The Current Impact:
COVID-19 is severely affecting lots of construction projects. However, the legal implications of these effects aren’t similar. They vary from contract to contract and country to country. The contractual side has seen more attention being placed on the phrasing of standard forms. Here, terms like NEC and FIDIC may draw attention (visit our Client Alert for more information on this subject). More issues are emerging as the COVID-19 situation continues to evolve.
At this stage, it’s safe to say that COVID-19 isn’t making it impossible to finish projects. However, this pandemic is slowing progress, which results in disorder and delay. This is because of how supply chains have taken a toll. There are lots of projects and businesses, such as APL Kwikform, that have been halted. The resumption of these projects will typically happen at a later date.
Several governments have suspended the operations of different businesses. These ordered shutdowns haven’t affected the construction industry.
There are several reasons why this is the case including:
The importance of guaranteeing the continuation of infrastructure and construction projects and the reality that COVID-19 health and safety dangers aren’t similar in all projects. They vary from one project to another.
For instance, it may be easier for individuals working outside to follow health and safety guidelines compared to those working in an enclosed setting. The former aren’t physically close to their colleagues. Still, health and safety risk assessments need to be done in both settings. This is essential if work has to continue. This assessment has to be in line with scientific, medical, and government directives. It is the responsibility of the contractor to ensure staff work in a safe environment.
All things considered, some countries have opted to shut down all non-essential services. The developing situation has led to these tough choices. Many construction projects fall under this category. Specific orders have been issued in a few countries demanding the closure of construction sites. Contractors have also been forced to suspend work until after the state of emergency period lapses. This more so applies to public works.
Contractually, situations like the Coronavirus pandemic touch on contractual provisions regarding unforeseen events. There are two broad categories of these provisions.
‘Force majeure’ is the first category. This phrase implies that there exist unforeseen events when the parties are signing contracts. These events are out of the party’s control. The party can’t overcome or prevent the occurrence of the events. If this happens, the party may not deliver on its contract obligations. This pandemic can be construed as a force majeure event. A contractor is entitled to a time extension under most contracts, including FIDIC forms. This is because of the delay that the unforeseen event led to. It, however, doesn’t apply to the compensation costs brought about by the delay in the project. Compensation is only available if both parties agree to it when signing the contract. As in all contracts, the actual phrasing used in clause(s) is crucial.
This category only excuses parties that don’t carry on with their obligations since they are impacted by the specific situation. Concerns emerge since certain activities will eventually stop while others such as design activities can still continue. The contractor may opt to continue with construction work. However, the rate of progress will be significantly impacted. Some employers are turning a blind eye to a force majeure situation, basing it on this very scenario.
Governments’ laws or regulations are significantly affecting engineering and construction projects. Guidelines that are being issued are also affecting these projects. An impact is being felt by limiting the movement of goods and people within or between nations and demanding certain individuals be ‘locked down’. This represents legislative changes. They influence how a contractor can perform contractual obligations. They completely affect the ability of a contractor to proceed with work.