With the situation so much in flux, new information, supply and demand shocks keep emerging regarding COVID-19. Beyond the overarching strategic preparedness and response plans by governments working in collaboration with various role players including businesses and individuals, the most significant consequences to these developments have been the impact to and response by the insurance service industry and, in particular the role we are playing. Minet, secure tomorrow.
THE CONSTRUCTION INDUSTRY AND THE IMPACT OF COVID-19
The World Health Organization has declared the coronavirus
(COVID-19) a pandemic. Covid-19 has dramatically and severely affected every
corner of the world. There is no doubt that the economic ramifications are
already quite significant, and its consequences can already be felt by the
construction industry.
As new declarations are provided by government authorities,
construction industry players should consider that their current and new
projects may require significant change to adhere to the lockdown, and to public health and safety recommendations.
Minet offers the following key points for the industry players for
consideration:
- Stay informed
- Communicate and review the project program schedules
- Review the project risk registers & business continuity plans
- Review the project contracting provisions
- Review the project risk management and insurance policies
1)
Stay Informed
In addition to the national or local government proclamations, the
World Health Organization and African Union websites are regularly updated to
provide official communications and advisories and should be reviewed several
times per day so that appropriate steps can be taken to deal with the
dynamically changing situation.
We have since observed that government-directed lockdowns in
various countries and territories have the potential to impact the supply and
delivery of materials and equipment to project sites. To stay informed,
construction companies should therefore consider implementing designated
Covid-19 task force teams (including your risk management advisors/consultants)
to evaluate strategies and project impacts on a weekly basis.
Companies should consider existing health and safety protocols and
any additional procedures that are being implemented or supplemented at the
project site or offices, such as providing hand sanitizers, limiting in-person
meetings in favor of video-conferencing, practicing social distancing, limiting
the number of individuals attending meetings, etc.
2)
Communicate and Review Project
Program Schedules
As delays and interruptions on projects are imminent, construction
companies should familiarize themselves with all applicable contractual notice
requirements. Best practices would
include inter alia:
- to adhere to the proper timelines and procedures for all required notices from contractors and consultants
- to assign designated employees to be familiar with and responsible for all contractual notices and related correspondence
- to always record verbal conversations in meeting minutes, emails or other written records
- to keep good records of work progress (reports, photos, videos, etc)
- to be aware of contractual force majeure, delay and time extension clauses, and their actual or potential applications
- to set up project-specific communication nettworks with the Project supply chains
- to review contractual arrangements to understand options now and in the future in the face of Covid-19 induced delays
- to review project programmes and timelines
- to ask the governments or local authorities to allow identified safety-critical work on the project infrastructure network that is essential and must be continued
- to clarify the position over suspension of any works
- to identify if any activities can continue remotely or be brought forward
- to ensure projects are ready to recommence work as soon as possible
All project participants must maintain a well-documented record of
events so that decisions and discussions can be revisited, if required, at a
later date. As much as possible, parties should be proactive, identifying
challenges early, communicating those issues with their counterparts, and
considering potential solutions.
When dealing with multi phased projects, an understanding of the
type and stage of each project is critical to developing solutions. The
scheduled sequencing of work (project program schedules) must be reviewed and
revised. The resequencing could impact the construction schedule and therefore
potentially affect the project cost and completion date, emergence of new risks
in relation to changes to the external environment, insurance extension
periods, and, such changes need to be carefully documented and considered by
all affected parties.
3)
Review project risk registers & business continuity plans
In order for the risk registers and business continuity plans to be
effective and timely as part of the risk management plan, these should be
treated as "living and breathing" documents and should evolve over
time with potential risks removed and new ones added as the project's risk
profile and external risk environment change.
4)
Review the project contract provisions
All parties should carefully review the entirety of their existing
contracts as well as any proposed or pending contracts, including those that are the subject of current
procurements. Among other things, an understanding of the standard contract form is vital in as far
as the provisions relating to unforeseen conditions, delays and force majeure
deserve special attention. The impact of COVID-19 restrictions might be
addressed under one or more of those provisions.
Force majeure provisions are intended to address events that no
human foresight could anticipate, or which, if anticipated, is too strong to be
controlled. These are events beyond the parties’ control, and/or not caused
directly or indirectly by the fault, negligence or default of the party seeking
relief. Such provisions may include a
list of examples of applicable force majeure events such as: natural disasters,
civil disturbance, changes in legislation, directives by government or other
public authorities, acts of war, riot, sabotage, blockade, embargo, or acts of
God. In some cases, the list may even specifically include “epidemic” or
“pandemic.”
It cannot be assumed that all your contracts related to a project
take a similar approach to force majeure. Where supplementary provisions and
conditions are used to amend and modify standard terms or where a contract is
silent, or unclear on force majeure events, parties may look to interpret the
broad phrase “event or cause beyond the parties’ control” in an effort to address delays resulting from the current COVID-19
outbreak and resulting public health restrictions.
The consequences of a force majeure event vary from contract to
contract, but typically include relief from performance and extensions of
time. Where an extended force majeure
event is envisaged, parties should consider whether the contract termination
provisions permit a termination of the contract without cost consequences.
Termination of a contract must always be exercised with caution and parties
should consider negotiation prior to exercising a termination right.
Companies should also consider any applicable exception or
exclusion provisions in their contracts. A common exception to force majeure is
the exclusion of events that were reasonably foreseeable at the time the
contract was entered into. For contracts that are the subject of pending or recently awarded
tenders, COVID-19 restrictions could be found to be a reasonably foreseeable
event, potentially barring claims of force majeure. Consequently, for current and future projects, parties should
carefully consider the precise provisions of the contract and include a
mitigation plan in their construction schedules to account for the uncertainty
surrounding the short-and long-term impact of COVID-19.
5)
Review of Project risk management and insurance policies
Parties should review all required and applicable contract and
project insurance policies to evaluate whether there is appropriate coverage
for potential losses that they may incur.
Typical project insurance coverage may include one or more of:
Contractors All Risks and Third Party / General
Liability, Marine / Cargo Insurance, Workmen Compensation including
Employers Common Law Liability, Performance Guarantees / Surety Bonds
policies. Business Interruption / Delay
in Start Up insurance is another type of coverage that could become important
due to existing circumstances.
Where insurance coverage is available, companies should be mindful
that insurance policies usually include mandatory time-sensitive notice
requirements. If notice of a claim is not given in a timely manner, it could
result in a denial of coverage by the insurer.
It is also important to be diligent in collecting and producing
documentation required to support insurance claims.
John Mawere ǀ Global Business Coordinator ǀ Minet Holdings Africa (Pty) Ltd
The foregoing is intended as a brief, general overview of the
impact of Covid-19 to the construction industry
and should not be construed as a definitive view. The specific multi
phased projects, insurance programs and risk management framework require
particular attention.
References:
- Chirelstein, M. (2013) Concepts and Case Analysis in the Law of Contracts, 7th Edition
- FIDIC (June, 2010). Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer
- Joint Building Contracts Inc, Series 2000 Edition 5.0
- https://www.who.int/health-topics/coronavirus#tab=tab_1
- https://au.int/en/covid19
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