Construction Law International homepage  »  September 2020

 

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Introduction

Covid-19 has presented unprecedented challenges in many sectors of the economy, including the global construction industry. This article highlights the effects of the pandemic on the VOB standard conditions of contract predominantly used in Germany and the FIDIC standard forms of contract commonly used in Uganda for public works procured through international bidding.

We look at how the pandemic has affected the construction industry and the measures that have been put in place in the two jurisdictions to safeguard the health and safety of workers at construction sites to curb the spread of the virus in construction sites and the resultant effects.

German perspective

Introduction

As is the case all over the world, the pandemic has had many effects on ongoing construction contracts. Germany is no exception.

Most public construction contracts are governed by the VOB/B conditions of contract with the German Civil Code (or Bürgerliches Gesetzbuch or BGB) and the State Building Code (Landesbauordnung or LBO) being the mandatory law. Health and safety is further governed by the Rules for Occupational Safety and Health on Construction Sites (Die Regeln zum Arbeitsschutz auf Baustellen or RAB).

What social distancing measures have been introduced?

Construction site safety is governed by several regulations in Germany. Of interest are those that have been changed to ensure safety during the pandemic.

Some of the notable recommendations are from site accident insurance provider(Berufsgenossenschaft der Bauwirtschaft or BG BAU) requirements for construction sites, which include:

• social distancing on site to be greater than 1.5m. This has been observed to be practically difficult to achieve as construction work is a team effort. The spacing requirement limits effective production;

• regulations that more than three people cannot travel in the same vehicle to work, which has meant more vehicles are needed;

• spacing of break rooms for construction workers in accordance with the requirements of the act on Technical rules for workplaces (Technische Regeln für Arbeitsstäten (ASR) A4.2);

• the need for disinfectants on site for washing hands and cleaning vehicles on a daily basis after use (usually after commuting); and

• fewer laborers allowed to work simultaneously as a result of the spacing requirement. This has been seen to affect the construction of high-rise buildings especially as work is done in confined spaces. Subcontractor inputs have been delayed, which in turn affects completion times for projects because the schedules are distorted by this arrangement (see the Infection Protection Act).

Ugandan Perspective

Introduction

The Ugandan government announced various measures to curb infection rates. Some directly affected the construction industry while other had a general effect over the industry.

The predominant forms of construction contract used in Uganda are the FIDIC forms of contract for varied construction projects procured through international bidding.

The measures put in place to curb the spread of the virus especially in the construction industry stem from the contracts themselves. Others were put in place.

Health and safety measures

The contractor under a FIDIC form of contract has an obligation to comply with all applicable safety regulations¹ and to care for the safety of all persons entitled to be on site and, in collaboration with the local health authorities and in accordance with their requirements, ensure that medical staff, first aid equipment and stores, sick bay and suitable ambulance services are available at the camps, housing and on site at all times throughout the period of the contract and that suitable arrangements are made for the prevention of epidemics and for all necessary welfare and hygiene requirements.²

The contractor is equally required to keep records of the health, safety and welfare as may be required by the engineer.³

Similarly, in the case of an outbreak of an epidemic, the contractor is required to comply with and carry out such regulations, orders and requirements as may be made by the government, or the local medical or sanitary authorities, for the purpose of dealing with and overcoming the pandemic.⁴

The Minister of Health exercised her powers bestowed by law⁵ to prevent the spread of the epidemic and issued several statutory instruments and guidelines, such as that construction sites were to remain open provided that the workers were accommodated on site until 19 May 2020⁶ and compulsory wearing of face masks at all times.⁷

FIDIC, as part of the Covid-19 response, published a guidance memorandum⁸ for varied scenarios that could arise and affect construction projects. The best scenario that explains Uganda’s circumstances is the third scenario. The changes introduced by the government through the Minister of Health are to be treated as a change in the law that may entitle the contractor to treat it as a variation due to the ‘adjustments to the execution of the works’ or changed or ‘new applicable standards’ or to treat it as a claim event.⁹

Effects of Covid-19 in the two jurisdictions

A similarity between the two jurisdictions is that there is likely to be an increase in supply chain costs. Subcontractors fall within this category. With the requirement for social distancing even on construction sites, Employers can expect delayed completion times and corresponding standing time claims from the subcontractors through the main contractors (see Sub-Clause 6.7, Health and Safety and Sub-Clause 13, Variations and Adjustments of the 1999 FIDIC Red Book; section 5, Periods of Completion and section 6,  Hindrance and interruption of work of the VOB/B).

There will be an increase in time-related project costs. As mentioned in the previous paragraph, claims for standing time of machinery and equipment will eventually arise (see Sub-Clause 4.8, Safety Procedures; Sub-Clause 12, Measurements and Evaluation; Sub-Clause 13, Variations and Adjustments of the 1999 FIDIC Red Book).

The FIDIC Red Book instructs the contractor to comply with all applicable safety regulations. In the VOB/B, this includes guidelines created during the pandemic that have eventual cost implications.

There is likely to be an increase in task-related project costs, for example, international site labour will definitely become more expensive (see Sub-Clause 6, Staff and Labor  and Price schedule adjustment under Sub-Clause 13.8, Adjustments for changes in cost of the 1999 FIDIC Red Book).

If there is an increase in supply chain cost, this will in turn trigger an increase in the costs associated with performance of the contract, which is likely to lead to an increase in claims.

We will see a delayed taking over of works as a consequence of delays arising from longer activity completion times, rescheduled and delayed tests on completion (see Sub-Clause 9.2, Delayed tests;  Sub-Clause 10, Employer’s Taking Over of the 1999 FIDIC Red Book).

In relation to the quality of the works, the effects of Covid-19 on defect liability periods will be a matter of contention, particularly having regard to any periods of downtime and the extent to which that effects the standing contractual defect liability period (see Sub-Clause 11 Defects liability).

There is likely to be an increase in the unit costs of items in bills of quantities due to increased costs of the supply chain, delivery times and claims for additional payment. Closed borders and interrupted shipping lanes have also caused unforeseen interruptions to the supply of materials to construction sites (See Sub-Clause 13.8, Adjustments for Changes in Cost of the 1999 FIDIC Red Book).

Further, there is likely to be an increase in the costs of site safety equipment and personal protective equipment including masks, gloves and sanitising facilities on site Standing Dispute Adjudication Boards (DABs) in FIDIC contracts are costs that will be incurred even in cases where construction has been completely suspended. Parties to contracts need to resolve the management of such costs and how these will be dealt with. An understanding of the addenda to the contract, including the duration for which the DAB is contracted is important to be able to handle eventual outstanding costs. Standing DABs or ad hoc ones dictate different costs for ongoing contracts.

A further impact includes the cancellation or postponement of periodic site meetings, which has caused slower decision making for technical aspects and queries. Employers distancing themselves in an effort to curb the virus has led to delays in carrying out works. Decision-making for critical ongoing works has therefore caused delays. Contractors seeking clarification for technical queries have not been able to get such decisions at short notice.

Ongoing contracts or contractors have been required to update their health and safety plans (Sicherheits- und Gesundheitsschutzplan SiGe-Plan) in the German construction industry to include new measures to curb the spread of Covid-19 on construction sites and submit them to the employer for approval on short notice. The experience in other jurisdictions using FIDIC standard forms of contract is similar.

Conclusion

This article illustrates by way of several examples that most of the issues arising as a consequence of Covid-19 affect ongoing contracts and will eventually affect contract sums due to an increase in claims. If there is an increase in supply chain cost, this will in turn trigger an increase in the costs associated with performance of the contract, which is likely to lead to an increase in claims. Employers should therefore brace themselves for significant changes in the originally planned project costs.

Whether the pandemic is considered a force majeure event (see Sub-Clause 19,  Force Majeure of the 1999 FIDIC Red Book and section 6 Hindrance and interruption of work, in the VOB/B) will obviously differ from jurisdiction to jurisdiction and contract to contract, but the fundamental effects of this pandemic on construction contracts will be similar. Contractors should therefore also look at refining their internal systems to maintain proper and well documented records of what has transpired on site during this time to help them to defend their positions later on. Records will also be important with regard to the supply chain and subcontractors to help to facilitate discussions later.

The resultant effect of a force majeure event is to negate the liability of either party for claims such as those for delay damages.

Employers should at a minimum provide personnel to monitor works during this time to be able to review submitted claims and variations at a later stage.

Provisions for extensions to cover productive time lost during the interruptions by the pandemic should be considered (see section 6, paragraph 2, Hindrance and interruption of work of the VOB/B and Sub-Clause 8.4 of the 1999 FIDIC Red Book). Covid-19 has in some cases led to the complete suspension of construction activities on sites. The safety of completed permanent works comes into question here. Employers and contractors should establish a means to secure such works in interest of all parties to the contract (see Sub-Clause 8.8-8.12, Suspension of work of the 1999 FIDIC Red Book and section 6, paragraph 5 of the VOB/B).

A team effort and understanding between parties to a contract should not be ruled out as this may be the way forward for many contracts. Representatives of both the employer and the contractor should have a common understanding about how to go about works in this period. This may be one of the most practical ways to avoid disputes for projects that are under way.

 

Notes

1 1999 FIDIC Red Book, Cl 4.8.

2 Ibid, Cl. 6.7; see also Nael Bunni, The FIDIC Forms of Contract (Blackwell, 3rd ed) 764.

3 Ibid.

4 Ibid, Bunni, 765.

5 Public Health Act Ch 281 Laws of Uganda.

6 Restrictions on movements from the work sites have since been eased allowing both public and private transport for workers going home from their respective sites.

7 Public Health (Control of COVID-19) (No 2) (Amendment No 2) Rules 2020.

8 FIDIC Covid-19 Guidance Memorandum to Users of FIDIC Standard Forms of Works Contract.

9 Ibid, 1999 FIDIC Red Book, Cl. 13.7.

 

Adrian Neville Akol is a Construction and Contracts Engineer with Peter Gross Tiefbau GmbH & Co KG, in Germany and can be contacted at akneville@yahoo.com. Albert Mukasa is a construction lawyer and Partner at M&K Advocates in Kampala, Uganda, and can be contacted at albert.mukasa@mkadvocates.org.

 

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