COVID-19 was first recorded in December 2019 in the city of Wuhan, People's Republic of China and has rapidly spread out to almost everywhere, causing a worldwide epidemic that threatens human health. Governments are trying to reduce the impact and mitigating the damages by putting into force measures such as suspending all activities except for those which are indispensable and vital, imposing curfew or lockdown measures. Among others, construction industry has also been severely hit with the implementation of the said measures due to labour and supply chain shortage as well as project financing related matters. Accordingly, it is highly likely that both sides, Employers and Contractors will inevitably confront with commercial disputes relating to completion of agreed upon works right on time and in duly manner under construction projects.
The Red Book 1999 which is one of the most notable examples of FIDIC Suite of Contracts, is intended for use on construction projects where the Employer carries out the design but it also allows for some elements of the project to be Contractor designed1 . Basic features are2 ; payments to be made to the Contractor shall be determined by the amount of work done and the risk shall be distributed between the parties in accordance with the equity, which means the exercise of certain rights and powers is subject to certain conditions.
Since the main obligation of the Contractor is to complete the assigned works on specified time, it is of the essence to determine whether COVID-19 is deemed as Force Majeure or, in wording of 2017 edition, an Exceptional Event which enables parties to suspend their mutual obligations or totally discharge them to meet their obligations arising out of the contract.
A. CONCEPT OF FORCE MAJEURE AND EXCEPTIONAL EVENT
The concept of force majeure is known by most legal systems, but the principles developed in national laws may imply substantial differences. According to Art. 19.13 ; Force Majeure is an exceptional circumstance which:
- is beyond a party's control;
- the party could not reasonably have provided against before entering into the contract;
- having arisen, such party could not reasonably have avoided or overcome; and
- is not substantially attributable to the other party.
If the case satisfies the abovementioned requirements, then the effected party is to be discharged to meet their obligations as long as the Force Majeure or an Exceptional Event lasts, or the contract may be terminated If other conditions are satisfied. The following sub-paragraph provides a non-exhaustive list of examples of what may qualify as a Force Majeure or an Exceptional Event. COVID-19 is a pandemic yet ''pandemics'' is not listed as a Force Majeure or an Exceptional Event; measures governments put into force in order to prevent catastrophic impacts as ''governmental actions'' is also not listed as a Force Majeure or an Exceptional Event under provisions Art. 19.1(V) of 1999 and Art. 18.1(f) of 2017 edition.
Cognizant of the fact that pandemics or governmental actions are not listed as a part of non-exhaustive list of examples, COVID-19 alone by itself, must be subjected to the abovementioned test, and COVID-19 may possibly fill the bill of being a Force Majeure or an Exceptional Event, owing to the governments' bans on construction activities. But for such a ban, a Force Majeure/Exceptional Event case may still be argued, although the most problematic part of the test appears to be whether a Party "could not reasonably have avoided or overcome" the event, as it can be argued that the implementation of the government's relevant health and safety measures may make it possible to overcome the said COVID-19 event4 .
Continuing, If the case passes the test, then the affected party shall give a Notice to the other party of such Force Majeure/Exceptional Event and shall specify the performance of which is or will be prevented, within 14 days after the affected party became aware under the provisions of Art. 195 . Thereafter, the affected party shall be discharged to perform the prevented obligations for so long as such Force Majeure/Exceptional Event prevents the affected party. Ultimately, the contractor may be entitled to extension of time (''EOT'') and costs according to 4th sub-paragraph.
B. DEMANDING EXTENSION OF TIME
The contractor shall start, execute and complete the work as soon as possible from the date of commencement of the work. Therefore, the specified commencement and completion periods must be respected6 . If a failure resulting in extension of time has occurred due to risks in the Contractor's area of responsibility, the Contractor should revise the program to compensate for this. If the risks have developed outside the Contractor's area of responsibility, the Contractor may request an EOT7 .
Art. 8.48 sets forth the Contractor's right to extension of time and its conditions. The Contractor shall be entitled to EOT if and to the extent that completion of the agreed upon works is or will be delayed by any of the following causes:
- a variation or other substantial change in the quantity of an item of work included in the contract;
- a cause of delay giving an entitlement to EOT under a sub-paragraph of these conditions;
- exceptionally adverse climatic conditions;
- unforeseeable shortages in the availability of personnel or goods caused by epidemic or governmental actions; or
- any delay, impediment or prevention caused by or attributable to the employer, the employer's personnel, or the employer's other contractors on the Site.
If one of these conditions of extension of time occurs, the Contractor shall gain an extension if he/she complies with the procedure stipulated in Art. 20.19 . First of all, the Contractor must report these situations to the engineer within 28 days from the moment the contractor notices them. This notice period is of the essence since If the claiming party fails to give a notice of claim within this period of 28 days, the claiming party shall not be entitled to any extension of time (see the parallel decision of Turkish Court of Appeals)10 . However, it should not be taken into account if one of these situations has occurred, but does not affect the finishing time or, in other words, does not necessarily cause the temporary acceptance ceremony to be delayed .
C. POSSIBLE SCENARIOS PROVIDED BY FIDIC GUIDANCE MEMORANDUM
FIDIC recently released a Guidance Memorandum providing solutions to 6 possible scenarios regarding COVID-19 related disputes that unbalance the parties' rights and obligations and how to resolve these disputes at the very beginning under the FIDIC Suit of Contracts. However, it should be keep in mind that these solutions are advisory which requires every contract to be evaluated in its unique way.
1. What are the Contractor's remedies If the
government does not establish any regulation banning construction
activities on-site, yet the Contractor confronts with labour and
supply chain shortage due to safety concerns of the commercial
actors'?
Art. 8.4(d) of 1999 and Art. 8.5(d) of 2017 edition provides the
solution by saying that ''Unforeseeable shortages in
the availability of personnel or Goods (or Employer-Supplied
Materials, if any / 2017 edition) caused by epidemic or
governmental actions'' the Contractor is entitled to
an EOT. Moreover, with 2017 revision, Contractor may also be
entitled to an EOT in the event of unforeseeable shortages in the
availability of Employer-Supplied Materials, caused by epidemic or
governmental actions. However, it should be bear in mind that the
Contractor is not entitled to financial remedy.
2. What are the Contractor's remedies If the
government does not establish any regulation banning construction
activities on-site, yet the Contractor solely suffers delays due to
local authority's measures such as health and safety
inspections on regular basis?
Art. 8.5 of 1999 and Art. 8.6 of 2017 edition provides that If the
Contractor has complied with the rules of the country in which the
work took place, and the local authorities have delayed the work in
an unforeseeable manner, then the Contractor can benefit from the
right to extend the time period if the Contractor
reveals12 in detail that he is flawless. By saying that,
this extension qualifies as ''a cause of delay giving
an entitlement to EOT under a Sub-Clause of these
Conditions'' (see the footnote no: 9) However it
should be bear in mind that the contractor is not entitled to
financial remedy.
3. What should the Contractor do If the government
establishes regulations restricting construction activities
on-site, yet the Contractor is still able to proceed however
suffers delays or additional costs incur?
Emergency laws or decrees that are issued right now across the
world in different jurisdictions are likely to be treated as a
change in Laws. That is the reason why it shall be evaluated If
these regulations constitute changes in Law. If this establishment
ipso facto changes the Law, then the Contractor may seek remedy
under Art.13.7 of 1999 and Art.13.6 of 2017 edition. Accordingly,
If the Contractor suffers delay and/or an increase in cost as a
result of any change in Laws, the contractor shall be entitled to
EOT and/or payment of such cost. On the other hand, if there is a
decrease in cost, the Employer shall be entitled to a reduction in
the contract price, but not the extension of time13
.
4. For the scenarios above, can we resort to Force
Majeure or Exceptional Event clause?
According to FIDIC COVID-19 Guidance Memorandum, it is stated that
abovementioned scenarios would fail the Force Majeure or
Exceptional Event test due to the ''having arisen, such
party could not reasonably have avoided or overcome''
sub-paragraph of Art.19.1(c) of 1999 and Art.18.1(c) of 2017
edition since the Contractor is most likely able to continue work
on-site even though the difficulties. Another saying, performance
of obligations is more difficult, onerous or disrupted, but not
necessarily prevented.
5. May it be considered as a Force Majeure or an
Exceptional Event If the government establishes regulations
restricting construction activities on-site and accordingly either
parties are prevented from performing their obligations that became
impossible? If yes, can the Contractor demand compensation along
with termination of the contract?
FIDIC COVID-19 Guidance Memorandum recommends Changes in Law
provisions to be applied under this scenario, by arguing that they
would sufficiently handle the situation. But yet, the situation
should be subject to Force Majeure/Exceptional Event test. As it is
evaluated under Section A, both
''pandemics'' and
''governmental actions'' are not a part of
the non-exhaustive list, we should subject the COVID-19 alone to
the test. COVID-19 may be considered as Force Majeure/Exceptional
Event owing to the governments' bans on construction
activities. But frankly, parties would reasonably overcome the
situation since implementation of the government's relevant
health and safety measures may prevent COVID-19 event. If Force
Majeure/Exceptional Event is the case here, Contractor is entitled
to EOT but not financial indemnities resulting from delay.
6. What should the Contractor do in a case neither the
government establishes any regulation nor the parties suffer any
negative effect, yet the personnel of the Employer (i.e. Engineer)
working remotely as a precautionary measure causes delays or
additional costs?
According to Art. 8.4(e) of 1999 and Art. 8.5(e) of 2017 edition
covering ''any delay, impediment or prevention caused
by or attributable to the employer, the employer's personnel,
or the employer's other contractors on the Site''
provision provides an EOT only.
D. CONCLUSION
During these pandemic days, Contractors and Employers of the construction projects look for a way out of the ambiguousness of the performance of their obligations arising out of the contract. In this study, we focused on the FIDIC Red Book 1999 and 2017 edition regarding how to overcome possible disputes parties may confront with, to obtain additional time and financial indemnities and parties' ability to discharge them to meet their obligations.
Although most of domestic laws contain provisions for Force Majeure or, in wording of 2017 edition, an Exceptional Event, the wording necessarily differ from each other. As to the FIDIC contracts, the conditions for a case to qualify as a Force Majeure or an Exceptional Event mostly overlap with other regulations whereas the list of example cases does not do so. Since every contract has unique characteristics, we may subject COVID-19 to the test and If COVID-19 is to be deemed as Force Majeure/Exceptional Event, the affected party may be discharged to perform the prevented obligations or entitled to extension of time. Further, If the execution of substantially all the works in progress is prevented for a continuous period of 84 days by reason of a Force Majeure/Exceptional Event or for multiple periods which total more than 140 days due to the same Force Majeure or Exceptional Event, then either party may also terminate the contract. However, considering FIDIC Guidance Memorandum, COVID-19 has a low chance to qualify so.
In this Memorandum, possible scenarios that parties may experience and the solutions that provisions of FIDIC Red Book itself provides, were recommended. Notwithstanding, in this period, parties primarily should work on their best behavior to communicate over the possible disputes. Or else, any dispute shall be finally settled by international arbitration and the Rules of Arbitration of ICC (International Chamber of Commerce) were referred under FIDIC. It shall be noted that ICC Court issued COVID-19 Guidance Note for Arbitral Proceedings14 that recalls the procedural tools, during the pandemic, are available to parties, counsels and tribunals even though the civil proceedings were suspended in some countries regarding COVID-19 pandemic, arbitral proceeding still are still being executed.
Footnotes
1 FIDIC Suite of Contracts, https://fidic.org/sites/default/files/FIDIC_Suite_of_Contracts_0.pdf, p.4
2 Paul Battrick/Phil Duggan, The rainbow suite The 1999 FIDIC suite, http://fidic.org/sites/default/files/FIDIC-rainbow-suite-2012.pdf, p.3
3 Art. 18.1 of Red Book 2017 Suite
4 FIDIC COVID-19 Guidance Memorandum to Users of FIDIC Standard Forms of Work Contracts, p.8
5 Art. 18 of Red Book 2017 Suite
6 Civil Engineer (M. SC) Nedim Uyanık, YİGŞ ve FIDIC Kırmızı Kitap Genel Şartlara Göre İnşaat Sözleme Yönetimi, p.564.
7 Götz-Sebastian Hök, Uluslararası İnşaat Hukuku FIDIC Red Book (kırmızı kitap) 1999, p.39
8 Art. 8.5 of Red Book 2017 Suite
9 Art. 20.2.1 of Red Book 2017 Suite
10 See the Turkish Court of Appeals 15th Civil Chamber's dated 26.02.2001 and numbered E. 2000/4429, K. 2001/1032 desicion; ''Requests for extension of time in FIDIC contracts are bound by strict rules in order to ensure international uniformity. In order to prevent possible injustices, it is important that the demands are made on time and proved. For this reason, there is no contrary attitude and behavior in the rejection of the requests for extension of time by the engineer company because the plaintiff does not request in accordance with the contract and is not certified during the period.''
11 Tom Yuncken/Victoria Foster/Allens Arthur Robinson, AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #104 SEPTEMBER/OCTOBER 2005, http://classic.austlii.edu.au/au/journals/AUConstrLawNlr/2005/59.pdf, p.21
12 Michael D. Robinson, A Contractor's Guide to The FIDIC Conditions of Contract, p.46
13 Diogoye Wathie, FIDIC (KIRMIZI KITAP 1999) Çerçevesinde Uluslararası İnşaat Sözleşmelerinde Yüklenicinin İşi Zamanında Tamamlaması ve İş Sahibinin Kabulüne Hazır Hale Getirme Yükümlülüğü, p.51.
14 ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic, https://iccwbo.org/content/uploads/sites/3/2020/04/guidance-note-possible-measures-mitigating-effects-covid-19-english.pdf
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