As lockdown measures finally ease, it is hoped that the economy can start on the road to something resembling recovery. For many businesses, however, the impact of coronavirus is likely to be far-reaching and will extend much further than mere lost time.
While construction contractors who have faced delays and/or increased costs due to the lockdown are likely to be reviewing their entitlement to relief under their existing contracts, it would be wise for the industry as a whole to swiftly begin the process of looking forward. This will undoubtedly mean considering how the risks of COVID-19, and perhaps further pandemics, can be addressed in future contracts.
There are a number of approaches:
Force majeure for pandemic conditions
Future force majeure wording should specifically include provision for situations in which performance is rendered impossible by a government-mandated "lockdown". Careful consideration should also be made in respect of the likelihood for situations in which an operation may need to be halted as a result of loss of personnel due to an infection.
Extension-of-time provisions
EOT provisions should determine whether the contractor is entitled to recover unearned sums and/or whether the employer is able to terminate for convenience. In the US "permissible delay clauses" are typical for this purpose.
Any EOT provision should be appraised in relation to the contractors' all-risk insurance coverage. The relevance of this in relation to current contracts has been highlighted following the government's designation of COVID-19 as a 'notifiable disease'. The inconsistent way policies cover such disruption has been a major concern. For instance, a lockdown ordered by a national government is typically covered, whereas if restrictions are put in place on a regional basis by local government they may not be covered.
In jurisdictions governed by civil law there may be a willingness to amend contracts in relation to unfair economic outcomes, good faith and equilibrium, but this should not be relied upon, even in situations of pandemic.
Be as specific as possible
For now, if you are returning to a contract that was in negotiation, you should be specific about the current pandemic and name it as such in your construction contract provisions. By being unambiguous about COVID-19-related issues you can attempt to limit any reliance on clauses that provide for a one-time event only.
Similarly, material adverse-change clauses should be drafted to either specifically include or exclude reference to pandemics and epidemics.
Frustration as a last hope
Many parties may feel the current situation was unforeseeable and therefore frustration will be a suitable legal principle to pursue. However, it will be up to courts to determine the exact date at which COVID-19 became a determining factor in our lives and, specifically, for the construction sector. So, it would be extremely doubtful, at least for some considerable time, that frustration in construction law disputes caused by pandemic lockdowns and operational restrictions will be available
Construction contract disputes need specialist legal advice
The current COVID-19 legal position is still in its infancy and, sadly, it's likely that disputes arising out of the pandemic will be many in number.
It is hoped that many such disputes will be carried out respectfully and amicably through alternative dispute resolution methods, but, undoubtedly, some cases will require litigating and the complexities of these cases will be manifold.
If you are either drafting a construction contract or involved in a dispute, Oratto can help you to find the construction solicitor best suited to your needs. Contact us today for a discussion of your circumstances.
