Impacts of COVID-19 on construction projects

by Kateryna Honcharenko MCIArb, CIArb's Research Executive

Construction, commerce, hospitality, transportation… these are just some of the sectors severely affected by the pandemic. We all know what the bigger picture looks like, however, on 20 May 2020 the Chartered Institute of Arbitrators (CIArb), together with its Corporate Member Accura Consulting decided to examine one of the issues in depth: Impacts of COVID-19 on construction projects.  

A panel of brilliant experts talked about the matter, looked into legal and practical details of it and consequences of current developments, how far-reaching they would be and what might be the way out. 

The online event began with welcome speeches of Dr Paresh Kathrani and Lewis Johnston ACIArb, who explained the importance of promotion and facilitation of avoidance, management and resolution of disputes and CIArb’s contribution to amplifying the value of alternative dispute resolution (ADR) in the construction sector. 

Paul McArd MCIArb, who acted both as a speaker and a moderator, went on to introduce other participants: Alex McKellar, Andrew Mackenzie ACIArb, Ged Barron, Jeremie Witt MCIArb, Paul Coates MCIArb and Peter Anagnostou MCIArb. The agenda of the event was subsequently developed during two sessions, which covered delay, mitigation, acceleration, suspension of works, changes and variations, termination, notices of claim, records of events, programs, global claims and ADR procedures.

Delay, in combination with force majeure, frustration and change of law provisions were considered by Alex McKellar. Alex compared application and interpretation of such provisions under civil and common law and made the audience think about the essence of invoking the pandemic as the reason of inability to perform contractual obligations. 

Frustration, for instance, in most cases have limited application to the COVID-19, as it results in delayed or more costly performance, but not impossibility to perform.  

Last but not least, Mr McKellar concluded that in light of the global crises humanity has already encountered, the pandemic and absence of readiness to respond to its impacts, in particular on construction projects, should be a “wake up call” and make us avoid lack of foresight in the future.

Paul Coates discussed mitigation of a possible influence on the performance of parties’ obligations, what are the requirements and reasonable steps to be taken by the parties to minimise loses, what happens if such steps were not taken, as well as interpretation of reasonableness in the context of construction law.  

The topic of the event was subsequently developed by Jeremy Witt, Peter Anagnostou and Andrew Mackenzie, who threw light upon changes and variations, acceleration, suspension of works and termination. 

The speakers came to the substance of the matter, i.e. the construction contract and scope of work agreed upon, whether the contract covers variations, changes and acceleration, as well as what are the requirements for claims to be successful. 

Mr Anagnostou’s presentation covered suspension of operations as a natural consequence of the pandemic and explained how suspension of construction works (by employers and engineers) is governed, in particular under the FIDIC Red Book provisions. 

Andrew Mackenzie’s speech about termination in times of the current crisis, inter alia under FIDIC provisions, brought the first part of the webinar to an end.

The challenging period we are currently going through might in many instances make companies resort to termination. Mr Mackenzie emphasised that while discussing an option to terminate a contract with employers or contractors, it is extremely important to provide clear reasons of inability to honour the contract. The pandemic itself cannot be invoked as a sole reason to terminate the agreement and it is imperative to provide evidence that whatever happened does not allow to perform obligations.

Peter Anagnostou launched session two of the online event and talked about notices of claims under FIDIC, notification of force majeure as well as related obligations of contractors and employers.  

Paul Coates presentation on records of events followed. Paul explained that it is imperative to keep record of any information that could support a claim arising out of pandemic-related events, as well as their impact: Effects of measures introduced, new laws adopted and travel restrictions imposed, reports from sites, photos etc. 

The importance of programmes, their function and special requirements they need to meet was discussed by Jeremy Witt. He explained that parties may agree that a programme shall not be a contractual document, however, as long as it is regularly updated and contains reliable information, it may play a significant role in resolving claims.  

Andrew Mackenzie continued our exploration of the agenda and talked about ADR procedures.

According to Mackenzie, negotiation has been one of the most famous tools to resolve disputes, followed by mediation. Dispute adjudication and avoidance boards are also on the list, however, some parties especially in the MENA region, have been reluctant to use them. 

The pandemic might give such parties an opportunity to shed more light on some ADR procedures and enjoy their time efficiency, flexibility and other benefits.  

In the final part of the event, Alex Mckellar, Paul McArd and Ged Barron deliberated about a global claim, what is the nature of such claim, its hallmarks and ways to defeat it. 

One of the features of a global claim is the absence of a causal relation between developments which have taken place in the project and loss which has allegedly been incurred. 

The speakers did not only give us an opportunity to dive into the matter and explore effects of the pandemic on construction projects, understand all legal subtleties and their meticulous interpretation, but also shared their related professional experience, international perspectives and opinions.

Paul McArd MCIArb stated: "It was a fantastic opportunity to co-host this event with CIArb. The panel of speakers provided not only informative, but practical information which will no doubt be useful when resolving construction disputes stemming from the impacts of COVID-19”.

Along with congratulatory messages from its live audience, CIArb and Accura Consulting wishes to thank all its speakers: 
Alex McKellar of HFW; Andrew Mackenzie ACIArb of Baker McKenzie Habib Al Mulla; Ged Barron of Accura Consulting; Jeremie Witt MCIArb of CMS Asia Pacific; Lewis Johnston ACIArb of Chartered Institute of Arbitrators; Dr Paresh Kathrani of Chartered Institute of Arbitrators; Paul Coates MCIArb of Clifford Chance Middle East; Paul McArd MCIArb of Accura Consulting; Peter Anagnostou MCIArb of DLA Piper. 

CIArb expresses gratitude to Accura Consulting for fruitful cooperation.