Unmasking the future: an insight into COVID-19 construction claims beyond the pandemic
In February 2023, we spoke about some of the common issues affecting COVID-19 claims in construction projects and provided a few tips on increasing the success of a COVID-19 claim. You can access the ten-minute vlog here. In May 2023, the WHO ended the global emergency status for COVID-19 (more than three years after its original declaration that COVID-19 was a global pandemic in March 2020).
Now in an (almost) post-COVID world, we have prepared this article to provide some practical insights into the challenges associated with presenting COVID-19 claims in construction projects, emphasising the importance of understanding contract terms, adhering to notice requirements, conducting thorough cause-and-effect analyses, and maintaining comprehensive project documentation.
Presenting COVID-19 claims
Over the last 12 to 18 months or so, DLA Piper has advised, and continues to advise clients on how to present COVID-19 claims in their ongoing construction disputes. COVID-19 claims include delay (extension of time) claims, prolongation cost claims, disruption claims and general cost claims, which are submitted during the life of a project.
From our observations, many COVID-19 claims continue to suffer from the following key issues.
- Failure to clearly identify contractual basis of claim
- Notices and Time bars
- Cause and effect
In any claim under a construction contract, it is necessary to clearly identify the contractual basis of the entitlement to make a claim.
The concept of Force Majeure is a creature of contract. In the UAE, the most common standard form construction contracts are the International Federation of Consulting Engineers (FIDIC) forms of contract. Under the standard form FIDIC Red Book (1999 versions), a claim arising out of COVID-19 would likely qualify as a Force Majeure claim pursuant to clause 19 being a “natural catastrophe”, which would entitle the claimant to time relief but no costs. The definition of Force Majeure in the FIDIC standard form contracts do not require that the event or circumstance be unforeseeable. There is an argument that contracts entered into post the COVID-19 pandemic would not be precluded from citing COVID-19 as being an event of Force Majeure, even though it was existing and known to the parties at the time of entering into the contract.
In Ser Kim Koi v GTMS Construction Pte Ltd & ors [2022] SGHC(A) 34, where the High Court of Singapore considered in obiter that the COVID-19 pandemic and the “lock down” that followed over much of 2020 and 2021, the shortage of labour and materials due to the COVID-19 pandemic lock-downs, the prohibition of travel between countries and the ensuing disruption of supplies and manufacture of goods and material, could constitute a force majeure event under the standard form Singapore Institute of Architects Articles and Conditions of Building Contract – Lump Sum Contract (9th Edition).
Whilst it is possible to claim COVID-19 as a Force Majeure event, the wording of the contract needs to be considered carefully and specialist legal advice should be obtained if the contract is unclear.
We has often encountered COVID-19 claims which seek relief by reference, for example, to yard shutdowns or quarantine requirements for workers on site. Such claims explain the effects of yard shutdowns or quarantine, and usually include the costs incurred as a result but fail to reference or explain the contractual basis of the claim. A sympathetic Employer’s Representative may be minded to award some relief, but there is certainly no guarantee of that.
In our view, the chances of a COVID-19 claim (or any claim) being successful is significantly increased if the claimant can competently demonstrate clear understanding and proper administration of the underlying contract. It would be necessary to work through the contractual definition of ‘Force Majeure’ to demonstrate why and how the event constitutes Force Majeure, and what mitigation measures were undertaken to minimise the effects of the event.
As many in the construction claims industry would be aware, time bars remain a common reason for the rejection of any claims. Admittedly, the notice provisions of many construction contracts (and arguably even the FIDIC Red Book) contributes to some degree of confusion on notice requirements.
Clause 19.2 of the FIDIC Red Book states that a claimant must submit a notice of the Force Majeure event within 14 days after the claimant is aware, or should have become aware, so that it may be excused from performing the task for as long as the Force Majeure event is in place (if the claimant was prevented from performing its obligations as a result of the event). However, any claim for time and/or costs is then further subjected to a strict notice requirement prescribed under clause 20.1 (to be read in conjunction with clause 19.4).
The topic of time bars continues to frustrate contractors and subcontractors alike. We advise clients to put in place automated processes to trigger alerts to their contract administrators to issue relevant notices to minimise the risk of a claim being rejected on the basis of time bar. This process is simplified by deploying a purpose-built software, which can be integrated into the client’s existing document management systems.
Demonstrating cause and effect of the event in question involves a forensic analysis to understand the impact of the event on, and in the context of construction, planned activities/work and costs to complete.
Claimants frequently enlist the assistance of specialist consultants, such as delay experts, quantum experts or other experts in specific technical fields, to advise on the claims being put forward during the project.
In our experience, causation analysis is often let down by poor record keeping on the project, as well as a lack of understanding of the requirements to discharge the burden of proof. Claimants sometime see entitlement to relief for COVID-19 events as a “given”, and do not spend the necessary effort (time and resources) in proving the claim.
It is unlikely to be sufficient to simply point to a COVID-19 event and then make a (global) claim for time and/or costs. One would have to undertake the necessary and detailed forensic analysis to substantiate the claim (as would be the case for any other delay or cost claim).
Again, at the risk of stating the obvious, documents, documents, documents, remain an essential element in all construction claims, including COVID-19 claims, to stand a chance at being successful.
