Geopolitical disruption and the interface between shipping and construction contracts and supply chain disruption

On 28 February 2026, coordinated US and Israeli strikes on Iranian military facilities prompted Iran to begin targeting marine traffic in the Strait of Hormuz. The closure of the Strait, combined with the pre-existing Houthi disruption to the Bab al-Mandeb Strait, has effectively shut down all access to the Persian Gulf, as well as short-route passages between the Indian Ocean, and the Mediterranean Sea, specifically those via the Red Sea / Suez Canal. This leaves passages via the Cape of Good Hope as the only viable alternative for UK-bound cargo from the region.

A significant proportion of the materials used on UK projects, including structural steel, copper, tiles, cladding, and mechanical and electrical equipment, are shipped from India, China, and the Middle East through these waterways. For the construction industry, the consequences are immediate: the late arrival and shortage of materials disrupt both the supply chain and the delivery programme of any affected project.

Geopolitical tensions continue to expose the fragility of the global supply chain, a fragility that extends well beyond the control of the UK construction industry. War and geopolitical instability, whether nearby or on another continent, will almost always cause disruption. It must be recognised that the supply chain begins with overseas procurement and ends only once the contractor has handed over the completed works free of defects.

The sea freight supply chain

Overseas procurement typically involves the seller, origin and destination freight forwarders (companies who specialise in arranging the transport of goods), an ocean carrier (often one or multiple charterers operating under a time or voyage charterparty arrangement with the vessel owner), and the buyer.

The allocation of cost and risk as between buyers and sellers is dictated by a contract, often with reference to the use of industry standard terms published by the International Chamber of Commerce (ICC). These terms are promulgated in acronym form and are known as Incoterms. Under CIF (Cost, Insurance and Freight) terms, the seller arranges carriage and insurance, and the bill of lading is issued in the seller’s name, with risk remaining there until endorsement to the buyer. Under FOB (Free On Board) terms, the buyer contracts with the carrier and bears freight increases directly. Purchasing on FOB terms is a specialist endeavour and is uncommon for end users, whereas CIF terms are far more common. Even where carriage risk sits with the seller, the buyer is not insulated.

The bill of lading, as receipt, evidence of the contract of carriage, and document of title, will usually incorporate charterparty terms by reference, likely to include war risk clauses.

A common contractual requirement for a contractor in the construction industry is to use best endeavours to prevent a delay from occurring and to take reasonable steps to mitigate disruption. An important consideration is that once war or political unrest affects the sea freight chain, the consequences often extend beyond the control of any single party until the materials reach the end user.

The sea freight chain involves multiple parties and legally binding contracts that could well impact on a construction industry contractor’s ability to comply with their contractual obligations.

The reliability of vessel-borne construction materials is now in question. There is an increasing need to future-proof the interface between shipping and construction contracts against supply chain disruption. A working understanding of war risk clauses, force majeure in both contractual contexts, and contractual frustration is critical to protecting all parties’ interests.

Shipping law: war risks clauses, force majeure and frustration

The standard war risk clauses as published by BIMCO are the War Risks Clause for Time Chartering (CONWARTIME) and the War Risks Clause for Voyage Charterparties (VOYWAR). They entitle the shipowner to refuse to proceed, to ask for new instructions, or to adopt alternative performance, where the vessel may be exposed to war risks. Exercise of those clauses constitutes due performance, not deviation or breach, so a contractor awaiting materials has no claim for late delivery if the owner acts within the clause.

Where a bill of lading contains a general incorporation clause (incorporating the terms of the charterparty into a bill of lading), war risk liberty clauses will ordinarily be incorporated because they are directly relevant to carriage and delivery. The bill of lading holder is therefore bound by the owner’s exercise of that liberty. However, the cost of exercising it, including additional premiums or Cape routing expenses, remains a matter between owner and charterer and is not passed to the bill holder, although such costs are likely to be reflected in future prices.

Force majeure (FM) clauses are construed strictly. English law does not recognise FM as a free-standing doctrine. Its effect depends entirely on the contractual wording. In practice, war risk clauses remain the principal mechanism by which parties manage conflict risk, although FM may still apply depending on the wording and the event in question.

Frustration discharges a party from contractual obligation where a supervening event renders performance impossible or radically different from what was contemplated. The threshold is high and is not met merely because performance has become more expensive or time-consuming. A diversion around the Cape of Good Hope is therefore unlikely to frustrate the contract of carriage.

Construction law: relevant events, relevant matters, compensation events, force majeure and fluctuations

The two main standard form contracts in England and Wales are the NEC (New Engineering Contract) (latest edition NEC4) and the JCT (Joint Contracts Tribunal) contracts (current edition JCT 2024).

Both contracts can remain in standard form or are subject to bespoke amendments, depending on the value and complexity of the project. The forms take different approaches to contractor claims for time and money.

There is no concept of FM in common law which means that there must be an express mechanism in the contract to relieve a party where performance is affected by events outside its control.

Under the standard form JCT, a contractor is eligible to seek an extension to the Completion Date only where delay is caused by a 'Relevant Event' as defined by the JCT contract. If it is not, the contractor is liable to pay damages to the employer for each week of delay beyond the Completion Date. Under the JCT 2024 suite of contracts, FM has been added as a Relevant Event. However, FM is not a defined term. For contractors, it is crucial to understand that FM is a Relevant Event allowing an extension of time, but not a Relevant Matter. The distinction is significant: the contractor cannot recover loss and expense for delays attributable to FM, only additional time.

Under the NEC4 Engineering and Construction Contract (NEC4 ECC), the contractor is entitled to seek time and money under the compensation event regime if its contractual performance is prevented or delayed by an event which neither the contractor nor the employer could prevent, and which is not at the Contractor’s risk. This is equivalent to a FM provision. The events are not defined and there are certain conditions to be met including a time limit to notify claims.

Therefore, both contractor and employer should consider incorporating a bespoke definition or rely solely on the legal interpretation of the undefined term. The choice between specific language and a wider definition should be considered carefully by reference to the project particulars and risk profile. For example, if 'war' is simply mentioned in the definition, this may not be sufficient. If an act of war is not declared by the UK Government in the area affected by geopolitical unrest, the employer could argue that the delay is not due to 'war' but rather to some other event not covered by the FM definition or any other Relevant Event under the JCT or Compensation Event under NEC. Equally, it may be argued that it is unrealistic to attempt to specify every type of unforeseen event beyond the parties’ control.

The JCT is typically a lump sum contract defined by a bill of quantities or specification aimed at providing a fixed price. There are mechanisms under the contract for the price to change in certain circumstances. The NEC provides 6 pricing options from lump sum to cost reimbursable.

Both contracts include an optional fluctuations mechanism which can deal with costs inflation affecting labour and materials and tax changes. If it is incorporated, the contract sum can be adjusted after execution of the contract to reflect changes in market cost. In practice, although fluctuations offer a measure of protection against unpredictable economic conditions, the market generally favours the employer and fluctuation provisions are very rarely agreed and incorporated. Cost certainty, that is, how much the contract will actually cost, tends to outweigh the risks otherwise borne by the contractor.

Practical consequences

The consequences for UK construction are tangible: delays of 10 to 14 days per voyage; freight cost increases of 25% to 35 %, borne directly by FOB buyers or priced into future CIF contracts; the risk of cargo being discharged at an alternative port under a war risks clause; insurance gaps where sellers’ cover proves inadequate for the expanded listed areas; and knock-on programme disruption as dependent trades are unable to proceed without the delayed materials.

For contractors operating under lump sum contracts, the inability to recover increased costs through the FM mechanism under JCT compounds the commercial exposure. An extension of time protects the contractor from liquidated damages, but the additional cost of delayed materials, programme disruption, and extended preliminaries falls on the contractor unless the contract provides for price fluctuations by prior agreement. Subcontractors further down the chain face similar pressure, with the risk of back-to-back delay claims and cash flow disruption.

Employers are not insulated from the consequences either and may still bear certain consequences, such as delayed completion or the commercial effects of late handover. Both parties therefore have a shared interest in proactive risk management and collaborative approaches to supply chain disruption.

Conclusion

The Hormuz crisis is yet another reminder that construction projects do not exist in isolation from the global supply chain and that there are forces beyond any single party’s control. The materials that make up a development travel thousands of miles by sea under contracts governed by charterparties, bills of lading, and war risk clauses not typically allowed for in the supply chain pricing and programming of construction projects. Understanding that framework is the first step towards managing the risk.

Contractors should routinely consider seeking a more robust definition of FM to permit the granting of an extension of time under the contract and so avoid liability for liquidated damages for project delays. Equally, the employer will want contractual flexibility to re-sequence works or source alternative materials if continuing delay threatens the programme. In either case, both parties will wish to work collaboratively to bring the project to completion in as timely and cost-efficient manner as possible.

Safeguarding a project and protecting all parties’ best interests through an understanding of the shipping law framework and careful contractual drafting is essential in a world of unpredictable geopolitical risk.