The Current Impact:
COVID-19 is massively impacting construction projects, but the legal implications vary depending on the country as well as the contract type. On the contractual side, the main focus is now on the wording of standard forms, in instances where they’re used, for example, NEC and FIDIC (for additional info on this topic, look at our Client Alert). As the COVID-19 situation develops continually, more issues are arising.
At this point, if we’d be truthful COVID-19 isn’t making it impossible to complete projects. However, it’s slowing them down, resulting in delays and disruptions, even though it’s only because supply chains have been disrupted a few times. Lots of projects have been halted, only to resume work at later dates.
Some governments have also ordered that some businesses should stop working. But, in the construction industry, businesses like APL Kwikform, haven’t been ordered to shutdown, and have continued to serve the public.
That’s because of some reasons, including:
The necessity of the continuation of the construction and infrastructure projects; and
The sole fact that the health, as well as safety risks of COVID-19, differ from one project to another. For example, people working outside, in an open area, and yet not physically coming close to each other, maybe better positioned to comply with the new health and safety precautions compared to people working in enclosed environments. Whatever the situation, in all places where work continues there need to be health and safety risk assessments, in line with medical, scientific, and government guidelines. Contractors also need to provide a safe working environment for their employers.
Having noted that, the pandemic is evolving fast and some countries have ordered the immediate suspension of all non-essential businesses, and many construction projects could be in this scope. In some countries, specific orders have been released requiring the closure of construction sites or needing contractors to suspend all works and extend the time until the state of emergency period.
Contractually, happenings such as the COVID-19 situation usually engage contractual provisions on the consequences of unpredictable events. Such provisions fall into two large categories.
The first category is about ‘force majeure’ (for additional information on this topic, look at our Client Aert), which refers to unforeseeable at the time of entering into the contract, outside the control of the affected party, that’s unpreventable or can’t be overcome, and leads to a party being unable to perform part of or all its obligations. So the COVID-19 is understood to constitute a force majeure event. Under different forms of contract, for example, the FIDIC forms, a force majeure event would entitle the contractor to a time extension, due to delay caused by the event, but not compensation as a result of the costs incurred during the delay period, except in circumstances where there was an agreement. As usual, the actual wording of the applicable clause(s) is very vital.
Force majeure usually excuses non-performance of the obligations that are affected by the event. Some questions may arise, for example when specific activities (e.g design activities) can proceed while others can’t. The requirement that consequences of force majeure can’t be overcome may be significant since a contractor can take measures to allow the continuation of the work but at a reduced rate. Several employers aren’t acknowledging the existence of a force majeure situation on this basis.
Construction, as well as engineering projects, are impacted as a result of government passing laws and regulations, or at times giving directives, meant to address the pandemic. Restricting the movement of people between or within countries, and needing some people to ‘lock-down’, represents a change of law and has its impact – and it could be an impact that’s greater on the contractor’s ability to continue works than the pandemic itself.