Exceptional events clauses: negotiating infrastructure contracts

Bizar Male

Impact of Covid-19

The impact of the pandemic on infrastructure projects has been wide-reaching, and is far from over. From the contractor perspective it has caused transportation and logistics delays, staff resourcing difficulties, site closures or reduced working efficiencies, shortages and/or increases in the price of certain goods and materials, additional costs of procuring PPE and other protective items, as well as increased pressure on cashflow throughout the supply chain.

The two primary contractual protections in standard forms that are relevant to the impact of the pandemic on construction projects are provisions on force majeure; and clauses on change in law. Other relevant clauses include those dealing with employer defaults, which are relevant to contractors; and those addressing failures by, and advice or recommendations from, governmental agencies.

Change in law and governmental action/inaction clauses

The biggest perceived shortcoming of these clauses in the standard forms in the context of Covid-19 is that they did not clearly cover advice, guidance or recommendations from government or industry bodies which were not legally binding, but were expected to be followed – for example the social distancing recommendations in the UK. This is the case with clause 2.15 in the JCT Design and Build Contract 2016, for example, and with option X2 of the NEC Engineering and Construction Contract too. Sub-clause 8.5 in the 1999 edition of the FIDIC Red, Yellow and Silver Books could apply but is often removed or weakened in the drafting process.

As a consequence, many contractors are looking to the force majeure clauses in these contracts which could potentially cover advice, guidance or recommendations from government or industry bodies, but many will have discovered that the requirements to be met for a successful force majeure claim are quite stringent and generally do not cover both extension of time and additional cost rights.

Therefore contractors should review change in law clauses and government action or inaction clauses in contracts carefully to determine whether they are sufficient to provide time and cost relief for the full range of government actions or inactions that could occur during a future, or continuing, exceptional event from full changes in law to non-legally binding advice, guidance or recommendations. This includes those of non-governmental but influential industry bodies such as the Construction Leadership Council. If the relief provided for is insufficient, and the hurdles to bringing a claim under the force majeure clause are high, amendments should be considered to provide coverage.

Force majeure clauses

Force majeure clauses differ quite dramatically across the major standard forms in use in the construction industry. JCT adopts the loosest approach, with no definition of the term ‘force majeure’ provided, leaving it open to the parties to determine whether to rely on the case law or insert specific types of events which should be caught by the term.

Perhaps given the experience of the Covid-19 pandemic so far, more contractors will want to put some flesh on the bones and provide a non-exhaustive list of events that will be considered ‘force majeure’ events provided they comply with certain overarching criteria, as is found in the FIDIC clauses. This would provide a greater degree of certainty than the current approach.

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