Coronavirus and force majeure in construction projects

Most industries are now affected by the ongoing coronavirus pandemic. Many are strongly affected by government measures. More and more will experience challenges fulfilling contractual obligations, including within the construction industry. A number of circumstances will affect progress in construction, including illness and quarantine within your own business and on the part of contract assistants.

Basis

The basis of construction law is that the parties bear the risk for their own services. An exception applies when the services are affected by extraordinary circumstances outside of the parties’ control – force majeure events. The coronavirus pandemic is an example of such a force majeure event.

The NS contracts govern the parties’ requirements concerning deadline extensions in the event of force majeure events. Summarised in brief, the conditions for deadline extensions are as follows:

  • progress is hindered;
  • this is happening as a result of circumstances outside of the parties’ control;
  • the party could not have been expected to take the hindrance into account at the conclusion of the contract;
  • the party could not reasonably have been expected to avoid or overcome the consequences of the hindrance.

All conditions must be met. Furthermore, the general notification rules must be followed.

 

Progress must be hindered

It is not sufficient for it to be more difficult than before to maintain progress. Short-term hindrances without any practical implications on progress therefore have no consequences on the delivery deadline. At the same time, the threshold is not so high that it is impossible to fulfil the contract.

Project progress can also be hindered if subcontractors or suppliers are affected by the coronavirus pandemic. In such a case, both the contractor and the subcontractor/supplier must meet the conditions for deadline extensions.

 

Avoiding or overcoming the consequences of the hindrances

No hindrance is deemed to exist if the contractor is able to avoid or overcome the consequences of the circumstances claimed as a hindrance. Often, hindrances can be overcome if adequate resources are added in the form of employees and machinery. However, the contractor cannot be required to implement all conceivable measures to overcome the hindrance.

What can be required will depend on specific circumstances. As an example, a contractor must be expected to initiate more extensive measures to overcome an obstacle in a major, important contract than a contract with a low contract sum. This means that there must be some proportionality between contract value and required measures.

 

Could not have been expected to be taken into account at conclusion of the contract

The right to a deadline extension also assumes that the party could not have been expected to have taken the hindrance into account at conclusion of the contract.

Naturally, for contracts concluded before the coronavirus pandemic became known, neither party could be expected to have taken it into account.  It will be different in cases where the contract was concluded after the pandemic became widely known. This applies in particular to contracts that were entered into after the government’s measures to limit the pandemic came into force.

Agreements that will be entered into in the near future should contain regulations covering any fulfilment hindrances caused by the coronavirus.

 

Circumstances outside of the parties’ control

Progress must be hindered as a result of circumstances outside of the parties’ control. This will normally be the case when the other conditions have been fulfilled as a result of coronavirus-related challenges.

 

Is the coronavirus covered by the force majeure provisions?

The threshold for being able to invoke force majeure as the basis for a deadline extension is generally high. However, the coronavirus pandemic can unquestionably be considered a force majeure event. A specific assessment must be conducted in each case as to how each business is affected.

The International Chamber of Commerce has drawn up a standard provision on the exemption from liability in case of force majeure. This provision states that epidemics are covered by the concept of force majeure, unless otherwise agreed between the parties.

It is a basic requirement that the contractor is able to demonstrate that progress has actually been hindered and that the hindrance cannot be overcome through reasonable measures. It is therefore extremely important to document the status of the project when hindrances arise, as well as the consequences of the hindrances, until normal operations return.

The coronavirus may also affect the client’s services. In such a case, the client may be entitled to a deadline extension for its deliveries, subject to the same conditions.

 

Deadline extension, no additional payment

The provisions relating to force majeure carry an entitlement to deadline extensions only – not to an adjustment of the payment. This is a reasonable trade-off of who will bear the consequences of circumstances that fall outside the parties’ control.

 

Notification

Please note that the ordinary notification rules apply. We therefore recommend that notifications are issued at an early stage. You can issue a neutral notification stating that you are experiencing negative consequences as a result of the coronavirus pandemic. The notification must be followed up on and specified as and when hindrances and consequences arise.