What is the Current Impact of COVID-19?
The effect that COVID-19 is having on the construction industry is massive, yet the legal implications are different depending on where you live and what contract you are working on. When it comes to the contractual side of things, a lot of focus is currently being placed on the working of standard forms, for example, FIDIC and NEC (if you want more information on his topic, see our Client Alert). The more that the COVID-19 situation develops, the more issues that are coming to the surface.
Currently, COVID-19 could not be said to be completely rendering projects impossible to finish. However, the rate at which they can be completed is certainly slower, meaning that delays are happening, even when they are only being caused by the fact that supply chains for things like construction props have been disrupted to a large degree. A lot of projects have completely stopped and wait to resume at a later date.
Some businesses have also been ordered to completely stop by the government. That being said, the construction industry is not a sector that has been subjected to these types of shutdowns.
There are a few reasons for this, which include:
The fact that the construction industry continuing is important. Health and safety risks related to COVID-19 are different for each project. For instance, when a project involves people to only work outside without close physical contact, this puts them in a good position to comply with the current health and safety precautions, as opposed to if they were working indoors or close together. However, all cases where work continues there needs to be assessed for health and safety risks, these need to comply with the government’s guidelines, as well as be consistent on a medical and science front, in addition, it is the responsibility of the contractor to provide a safe working environment.
Of course, the situation we see now is constantly evolving and we are seeing a full suspension of all non-essential businesses in some countries, this would also cover construction projects. Specific orders for construction sites to close has happened in some countries, or orders which mean the contractors should suspend works until the state of emergency has passed (this is especially the case where the work is in public areas).
Implications From a Contractual Standpoint
From this side, events like those we are currently living through have contractual provisions related to the consequences of such unforeseen events. usually, these will fall into two areas.
Firstly, ‘force majeure’ (see our Client Alert for further information on this), refers broadly to unforeseeable events at the point when the contract starTed, which were outside the control of the party involved and that are not able to be prevented or overcome, these events have resulted in the party being unable to complete its obligations. Hence, it could certainly be understood that COVID-19 has caused a force majeure event. The FIDIC forms, as well as many others, would mean that the contractor can have an extension due to the delay caused by the event, however, the costs incurred during the waiting period are not covered unless they have been agreed upon. As is always the case, how the wording is on the form will play a significant role here.
Usually, force majeure will excuse solely the non-performance of obligations that have been caused directly by the event. This opens the door to other questions, such as when some activities (for example design tasks) can still go ahead, while other tasks cannot. The requirement that it is not possible to overcome the consequences of force majerue is also significant since it may be possible for a contractor to find a way for the wok to continue, even if the rate of work is slower. In fact, there are employers who simply will not acknowledge that force majeure exists for this very reason.
Engineering projects and construction projects have been affected by the laws and regulations passed by the government, in fact, even directives provided to address the pandemic are having an impact. Restrictions in place to limit the movement of goods and people and periods of ‘lockdown’ typically mean that the law changes – this can have the potential to have an even bigger influence on how well a contractor can continue with their work, than the actual pandemic.