COVID-19, A PANDEMIC THAT QUESTION PROFESSIONAL CONDITION OF CONTRACT AWARENESS IN CONSTRUCTION INDUSTRY…… ODUNMBAKU IDOWU OLUYEMI

Construction industry is widely recognized as one of the industry with numerous contractual clauses package in different standard form of contracts. This industry approaches to the choice of contract varies due to many factors that are majorly determined by the stakeholder. These stakeholders mostly utilize different methods to coordinate and implement the contract in the construction industry. Contract conditions set out the principal legal relationship between the parties to a construction project, determining the allocation of risk and price. The construction has a wide range of standard forms of contract base on the location and nationality which intended to balance the risk of the parties but more importantly, through extensive and repeated use it gives rise to certainty of meaning. These standard form of contracts include JCT (Joint Contracts Tribunal), NEC (New Engineering contract), FIDIC (Federation international Des Ingenieurs-Conseils), NCI (Nigerian Construction Industry) etc. These standard forms of contract vary in the application of their clauses and they are all focus on enforcing the contractual obligations of the parties to contract without a favoritism treatment.

COVID-19 is a pandemic that exposes the professionals to series of interpretation to clauses of different standard form of contracts. The major aspect of the contracts that are affected include force-majure, extension of time, loss and expenses, delays and claims, contract termination, cost overrun, fluctuations, and dispute resolution among others. COVID-19 is having massive impact on construction projects, but the legal implications vary from country to country and also from contract to contract. On the contractual side, much focus is now being directed to the wording of standard forms, where used, such as FIDIC, JCT, NEC is internationally used but locally merged with the use of NCI in Nigeria particularly.Contractually, events such as COVID-19 pandemic generally do engage contractual provisions concerning the consequences of unforeseen events. These provisions commonly fall into many broad categories whereby force majure has being the major description or clause that narrows down to understand the treatment of pandemic in project contract.

“Force Majure” means an act or event which; delays or renders impossible the affected party performance of its obligations under the agreement; an event which is beyond the reasonable control of the affected party, was not due to its fault or negligence, and was not reasonably foreseeable and could not have been prevented or avoided by the effected party through the exercise of due diligence including the expenditure of any reasonable sum taking into account the contract price. Force Majure may include catastrophic storms or floods, lightning, tornadoes, hurricanes, earthquakes, wars, civil disturbances, terrorist attacks, revolts, embargoes, epidemics, fires and explosions etc. The COVID-19 pandemic could thus be understood as constituting a force majure event. Under many forms of contract, including FIDIC, NEC, JCT, and NCI forms, a force majure event would typically entitle a contractor to an extension of time of critical delay caused by the event, but not to compensation for costs incurred during the period of delay, except in agreed-upon circumstances. Clause 19.1 and 2 of FIDIC redbook describe force majure and the process to handle it. The notice of force majure in express communication and the timing is very important and each party should ensure that at all times use all reasonable endeavors to minimize any delay in the performance of the contract as a result of force majure (Clause 19.3-FIDIC). The establishment or confirmation of force majure (Clause 19.1) and necessary procedure of each party notification may result to delay and incurs of cost which can likely result to an extension of project completion time(FIDIC Clause 19.4a&b) and cost over-run due to likely price fluctuation of materials and labor as a result of force majure constituent. Therefore, the parties shall determine the matter (FIDIC Clause 3.5) on fair bases taking due regard of all relevant circumstances but if there is dissatisfaction with a determination; either party may then refer the dispute to Dispute Adjudication board’s decision (FIDIC sub-clause 20.4).The continuous occurrence of constituent of force majure (FIDIC clause 19.1) for 84days or multiple of 140days due to the same notified force majure may result to either of the party to give a notice of termination of contract and upon such termination, the employer shall pay the contractor amount payable for work carried out, amount of materials and plants on and off site, any other cost or liability which in the circumstances was reasonably incurred by the contractor in the expectation of completion of works, cost of removal of temporary works and contractor’s equipment from site to destination and cost of repatriation of the contractor’s staff and labor. However, the provision of sufficient fund under contingency sum could be an absorber for both parties in avoiding cost overrun and contract termination under FIDIC.

Another significant widely recognized form of contract; JCT design and build narrated that the contractor carries risk of time and cost of all matters within its control and this includes how labour and materials are sourced; and secondly the cost risk in relation to delay events is usually neutral, meaning the contractor will be granted an extension of time and released from delay damages, but will have no entitlement to recover losses or expenses (JCT 2016-Clause 2.26.14). It is interesting to note that JCT does not define what amounts to force majure and the question on everyone lip is “Does COVID-19 amount to a force-majure event?”

In the absence of a contractual definition, the parties may eventually find themselves before an adjudicator or the courts to answer that question. The only steer given by the courts is that force majure is commonly found to be an event beyond the control of the party seeking to rely on it, must not have been foreseeable at the date of the contract and must be sole cause of non-performance.

JCT Clause 8.11 allows either party to terminate the contract for force majure if “the whole or substantially the whole of the uncompleted works is suspended for […] the continuous period” set out in the contract particulars, usually two months. In the event of termination, the contractor will be required to vacate the site and issue a final account to include the value of works carried out, any relevant losses and expenses, the cost of demobilization and cost of materials and goods ordered and legally bound to pay.

The Nigerian construction industry (NCI) standard form treatment of force majure is synonymous as the force majure is not particularly define but categorized as relevant event (NCI 2018-Clause 2.29.14) and well treated the same way JCT treated termination by either party.(NCI 2018-Clause 8.11.1.1)

Conclusively, it is obvious that COVID-19 is regarded as a force majure which independently could result to massive claims and consequently cause contract extension of time, cost overrun, contract termination, fluctuation and contract dispute among others. It is a peculiar event that construction professional need to be aware of its effect, consequence and contractual procedure of handling it. The better understanding of the process and the differences of individual contract standard form base on locations and type of contracts is imperative in professional way of post COVID-19 resolution on contracts. The occurrence of COVID-19 pandemic has really narrow down the essential need for inclusion of force majure clauses well spell out in contracts and particularly the appreciation of contingency plan in the contract which is the most suitable means of reducing the cost effect of force majure in the contract to avoid contract termination and cost overrun.

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