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The COVID-19 Pandemic over FIDC Agreements 

by Razvan Vlad, Vlad Anghel-Associate

Published: April, 2020

Submission: April, 2020

 



The extensive global COVID-19 pandemic determined the states to impose restrictive measures with impact over the free movement of people and usual course of business of the economic operators. Due to the recent development of the outbreak in Romania, the Presidential Decree no. 195/16.03.2020 that instills the emergency state in Romania has been also enacted and applicable on the Romanian territory as of March 16, 2020 for a period of 30 days and it seems that a prolongation of the emergency state will be soon decided upon.


The restrictive measures provided therein as well as the subsequent Military Ordinances adopted by the Romanian authorities so far, which imposed restrictions on the free movement of persons and/or products, limitation of certain economic activities, quarantine, self-isolation, lock-down of certain cities, as well as different protective measures for the employers and employees or tax measures, already affect the development of the projects within the construction sector.


Construction companies are already experiencing such consequences generally consisting of higher costs and price fluctuations, material shortages, logistic breakdowns, order cancellations and extended delays in delivery of materials and equipment, lack of workforce, etc.


Under these circumstances, the claims for extension of time for completion and additional costs are inevitable.


In order to determine how the adverse effects of the COVID-19 pandemic will affect both timing and costs of the construction projects, one may seek the solution within the terms of the relevant contracts. Even though on the market the vast majority tends to see the panacea in the force majeure clauses, fundamentally, such claims are not limited to such specific remedy.


The contracts governing the implementation of the construction projects may give rise to additional and/or alternative entitlements under the “classical” extension of time and disruption provisions, change in law provisions and provisions dealing with variations or change orders, etc.


But first and foremost, it is worth mentioning that the COVID-19 pandemic, as well as the compelling measures imposed by the state authorities under the circumstances of the emergency state already declared will lead to difficulties in fulfillment of the contractual obligation, or even to the impossibility of fulfilling such obligations. Such circumstances might be seen as objective justifications to suspend the performance of the obligations, to uphold the exclusion of liability derived from non-performance of the obligations, to re-negotiate and adapt the contract in order to achieve the contractual balance or even to terminate the contract.


Under the various editions of the FIDIC standard form agreements, contractors are entitled to extension of time for certain circumstances deriving from COVID-19 pandemic: if contractors are disrupted by unforeseeable shortage in the availability of personnel or goods caused by epidemic or government actions (both 1999 and 2017 Red and Yellow Books) or in case contractors have diligently followed the procedures laid down by the relevant legally constituted public authorities (1999 Red Book). For instance, in case additional health and safety measures on sites or mandatory quarantine of certain personnel are imposed by the authorities might be grounds for the claims of the contractors in the near future. Likewise, if anexceptional eventoccurs (2017 Red, Yellow and Silver FIDIC), which genuinely represents the replacement of theforce majeureclause from the previous editions of FIDIC, then the contractors might be entitled to both extension of time and/or recovery of costs incurred as a result.


Moreover, there is a rationale of invoking the provisions regarding adjustments based on change of law’s provisions, thus claiming the change in legislation considering the enactments imposing various restrictions on the free movement of population and limitation of the economic activities.


Notices to such end would be recommendable to be sent to employers to ensure at least another path of claiming additional costs and extension of time if theforce majeureevents do not seem seriously substantiated. Such approach will cover the possible conflicts on the interpretation of the consequences of theforce majeureand the qualification of the epidemics/pandemics as granting solely extension of time or granting both extension of time and additional costs.


Last but not least, as the main goal is to safeguard the contractual understandings between the parties and to continue the implementation of the construction projects, the theory of hardship might be also used and re-negotiation of the contracts and distribution of risk might be attempted. Usually, one party may rely upon hardship if due to unpredictable events, the performance of its obligations becomes excessively burdensome. Nonetheless, the major drawback in this case would be that the adaptation of the contract would be the sole attribute of the courts of law of which activities are currently suspended.


The COVID-19 pandemic undoubtedly triggers negative consequences to the contractors, which bear the majority of the risks under the construction contracts. The real test for the contractors will be to substantiate their claims in a timely manner and prove that COVID-19 represents the actual cause of the delay, disruption or additional costs.


 


 

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