being a compensation event. That means that potentially the effects of Covid-19 on future tenders could be considered a Contractor risk, even though it would be near impossible to predict the future outbreaks and levels of associated restrictions.

A recent poll we carried out in the NEC People LinkedIn group showed some very interesting results. The question asked was are you seeing a Coronavirus compensation event clause added into your current tenders. The results were as follows:

  • 44% were seeing a compensation event clause added to cover time and cost
  • 39% were seeing a compensation event clause added to cover time only (not cost)
  • 17% were seeing no compensation event clause added at all – meaning potentially all associated future risk associated with Covid would be Contractor risk

This is quite a risk for Contractors given that it is pretty much impossible to know if the future effects of Covid will cause further lock-downs and restrictions. Thirty nine percent of contracts giving time only not cost (i.e. they will only move Completion Date) is a big financial risk to take and price. No compensation event clause at all means time and cost risk is with a Contractor.

Therefore make sure that this issue is addressed on your current and future tenders so that the risk is clearly identified and the Contractor can price accordingly. If there is no amendment detailed at tender stage, a Contractor can suggest one at tender stage. This will then force a response from the Client which all tenderers will be aware of and create a more level playing field for those bidding. It may not be in the interest of a Client to expect Contractors to price this very unpredictable risk as their project costs could spiral unnecessarily and risk affecting their own budgets.

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