Ways to claim for covid-19 costs

The facts and the increasing dynamic impact of the novel coronavirus, covid-19, are tangible. Patently, the construction sector is under strain. Movement of labour, key personnel, and plant and equipment is affected. Site productivity may also be affected, for example due to time consumed with the additional health screening, increased absence by sick leave or by the re-sequencing of trades to avoid congested working areas. Claims for additional time and money are now inevitable in the whole supply chain. Fundamentally, such claims are not limited to force majeure.

>> Discover more about force majeure with Simon Tolson: Now this is a pandemic, here’s the legal view

Covid-19 may provide an obvious and compelling basis to start a claim. However, the real test for a contractor will be to show that covid-19 is the actual cause of some sort of delay, disruption, inefficiency or increased cost. Moreover, a contractor will need to show that it sought to mitigate the effects (perhaps commensurate with bespoke contractual requirements). Contract administrators, employers, adjudicators and decision-makers will want to interrogate a contractor’s detailed tender assumptions on plant and equipment, labour histograms, planned and actual critical path programmes as well as the detailed contemporaneous facts linking precisely covid-19 with the effects on the design process, engineering, procurement and/or construction process. On closer examination and on application of legal rigour, the irresistible conclusion may be that covid-19 may only lead to significant entitlement in limited matters – for example, in respect of bespoke long-lead items being fabricated in regions directly affected by covid-19 (and where replacement equipment from other vendors is not feasible or practicable) provided, however, that the contractor is not in culpable delay. Establishing entitlement is complex but extends beyond force majeure.

Extension of time (EOT) for completion

Covid-19 could give rise to an extension of time or costs for disruption under, for example, clause 8.4 and/or clause 8.5 of the FIDIC Red Book 1999. This is especially so if covid-19 has caused shortages in the availability of essential labour or goods or if the contractor is required to follow certain procedures instigated by a public authority in the country. An example of the latter could be the additional health and safety tests or the mandatory quarantine of personnel travelling from certain countries. Naturally, precise facts are key as are the precise requirements of clause 8.4 (d) and clause 8.5: “The contractor shall be entitled subject to sub-clause 20.1 [contractor’s claims] to an extension of the time for completion if and to the extent that completion for the purposes of sub-clause 10.1 [taking over of the works and sections] is or will be delayed by any of the following causes:

• “a. […] Unforeseeable shortages in the availability of personnel or goods caused by epidemic or governmental actions, or […]
• “If the following conditions apply, namely:
• a. the contractor has diligently followed the procedures laid down by the relevant legally constituted public authorities in the country,
• “b. these authorities delay or disrupt the contractor’s work, and
• “c. the delay or disruption was unforeseeable, then this delay or disruption will be considered as a cause of delay under subparagraph (b) of sub-clause 8.4 [extension of time for completion].”

Similarly, under clause 4.20 of the JCT Design and Build 2011 there may be an entitlement to additional payment if the employer postpones any of the works under clause 3.10 (for example if the employer postpones works at a particular level because existing and neighbouring tenants are affected by covid-19).

Adjustments for changes in laws

If a contractor can identify changes in law or regulations arising as a result of covid-19 which have impacted the work, it may be able to claim additional cost under, for example, clause 13.6 of the FIDIC Silver Book 2017 or clause 13.6 of the FIDIC Emerald Book 2017, which provides: “Subject to the following provisions of this sub-clause, the contract price shall be adjusted to take account of any increase or decrease in cost resulting from a change in:

• “a. the laws of the country (including the introduction of new laws and the repeal or modification of existing laws); […] made and/or officially published after the base date, which affect the contractor in the performance of obligations under the contract. In this sub-clause ‘change in laws’ means any of the changes under sub-paragraphs (a), (b), (c) and/or (d) above.
• “If the contractor suffers delay and/or incurs an increase in cost as a result of any change in laws, the contractor shall be entitled subject to sub-clause 20.2 [claims for payment and/or EOT] to EOT and/or payment of such cost.”

Such “change in law” clauses are rarely activated. However, given the relatively broad definition of laws, claims may be feasible if a contractor can also show the direct effect on performance. Entitlement is contingent on causation: did covid-19 really affect design, fabrication, shipping, import, productivity of labour or plant, installation and/or the critical path? If so, how? An obligation to use reasonable endeavours to minimise delay caused by force majeure (as in clause 19.3 of FIDIC Red Book 1999) will also form part of the legal battleground.

Hamish Lal is a partner in Akin Gump Strauss Hauer & Feld