What Effect Did The Pandemic Have On The FIDIC And Force Majeure?
Introduction
From low-rise buildings to skyscrapers, the United Arab Emirates led by example in the past 3 decades in terms of residential and commercial construction. The relationships between the employer, contractor, subcontractors, and other engineers were often regulated by standardized FIDIC contracts.
However, in the past 2 years when COVID 19 hit the construction industry and developments forcibly slowed down, parties to the contract faced major financial, supply, and timeframe challenges. Parties triggered clauses of the FIDIC contract which regulate their activity.
FIDIC contracts contain clauses that address exceptional risks through Force Majeure where any party to the contract is prevented from performing its obligations under the contract for exceptional circumstances such as:
- The local or national government has issued order(s)/ decree(s) preventing construction activities (including lockdown, curfew, inaccessible quarantined areas, etc.);
- The execution of the works on-site has become impossible.
- Force Majeure is addressed under SC 19 (termed “Exceptional Events” at SC 18 in the 2017 edition). SC 19 does not clearly classify epidemics or pandemics as examples of a Force Majeure. However, they can be classified as a Force Majeure event under FIDIC only if they meet the requirements of a Force Majeure event as provided for under SC 19.1.
SC 19.1 Defines Force Majeure As An Exceptional Event Or Situation Which:
- Is beyond a Party’s control;
- Such Party could not reasonably have provided against before entering into the Contract;
- Having arisen, such Party could not reasonably have avoided or overcome; and
- Is not substantially attributable to the other Party.
- If a party is able to establish the existence of a Force Majeure situation linked to the COVID 19 pandemic, they may be entitled under SC 18.4(a) (2017 Edition) to relief from performance of the contractual obligations for as long as the Force Majeure event prevents the party from performing them, an extension of time, if it can establish that completion of the works will be delayed because the contractor has been prevented from performing any of its contractual obligations as a result of the event under SC 18.4(a) (2017 Edition) and terminate the contract under SC 18.5 (2017 Edition) if either party is prevented for a continuous period of 84 days, or for multiple periods which total more than 140 days, by reason of the same Force Majeure event to complete the whole contracted works. The last part was very useful in the event of successive Covid 19 waves between 2020 and end of 2021. In addition, the parties to a FIDIC cannot intentionally use the Force Majeure as an excuse to delay the performance of their contracts. They will have to continue their performance until exceptional circumstances render the completion impossible. Under SC 18.3 (2017 Edition), the Force Majeure clauses do not apply to either party’s obligation to make a payment to the other. A final factor to take into account when a party to a FIDIC contract wishes to enforce the Force Majeure clauses is the government’s position and whether the domestic laws suspend temporarily or for an indefinite period the construction industry. In such scenario, either party to the contract cannot overcome this hurdle and therefore the clauses of Force Majeure apply.
- Please do not hesitate to contact our specialised team to assist you in respect of the application of the FIDIC contract.