FIDIC AND COVID-19: TIME TO LITIGATE?
Danielle De Bruyn
1 May 2020
The recent turmoil faced by stakeholders in the construction industry has been significantly aggravated by the onset of COVID-19 and in particular the prohibition of activities brought about by the lockdown enacted by the Presidency (“lockdown”). Given the hardships suffered by the industry prior to the onset of COVID-19, the lockdown has come about like a gut-wrenching kick to the stomach. Suffice to say that we expect to see far reaching additional consequences for many role-players in the construction value chain.
With construction sites having come to a complete standstill as a result of the nationwide lockdown, contractual (and other) considerations such as force majeure/exceptional events, contractual variations, delays, extensions of time and/or additional costs and claims and disputes are hot topics for employers, engineers and contractors. The ultimate question on everyone’s mind during this time is: “To litigate or not to litigate?”
The International Federation of Consulting Engineers (“FIDIC”) recently published a Guidance Memorandum for FIDIC contract users regarding the impact of COVID-19. FIDIC, which represents over a million engineering professionals, is responsible for amongst other things, the publication of standard forms of contract (known as the rainbow suite of contracts) detailing terms and conditions which govern various forms of relationships and projects in the construction industry. FIDIC promotes equal bargaining power and cooperation amongst contracting parties and largely seeks to encourage dispute avoidance.
The Memorandum not only highlights possible contractual scenarios being faced as a result of the pandemic, but more importantly points out that solutions to these scenarios will not necessarily be found within the ambit of the contract itself. This is occasioned by the fact that COVID-19 is a unique phenomenon not provided for in (standard) contractual provisions and should be treated as such.
It is important to remember that the COVID-19 pandemic will pass, but contractual relationships and uncompleted projects will remain. The collective aim should be the successful completion of projects as opposed to short term notifications of disputes and/or claims. Contractual parties are encouraged to establish and implement practical solutions to contractual challenges brought about by COVID-19, even though these solutions might require looking beyond the contract.
Heeding and undertaking the following practical measures listed below are likely to be of assistance in arriving at practical and cost effective solutions:
- Contractual terms: Study and acquaint yourself with the provisions of both the general and specific terms of the contract;
- Laws & Regulations: Have specific regard to laws and regulations implemented by the legislature during this time and be conscious of the manner in which they are constantly developed and altered to be in line with risk-adjusted policies required to combat the spread of COVID-19;
- Long term results instead of short term fixes: Shift your focus to the completion of the project and ways to achieve results. Being short-sighted at this stage may have far more dire consequences.
- COVID-19 challenge or not?: Critically analyse the challenge being faced to establish whether or not it is directly attributable to lockdown / COVID 19 or whether the contractual challenge would have arisen nonetheless.
- Communication is key: Establish open channels of communication amongst contractual parties and facilitate the notion of negotiation and cooperation to avoid unnecessary conflict and disputes.
- Alternative contractual terms and guidelines: Consider establishing mutually agreeable alternative/additional contractual terms and/or guidelines to assist in the completion of the project in the light of the global impact of COVID-19, which incorporates unique ways to work around the difficulties as opposed to ignoring its existence.
- Legal Advice: Seek legal advice prior to launching unnecessary and expensive litigious action which could have been avoided or approached differently.
Whether your contractual relationship is governed by a standard form contract such as FIDIC, GCC, JBCC, NEC or is a project-specific contract, the unique world in which we now live calls for parties to look beyond the terms of the contract and find practical solutions to the novel challenges you’re likely to face. This is not the time to litigate but rather a time to stand together to find ways to ensure the survival of the construction industry as a whole.