The Repercussions of COVID-19 on the Execution of Construction Contracts

On March 11, 2020, the World Health Organization (the “WHO”) declared that the outbreak of COVID-19 is a pandemic. Earlier, on January 30, 2020, the WHO stated that the outbreak constituted a Public Health Emergency of International Concern.

General Effects on the Construction Contract

The virus has caused and will inevitably cause significant business and operational disruptions, including disruptions to supply and distribution channels, logistics, and labour. As a result of the outbreak, many suppliers will be unable to fulfill their contractual obligations.

In January the China Council for the Promotion of International Trade announced that it would be offering “force majeure certificates” to assist businesses when disputes with foreign trading companies have arisen as a result of the government measures imposed to tackle the COVID-19 outbreak. It has been recently reported that over 1,600 “force majeure certificates” have been issued.

In light of the potential implications to construction projects, it is important to review the respective rights of parties under the agreements they have entered into.

Force Majeure

Generally speaking, Force Majeure provisions provide for extensions of time if works are delayed by reason of circumstances beyond the control of the parties. As there is no universal definition of what constitutes Force Majeure, the determination of whether an event can be characterized as a Force Majeure event is dependent on the contract language used, including the scope of the Force Majeure clause at issue.

For example, Force Majeure provisions may include specific reference to issues such as “disease”, “illness”, “epidemics”, “pandemics”, or “quarantine” which could encompass COVID-19. Other definitions refer to “government order”, “government action”, “public health emergency” and “national emergency”, which may apply to certain COVID-19 related matters.

In any event, it is important to note that the onus will be on the affected party to establish that the circumstances surrounding the outbreak of COVID-19 entitles it to relief under the contract at issue. Further, many construction contracts will impose a duty to mitigate and notify, which a claiming party needs to adhere to.

For more information, please contact: