The global hot topic this month seems to be Coronavirus and we’ve received lots of questions from clients. So today, we thought we’d take a look at some of those questions and share our thoughts with you.
The usual question people ask are:
We are obtaining labour / materials / plant / equipment from China and there are delays to the supply. Are we entitled to claim for an extension of time and additional costs?”.
Our answers, as usual, have been along the lines of:
“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 have a look at what the FIDIC Red and Yellow Books (1999) 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.
Secondly, FIDIC also possibly provides entitlement to an extension of time under Sub-Clause 19.4 (Consequences of Force Majeure). This is arguable though because to be considered as a force majeure event, the conditions contained in Sub-Clause 19.1 (Definition of Force Majeure) must be satisfied and it is not certain that they are.
Undoubtedly, Coronavirus provides enough uncertainty here that you can anticipate a strong defensive argument from the other side. Consequently, a claim must include a persuasive argument.
Sub-Clause 8.4 (Extension of Time for Completion) does not provide entitlement to the payment of Costs, so the matter of Costs is dependent on the consideration that the virus is a force majeure event. And, even if there is consensus amongst the parties that it is a qualifying event, there is another hurdle…
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 is prominent and has a direct effect, then award of Costs may not be unlikely. Once again, there may be an argument here if the government of the country has introduced measures that have affected the project.
There are of course other considerations to consider before a claim is justifiable, some of these include:
- How has Coronavirus affected the Contractor and his subcontractor’s activities?
- What activities have been or are likely to experience delays?
- Are the affected activities on the critical path?
- Can you demonstrate the effect of the delays to predictably have an effect on the Time for Completion?
- Have appropriate notices been given in a suitable format?
- 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. They then wonder why they receive rejections for their claims or, at best, they take a long time to resolve.
Unsurprisingly, Coronavirus is at the forefront of everyone’s minds at the moment. Hewitt Decipher Partnership directors Andy Hewitt and Paul Gibbons have been looking at what relief contractors may obtain on projects that are set for delays under the FIDIC, NEC and JCT forms of contracts. Along with the steps that contractors should take to safeguard their interests form a contractual point of view. We have also written new articles on this topic since this blog was published so make sure you check that out too: Coronavirus – Advice for Contractors, Engineers and Employers. There has also been an explosion of articles relating to Coronavirus and our friends at the CIOB have collated a useful selection.