Coronavirus: Disruption in international construction and engineering projects
Much has been written about the impact of the Coronavirus outbreak on construction and engineering projects around the world. Debate has focussed on whether the pandemic translates to a contractual entitlement—with force majeure coming under particular scrutiny (see our Commercial contracts and supply chain FAQ and Force majeure flowchart).
However, for parties whose projects have been impacted by the crisis in one way or another, after the initial shock has been overcome and contingencies put in place to either stop work or continue with appropriate measures, consideration needs to be given to understanding the resulting disruption and its effects. It is this aspect of the crisis that will cause parties to suffer financially in the longer term.
It is not difficult to see how productivity could be affected in many ways, from the effects of temporary work suspensions or social distancing measures implemented on site, to wider effects such as impacts on supply chains and availability of the workforce, who may be remote working, self-isolating or in the worst case suffering with the disease. Conversely, while some of these measures might actually increase productivity levels they are likely to reduce output and rate of progress, for example if fewer labourers may work in a particular area at the same time.
Extensions of time are sensible and pragmatic in the current climate so as to relieve parties from delay damages. However, parties need to consider their longer term financial position by taking steps now to ensure they have the information available to make or defend money claims based on disruption that the crisis is likely to give rise to.
Records, records, records
A successful disruption claim, or the successful defence of a disruption claim, depends on the documentary records available to the party making or defending the claim.
The Society of Construction Law (SCL) Delay and Disruption Protocol (2nd edition) defines disruption as:
“a disturbance, hindrance or interruption to a Contractor’s normal working methods, resulting in lower efficiency. Disruption claims relate to loss of productivity in the execution of particular work activities. Because of the disruption, these work activities are not able to be carried out as efficiently as reasonably planned (or as possible).”
Disruption claims are renowned for being difficult to establish, in part because it is not always immediately apparent that disruption is happening. More often, however, it is lack of good records that can undo a claim, or a defence to one.
With the Coronavirus situation, there is every reason to take steps to prepare now. Disruption is very likely to happen and so parties must evaluate how they store, retrieve, analyse and use the data they produce and the records they keep.
If seeking to establish that issues connected to the Coronavirus outbreak caused disruption to a project, parties will need to establish that:
- records exist that show events occurring that entitle the contractor to compensation under the contract, or that the owner breached the contract;
- that these events caused disruption (they may also have caused delay);
- that the relevant contract requirements have been complied with (for example notices must be given on time, and losses must be mitigated or minimized); and
- that the disruption caused the loss.
For the party receiving the claim, records are needed to counter these arguments.
Causation is key. The extent and quality of records available will determine whether a party can show causation. For parties defending a claim, keeping records will help, for example, to identify any possible attempt to conflate Coronavirus-related impacts with pre-existing delays for which the contractor is responsible.
The starting point for assessing disruption is usually the planned programme. A consistent and accurate baseline is important in order to accurately assess the disruption caused to particular activities. Programmes should be kept updated as required by the contract so that they are ‘live’ documents.
Parties will also need to assess tender assumptions such as plant and equipment resources, manpower allocations and planned and actual critical path programmes.
More broadly though, parties should collect and collate information so as to create a contemporaneous record of the events that caused disruption. This will include:
- recording advice given by Governments and relevant authorities, when it was given, what its effects were and what steps were implemented as a result;
- recording decisions made in writing; for example how a particular loss was mitigated by finding an alternative supplier at short notice;
- avoiding agreeing things orally that are not subsequently recorded in writing;
- taking photographs and video to show real-time progress of the works on-site, particularly before and after implementing additional measures on site; and
- maintaining the project correspondence file and not leaving letters unanswered.
If a party considers that it is already experiencing disruption, or that it is likely to, steps must be taken now to collect and preserve records to establish what happened. The parties successfully making or defending disruption claims that result from the pandemic will be those that have the records to support their case.
Notwithstanding the above, disruption claims arising from the Coronavirus outbreak are going to be difficult. It may be that there are no real winners. We are urging our clients, whether owners, contractors, sub-contractors or suppliers, to work together now to find collaborate solutions to their problems to avoid future disputes. After all, even though the world has drastically changed there is still a common objective: to find a way to complete the project.
If you would like to talk through the consequences for your business, please email us and one of our team will get in touch.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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