NAVIGATING CONTRACTORS’ CONTRACTUAL CHALLENGES IN LIGHT OF THE COVID-19 RULES
Introduction
On 30th March 2020, H.E The President of the Republic of Uganda issued directives in a bid to curb the spread of the COVID-19 Pandemic in Uganda. These directives were later enacted as The Public Health (Control of Covid 19) (No. 2) Rules, 2020. They ‘shut down’ operations of various sectors in the economy. They however, permitted construction sites to continue operating provided that the employees are accommodated at the site and prohibited from leaving for a period of 14 days with a possibility of extension of the same by the Minister. This article considers whether Contractors in the Construction Industry may claim compensation for force majeure in light of the COVID-19 rules and other possible legal and contractual remedies to the practical challenges that they may face.
For most sectors that have been ‘shut down’ during this crisis, the force majeure provisions of most contracts may be easier to navigate. For the construction sector in particular, the concessions given by government may create a few complications because they require contractors to come up with creative and innovative solutions on-site to continue operating during this shutdown so as to meet their contractual obligations notwithstanding how onerous or expensive it may be.
Government and its agencies, being the largest employers in the Construction Sector have to a greater extent adopted various versions of the FIDIC forms of contract with most Contractors on the various projects that are underway. It is to that end that the said suite of contracts has influenced a greater part of this discussion.
What is force majeure?
The Force Majeure Provisions in the 1999 FIDIC forms of contract define a force majeure event as an ‘exceptional event or circumstance which must be:
- beyond a Party’s control;
- beyond reasonable provision by a Party before entering the contract;
- not reasonably capable of being avoided or overcome; and
- not substantially attributable to either Party;
- not substantially attributable to either Party;
They thereafter outline a non-exhaustive list of possible ‘exceptional events or circumstances:
- War, hostilities, invasion, enemy action
- Rebellion, terrorism, insurrection, coup d’etat or civil war
- Riots and other civil/industrial action
- Munitions, explosives, radiation or contamination (except as attributable to the Contractor); and
- Natural catastrophes, such as earth quake, hurricane, typhoon or volcanic activity
A party prevented from performing its contractual obligations by a force majeure event must give notice to the other party within 14 days of when it became or should have become aware of it in this case on 30th March, 2020 in the President’s speech. The Party is excused performance of its obligations while prevented from doing so, and in the case of the Contractor, may be entitled to further relief in the form of an extension of time and /or in limited circumstances, additional payment.
For a contractor to claim compensation while relying on the said force majeure clause, they may have to show various steps taken to execute the works, even during the difficult conditions created by the COVID crisis for example de-congesting the site and remaining with only critical staff on site to ensure that work progresses albeit at a slower pace. The site conditions may however, make encamping staff impossible thereby necessitating site demobilization to comply with the COVID 19 Regulations.
The COVID 19 Regulations make it harder for a Contractor to claim ‘force majeure’ compensation if they have failed to illustrate that they had no other option but to demobilize the site and seek compensation for the time and additional costs incurred during the said period.
What if there is no force majeure clause in the Contract?
Force majeure is a creature of contract rather than a rule imposed by the general law. If there is no force majeure clause, an affected party will have to look to other provisions in the contract for potential routes out of its difficulties. If the contract does not provide any such routes, it may in certain circumstances be possible to rely on the doctrine of frustration of contract under Section 68 of the Contracts Act, 2010 or change in the law provisions to the extent that they form part of the contract.
However, it is very difficult to show that a contract has been frustrated. Frustration requires that an unforeseen subsequent event outside the control of the parties has made the contract impossible to perform, or has transformed the contract into something so different from what the parties envisioned upon contracting that it would be unfair to hold the parties to the obligations imposed by their bargains. One common situation in Uganda was during the ‘Liberation War’ as well as the war in northern Uganda.
As with the test of prevention of performance under force majeure clauses, the mere fact that performance of a contract has been made more onerous is not enough. Frustration may also be commercially undesirable in some circumstances as its effect regardless of the parties’ intentions is to bring all parties’ obligations under the contract to an end immediately.
Change in Law Provisions
The 1999 FIDIC forms of contract provide that the contract price shall be adjusted to take account of any increase or decrease in cost resulting from change in laws of the country in which the works are situated, made after the base date (date of submission of the tender), which affect the Contractor’s performance of obligations under the Contract. In such a case, the Contractor is entitled to a claim for time and/ or cost relief. The COVID 19 Regulations have imposed a 19:00 hours- 06:30 hours curfew on everyone in Uganda. Some contracts may require overtime performance to meet project schedule deadlines. This clause may provide a suitable avenue to a Contractor to request extension of time.
What are the steps that a Contractor seeking to rely on a force-majeure clause may take?
- Consider, with meticulous scrutiny the precise wording of the force majeure clause, the contract as a whole and the circumstances that have arisen so as to determine whether performance is excused by a force majeure clause. This is a complex process and highly fact-sensitive exercise for which legal advice should be sought.
- Explore alternative means of performing, reducing delay or minimizing any loss to the Employer. This may necessitate alternative suppliers, or alternative methods of delivery, even if at higher cost.
- Serve any notices as required under the Contract, as soon as possible and in accordance with the notice provisions. Consider carefully what event or circumstance you allege constitutes the force majeure event, taking into account the wording of the clause and the timelines required for service of the said notice: the outbreak of the COVID-19 crisis and the subsequent government prohibitions and restrictions put in place.
- If there is no force majeure clause, consider frustration, but be aware of the high bar for establishing that a contract has been frustrated.
- Consider other routes and remedies, either under the contract or through agreeing on binding variations to contracts with other parties.
