The Health and Safety Contractual Obligations of the Contractor in Times of COVID-19

Artikel von Rechtsanwalt Michael Göger, LL.M. und Theda Bakker, wissenschaftliche Mitarbeiterin

Impact on FIDIC Contracts, using the Red Book 1999 Edition

The Contractor has a general obligation to be responsible for the safety of all of its operations and activities, and holds specific health, safety and environmental obligations.

Sub-Clause 6.7 of the FIDIC Red Book, 1999, states: ”The Contractor shall at all times take all reasonable precautions to maintain the health and safety of the Contractor´s Personnel. In collaboration with local health, authorities the Contractor shall ensure that medical staff, first aid facilities, sickbay and ambulance service are available at all times at the Site and at any accommodation for Contractor´s and Employer´s Personnel, and that suitable arrangements are made for all necessary welfare and hygiene requirements and for the prevention of epidemics. […]

The Contractor shall maintain records and make reports concerning health, safety and welfare of persons and damage to property as the Engineer may reasonably require.”

Hence, the FIDIC conditions stipulate in particular that the Contractor shall:

- comply with the applicable health and safety regulations and Laws – this is especially relevant in the present times where some governments are setting out COVID-19 specific obligations to be complied with on construction sites

- ensure that “suitable arrangements are made for all necessary welfare and hygiene requirements and for the prevention of epidemics” – As COVID-19 has been declared a pandemic by the World Health Organisation, Contractors are required to make “suitable arrangements” and as such may be required to maintain safe distances and provide special hygiene measures such as masks or protective clothing

- limit damage and nuisance to people resulting from the Contractor’s operations and/or activities

Remedies

Extension of Time and Costs

The Contractor may explore remedies under Sub-Clause 8.4 letter d) and Sub-Clause 8.5 if the Contractor is facing difficulties such as mobilizing his personnel and obtaining Goods due to issues in his supply chains, or if he is suffering delays caused by the authorities (e.g.: with numerous additional health & safety inspections).

The Contractor may be able to claim an extension of time; however, it must be noted that the above Sub-Clauses do not give rise to any financial remedies.

However, extension of time and costs might be claimed successfully if the local authorities or the government were to change the Law in such a way that construction activities and works are restricted as a result. Such a claim would be based on Sub-Clause 13.7 which reads as follows: “[…] the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractors Claims] to: an extension of time for any such delay if completion is or will be delayed under Sub-Clause 8.4 [Extension of Time for Completion] and payment of any such Cost which shall be included in the Contract Price. In the case of COVID-19, changes in the Law might lead to specific regulations imposing health and safety measures on construction activities such as social distancing, supply of facemasks, alternative facilities, and working hour’s requirement, etc.

Force Majeure and Termination

Force Majeure

If it is the case that it becomes impossible to proceed with construction work and the Contractor is prevented from performing his obligations under the contract due to orders/decrees by local authorities or by the government, this situation could qualify as Force Majeure (Sub-Clause 19.1). This Sub-Clause defines Force Majeure means an “exceptional event” or “circumstance” which “(i) is beyond a Party´s control; (ii) the Party could not reasonably have provided against before entering the Contract; (iii) having arisen, such Party could not reasonably have avoided or overcome; and (iv) is not substantially attributable to the other party”. Sub-Clause 19.1 also provides a list of non-conclusive examples of what may qualify as a Force Majeure.

The first four examples under Sub-Clause 19.1 are man-made events, while the last example under Sub-Clause 19.1 (number (v)) is for “natural catastrophes”, hence natural events. While pandemics are not explicitly listed in Sub-Clause 19.1 number 5, there are still valid arguments indicating that a pandemic is a “natural catastrophe”. In addition, COVID-19 would still qualify as Force Majeure if it passes the test in Sub-Clause 19.1. Contractors may argue that COVID-19 could not have been prevented and that even an experienced contractor could not have foreseen its occurrence.

Regarding entitlements: here the Contractor should examine the specific obligations which he / she has been prevented from carrying out by this Force Majeure. He / she should consequently send out the relevant notices according to Sub-Clause 19.2.  The main consequence in the case of a Force Majeure is that it excuses performance of the obligations concerned for so long as such a Force Majeure prevents the performance of these obligations. Ultimately the Contractor may be entitled to an extension of time for any resulting delay as stated in Sub-Clause 19.4. Financial entitlements appear unlikely, given that they arise only in cases of events described under Sub-Clause 19.4.

Termination

If the situation arises that due to a Force Majeure the Contractor is prevented from carrying out the Works for a continuous period of 84 days or for multiple periods which total more than 140 days, then either Party may give notice to terminate the contract (Sub-Clause 19.6).

It must be emphasized that termination is only possible if the prevention substantially affects all the Works in progress (Sub-Clause 19.6). Therefore, a shortage of materials that only affects part of the Works does not justify a termination.

Upon termination, the Contractor will be paid for all the Works carried out, including the costs of Plant and Materials, removing Works and equipment and the cost of repatriation (Sub-Clause 19.6 letter a) – e)).

Practical tips

The construction industry is also severely affected by the effects of the current situation. Supply bottlenecks and quarantine-related restrictions in staffing are to be expected. Contractors should communicate with all Parties with whom they are contractually bound as intensively and frequently as possible so that the situation can be managed in the best possible way. Contractual addendas such as “standstill” agreements or extensions of time limits within the contract can assist in managing the situation. A termination of the contract should be the last option. It is highly advisable to follow the latest information and safety measures from the authorities promptly at all times in order to avoid the risk of infection and to keep all construction work moving forward as far as possible. Stay healthy and safe.