Optional Termination of Construction Contrcats Under Force Majeure

Under the pandemic covid-19, all stakeholders in construction industry and international development business are getting prepared to deal with the consequences of force majeure.

Force majeure as a ground for termination of construction contract leaves no choice for Contractors to challenge and seek amicable resolution, adjudication or arbitration in case the Employer, by FIDIC terms, made a determination to terminate the contract as per Sub-clause 15.5 "Employer's Entitlement to Termination". In this case, only the governing law of one nation/state applies. Considering the Covid-19 pandemic as a force majeure spots the light on the optional termination provisions" under the 1999 FIDIC Red and 1999 Yellow Book as per "Clause 19: Force Majeure”which are identical as shown below;

The FIDIC Condition of Contract for Plant And Design-Build For Electrical And Mechanics Plant And For Building And Engineering Works Designed By The Contractor (1999 Yellow Book) included Guidance for the Preparation of Particular Conditions.

Regarding Termination of a Contract under force majeure, the FIDIC organization had two important tips to Procurement Experts responsible of preparation of tender documents the following:

• Sub-clause 15.5: Employer’s Entitlement to Termination (or what we may call Optional Termination):

"Unless inconsistent with the requirements of the Employer and/or financing institutions, a further sentence may be added.".

EXAMPLE: Insert at the end of Sub-Clause 15.5:”The Employer shall also pay to the Contractor the amount of any other loss or damage resulting from this termination.”

• Sub-clause 19: Force Majeure:

”Before inviting tenders, the Employer should verify that the wording of this Cause is compatible with the law governing the Contract.”

The above emphasize the fact that a Procurement Specialist has to have high skills in contract management that enable him to foresee all kind of disputes may arise during execution of works and to be strongly acquainted with the national (or state) legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally constituted public authority.

This is a kind reminder to read thoroughly the FIDIC Guidance for the Preparation of Particular Conditions and be acquainted with the engineering, commercial, financial and legal applicable laws of the country in which the site is located and where the permanent works are to be executed.

Finally, I would conclude with one recommendation by Mr. David Baxter; a Senior Consultant in International Infrastructure Development and a PPP Procurement Adviser:

“All current force majeure guidance might have to be revisited in a post covid-19 environment to ensure that it receives more attention. It is apparent that the methodical approach in the table above does not consider extraordinary circumstances that might require the public and private sectors to seek out of the box solutions that save projects and serve in the interest of both parties."