What you need to know about Force Majeure provisions in construction contracts in light of the coronavirus
With the outbreak of coronavirus (COVID-19), contractors, subcontractors and suppliers in the construction industry may look to protect themselves against delays or disruption resulting from the impact of coronavirus.
Some of those actions will inevitably result in non-performance of contracts, which in turn can have a knock-on effect.
For a few, relief may be found in contracts themselves, in the form of a Force Majeure provision. Those whose contracts do not contain Force Majeure provisions, defending a potential breach of contract will present a greater challenge.
Of course, this isn’t just about defending or winning claims, but also taking preventative measures to be informed and help you to make the best decisions possible.
So what is a Force Majeure and what do you need to know about it in light of the coronavirus?
What is a Force Majeure?
Force Majeure events are often referred to as boilerplate clauses as they are rarely modified or considered during contract negotiations.
As with all things, while definitions and specifications are laid out, to some extent there are if’s but’s and maybe’s that are impacted by interpretation and circumstance.
Technical definitions are laid out in the FIDIC red, yellow and silver books 1999 as well as the FIDIC Gold book 1999 and the new 2017 editions, all of which have similar provisions, although they refer to it as an “Exceptional Event” which has the same definition as Force Majeure.
The definition of Force Majeure should not be confused with the local statutory definitions of the jurisdiction the project is being performed in which may alter its definition.
Another provision which should be considered under FIDIC 1999 is the definition of Employer’s Risks under Sub-Clause 17.3.
Neither provision specifically refers to medical emergencies, pandemics or Public Health Emergency of International Concern as the WHO has currently designated the coronavirus outbreak.
The FIDIC provisions also attempt to broaden their applicability by using non-restrictive and catchall phases.
For example, in Sub-Clause 19.1 [Definition of Force Majeure]
“Force Majeure may include, but is not limited to” and Sub-Clause 17.3 [Employer’s Risks] “any operation of the forces of nature which is Unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions.”
Could coronavirus fall outside the Force Majeure definition?
Given its wide definition, Force Majeure is often left undefined in contracts and this will lead to great deal of debate as to whether the now defined “pandemic” is actually “exceptional”.
For evidence against coronavirus being defined as “exceptional”, we might look back to the precedent set by the SARS outbreak in 2003.
It was not actually declared a pandemic by the WHO, despite affecting 26 countries and its spread being contained quickly, confining itself largely to China, Hong Kong, Taiwan, Singapore and Canada.
Similarly, much has been written about whether the declaration of H1N1, colloquially known as “swine flu”, was a pandemic in 2009. Swine Flu caused unnecessary panic, overwhelming emergency departments and causing governments to overspend on antiviral medications but despite these impacts, this too, eventually avoided being defined as a pandemic.
Is it worth me looking into?
Much of this depends on whether or not the contract permits entitlement to claim for delay and or disruption.
If it does not, then all may not be lost as there are other remedies that may be called upon such as the law of frustration together with a number of implied terms.
Meanwhile, though there is no definitive answer as to whether these provisions categorically include events such as the coronavirus 2019-nCoV outbreak, it is strongly suggested that they do.
The consequence of this is that a Contractor may be entitled to claim for additional monies and/or time as a result under the provisions of the 1999 and 2017 editions of FIDIC.
Whatever the position, knowing where you stand is both reassuring and allows you to make more informed instead of reactionary decisions if or when necessary.
Therefore, if any subcontractors, contractors or suppliers are affected or expect to be affected, then make contact with us.
We can provide contractual, legal and commercial advice and we are happy to do this entirely free of charge.
Moreover, we provide an entirely free claims preparation service for applicable cases.
This article is provided for your convenience only and does not constitute legal and/or contractual advice in itself. Neither the author nor Tungsten Capital shall be held negligent for any inaccuracies or any resulting loss or damage that may arise howsoever caused. Please be advised that the author is not a lawyer and is not licensed to dispense legal advice, and this has been provided for guidance purposes only and are not to be relied on without first obtaining appropriate legal advice.