Covid to affect development claims ‘till a minimum of 2023’

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In some cases, the effect of Covid laws that restrict the movement of people and goods into a country has resulted in claims for force majeure if the closed list contains a “blockade” or an “embargo” as a force majeure event. In other cases, costs in connection with force majeure are expressly excluded in the contract. Ultimately, the merits of each claim will be assessed on a case-by-case basis.

Legislative changes

A change in the law – such as a forced lock that prevents the work from being carried out, or visa restrictions or quarantine regulations that delay the planned completion – can provide an alternative basis for relief in the event of a Covid claim.

In many construction projects, relief is possible in the event of changes in the law after the conclusion of the contract, including an extension of the delay period and relief of the costs incurred as a result of this delay. It is not uncommon, however, to come across regulations in which a change in the law excludes claims for time and costs if the change in law is due to an event of force majeure – ie the change in law is subject to further restrictive conditions that require it. There are no alternative ways of providing assistance.

There have also been arguments where existing, rather than new, laws were being used to effect lockdowns and minimize the spread of Covid, so the measures were arguably an accepted risk.

A particularly problematic scenario could arise if a party declares force majeure before a change in the law due to Covid comes into force. The provision on force majeure does not entitle the contractor to incur costs, while the provision of amendments to the law gives the contractor both time and cost claims. In both cases, the underlying cause is the pandemic, but the relief and the parties’ positions are diametrically opposed.

To address these conflicts, some jurisdictions are establishing guidelines or legal relief for delays in construction projects in the early stages of the pandemic. For example, in Saudi Arabia, a civil jurisdiction, the Supreme Court of Appeals has established rules for handling Covid claims in private contracts, and special courts have been designated to handle construction claims. The courts effectively examine what is fair in the context of Covid and at the same time set specific conditions for a claim to arise.

We will see these type of interventions become more common as more countries consider and address the long-term effects of Covid on construction projects.

Calculation of the delay time

Different jurisdictions reacted differently to the pandemic, although not every jurisdiction decided to close all construction sites for an extended period of time. With a longer site stop time, it can be relatively easy to estimate the length of the delay. However, if sites remained open but were affected by various measures or restrictions put in place in response to the pandemic, it will likely have more lasting effects on the project and make calculating the length of the delay more difficult.

In the second of these scenarios, the eligible party must first explain what was planned with reference to the original basic program of the work. Problems can arise if this program was incorrect, not realistic, or not kept up to date before the effects of the pandemic became felt.

The party must then be able to prove what, when and why caused the delay. This requires records of progress – for example planning decisions made and any mitigation measures. Problems also arise here if these records are not kept continuously.

Witnesses can be helpful in filling in gaps in the documentation. However, if they are fired before a change is made to record their memory of what happened, a useful resource is lost.

Challenges can also arise if there were delays prior to the outbreak of the pandemic. The party claiming the delay must be able to distinguish between the effects of these two causes of delay. In this scenario, the contractor can argue that their own delay was manageable but was made much worse by the pandemic; while in response the employer can argue that the effects of Covid would not have been as problematic without the existing delays by the contractor.

Calculation of the effects of disturbances

Likewise, documentary evidence is vital for a party seeking to demonstrate the disruptive effects of the pandemic on the project.

First, based on a baseline productivity assessment, the party must be able to show what productivity would have been without the effects of the virus – and show what resources the contractor would have relied on to complete the work and at what point it would have cost. The potential challenge here is that the bid basis for productivity was already inadequate or if it was not updated to take into account the pre-Covid on-site reality, for example taking into account any discrepancies.

If the party is unable to properly determine what it would have done in relation to normal productivity, it will be very difficult for them to determine the impact of the Covid disruption event.

Second, the party must explain the cause of the malfunction with reference to current evidence. Possible causes are labor shortages due to travel restrictions, quarantines, or stay-at-home orders; or inadequate care. Additional health and safety measures on site can also disrupt the project: staggered start, finish and break times to reduce traffic jams; social distancing while at work; Implementation of one-way systems around the site; Minimizing the number of workers involved in a task or limiting interactions with others; or re-sequencing works to avoid traffic jams.

The final step is to show the impact of the disturbance. This is often the hardest element of a claim as the party needs to be able to not only demonstrate the impact of the virus on basic productivity, but also to decouple it from the impact of other unrelated issues on productivity.

This is not easy to do given what actually happened during the pandemic, with different measures and restrictions put in place at different times. and that the effects of these measures were not consistent across construction sites or even different work activities or disciplines on the same construction site or project. Corrective actions – longer hours or speeding up – may not really help and can even hinder progress.

State intervention

To protect the parties ‘positions and to minimize the burden on national courts, some jurisdictions have introduced various measures that limit the parties’ freedom to invoke agreed contractual positions and encourage the use of alternative forms of dispute resolution (ADR).

Notable examples are:

  • In Singapore, the Covid-19 Temporary Measures Act (TMA) provides that no other damage caused by default is payable for events after February 1, 2020, and offers a defense against claims for breach of contract against a party who is unable to To be performed “to a substantial extent” due to a Covid-19 event. However, the law is not automatic – those wishing to seek protection must submit a compliant notice, while the appraisers must take into account the “ability and financial standing” of the party fulfilling the obligation in question;
  • the TMA also enables the disputing parties to request the appointment of an assessor to resolve disputes over the application of the law in a less formal and more time and cost effective alternative to legal proceedings
  • in France, a regulation neutralized the effects of contractual penalties and termination clauses from March 12, 2020 until a one-month period after the end of the ongoing state of emergency;
  • France also introduced state-funded mediation through the Center de Médiation et d’Arbitrage de Paris for disputes up to € 50,000, while courts asked the parties to request mediation as a matter of course;
  • in the UK, the Cabinet Office issued guidelines to encourage responsible contracting and the use of early forms of ADR before escalating into formal disputes. Accelerated procedures are also encouraged, including in the construction sector, where the Building Industries Council has developed an accelerated decision-making process.

Several states also provided emergency financial aid to companies. This was also intended to ensure the financial health of the companies affected by the crisis, but also to prevent parties from asserting legal recourse claims against contracting parties.

Co-written by Florian Quintard from Pinsent Masons