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Covid-19 triggers ‘force majeure’ in the construction sector

By Harriet James
Friday, August 21st, 2020
Civil engineers.
In summary

Construction contracts require contractors to perform within an agreed time or else face liability or project termination. But in the wake of Covid-19, contractors are invoking a contract provision for inability to deliver on projects as stipulated.

Harriet James  @harriet86jim

The widespread disruption of works in construction projects caused by the Covid-19 pandemic has spurred many companies in the construction sector to consider invoking ‘force majeure’ clauses, a provision in contracts that exempts them from fulfilling contractual obligations. 

The term ‘force majeure’ is French for ‘superior or irresistible force’, which is a circumstance that stops someone from meeting their contractual obligation for reasons beyond their control.

It commonly refers to natural, sometimes termed as ‘Acts of God’ and unavoidable catastrophes that are beyond the control of both parties in a contract and renders performance of contractual obligations impossible.

Many construction projects have either stalled, failed to take off or momentum has slowed down owing to delays from supply chain disruptions and government’s stay-at-home orders that lasted for three months. 

The workforce disruptions affected every level of construction, from design to field construction, manufacturing and inspection.

And even without stay-at-home orders, construction workers may have either fallen victim of the virus or stayed home to avoid exposure to it.

All these disruptions in addition to reduced number of workers on site in order to observe the mandatory social distancing rule have impeded progress of construction works.

Ann Stacy Murugi, an advocate of the High Court  says naturally, the range of difficulties businesses are experiencing including supply chain disruptions, travel restrictions and workforce interruptions have implications on contractual relationships.

“From a legal perspective, chances are high that businesses may be forced into situations they are unable to honour contractual obligations and, as a result, get exposed to legal claims for breach of contract.

However, force majeure clauses and the common law doctrine of frustration may offer relief to contractual parties,” she explains. 

Project managers say there is a supply shortage affecting material into project sites.

China being the world’s largest supplier of construction materials,  is still recovering from the impact of coronavirus outbreak of the virus, thus a direct effect on the construction supply chain. 

Unexpected expenditures

“One of the unseen effects was the potential shortage of building materials, such as plumbing, steel, concrete boards, millwork, flooring tiles as well electrical fixtures.

This eventually has resulted in an upsurge in prices of the materials among other unintended expenses,” says Martin Njenga, a project manager in Nairobi. 

Robert Oboch project manager Atkins in Oman agrees that Covid-19 pandemic has definitely created a force majeure situation.

The fact that contractors have to adjust how they work to comply with government set health regulations in combating Covid-19 means that construction works has to be carried out at a much slower pace than was planned due to enforcement of physical distancing on construction sites.

“Ultimately, contractors will have to file for extension of time on their contracts and in extreme cases, they may claim for additional cost due to increased expenses as a result of complying with government directives on Covid-19,” he notes.

In Kenya, in general, non-performance of obligations under a contract amounts to a breach of contract under Kenya’s Law of Contract.

However, whether or not a claim is categorised as force majeure relies on the express definition set out in the contract, explains Murugi.

Common law doctrine

 She says a contract that clearly stipulates what pandemic or epidemic is exempts parties from liability as a result of the delay incurred in fulfilling the obligations of the contract. 

In situations where the contract doesn’t expressly define a pandemic, epidemic or global health emergency as a force majeure, then the individuals rely on the common law doctrine of frustration of contract to perform their contractual obligations.

However, before any claim arises, it must be based on accurate research and documentation.

The individual must be able to verify and substantiate how the pandemic has affected the project.

“One should ensure that they notify the concerned parties in the contract of the present predicaments that can affect the contract,” she says, adding, “A party seeking to invoke this must first establish that the intervening event falls within the written contract’s definition of force majeure.

It’s highly likely Covid-19 is a force majeure event in contracts where terms or phrases, such as ‘pandemic or other similar serious disease and epidemic, or public health emergency’ are included in the force majeure clause,” points out Murugi.

In situations where contracts lack a level of specificity that is required to recognise the force majeure event, then the parties may refer to ‘open-ended phrases’ or ‘catch all phrases’ that are similar to pandemic or similar ailments or even public health emergency.

“For example, when it comes to open-ended phrases,  government measures, such as curfews may be categorised as force majeure that comprises of bans or other measures that a governmental authority is undertaking thus hindering the execution of projects. In this case, what has happened is beyond the parties’ control,” says Oboch. 

When to go to court

“There might be disagreement in terms of the actual as well as the practical effects that the pandemic has on the ability of both parties to fulfill the obligations of the clause and in this case, the dispute might be referred to the court,” he adds.

Murugi explains that frustration of contract occurs where performance is rendered impossible due to unforeseeable circumstance not arising from default of either party.

This eventually results in the termination of a contract and it’s, therefore, applied within very narrow limits and cannot be lightly invoked.

“It is thus not enough to claim frustration due to hardship as it must be caused by an extraneous change of situation.

For instance, an amendment of law that renders performance an illegality would qualify as frustration.

Parties and their lawyers, therefore, have to assess each contract against the prevailing circumstances to determine which doctrine applies to their case and the reliefs available,” she in conclusion.

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