Coronavirus and Construction – Is the Contractor Entitled to Claim?

 

The global hot topic this month is definitely the coronavirus. It’s affecting many construction projects.  Labour, materials, plant or equipment are coming from China (or other affected countries) and supply has been delayed. So what do you do if you’re a contractor in this situation? Are you entitled to make a claim?

Well…it depends on your particular contract, but possibly.

I know that this is a bit of a lawyer’s answer, but it really does depend on several things. Let’s however, have a look at what the FIDIC Red and Yellow Books, 1999 Editions, have to say on the subject.

Firstly, Sub-Clause 8.4 (Extension of Time for Completion) provides that an extension of time is warranted in the case of ‘Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions…’. This seems to provide fairly clear entitlement to an extension of time, but not the payment of costs.

FIDIC also possibly provides entitlement to an extension of time under Sub-Clause 19.4 (Consequences of Force Majeure). However, this is arguable. To be a force majeure event, the conditions contained in Sub-Clause 19.1 (Definition of Force Majeure) must be satisfied. It is not certain that they are.

Undoubtedly, there is enough uncertainty here to anticipate a strong defensive argument from the other side.

So you need to include a persuasive argument in any claim.

Sub-Clause 8.4 (Extension of Time for Completion) does not provide entitlement to the payment of costs. The matter of costs is dependent on the virus being a force majeure event. And, even if there is consensus amongst the parties that the virus is a qualifying event, there is also another hurdle to overcome…

Sub-Clause 19.4 (Consequences of Force Majeure) requires the event to have occurred in the Country. “The Country”: is defined in FIDIC as ‘the country in which the Site (or most of it) is located, where the Permanent Works are to be executed.’ So, it seems that, unless the project is in a country where the virus has occurred and has a direct effect, then Costs may not be awarded. Once again, there may be an argument here if the government of the country has introduced measures which have affected the project.

There are of course other considerations before a claim is justifiable.

Some of these include:

  1. How has the virus affected the Contractor and his subcontractor’s activities?
  2. What activities have been or are likely to face delays?
  3. Are the affected activities on the critical path?
  4. Can you demonstrate the effect of the delays and predict the an effect on the Time for Completion?
  5. Have you given appropriate notices in a suitable format?
  6. Does the Contractor have contemporary records to substantiate and ascertain the effects of the delays?

All of the above of course is just good professional practice when it comes to investigating and preparing claims. But it’s surprising how many contractors fail to comply and then wonder why their claims fail or, at best, take a long time to resolve.

My advice to contractors is that the worst thing you can do is ignore the matter. If you think that you have entitlement to make a claim, make sure you submit the appropriate notices and follow up with an interim claim as soon as possible.

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