The Coronavirus – are we Entitled to Make a Claim?

The global hot topic this month seems to be the coronavirus and my consultancy practice has received lots of questions from clients so today, we thought we’d take a look at some of those questions and share our thoughts with you.

The usual question we are asked is:

“We are obtaining labour/materials/plant/equipment from China and the supply is being delayed. Are we entitled to claim for an extension of time and additional costs?”.

Our answers, as usual, have been along the lines of “it depends on your particular contract, but possibly”.

I know that this is a bit of a lawyer’s answer, but it really does depend on several things. Let’s however, have a look at what the FIDIC Red and Yellow Books, 1999 Editions, have to say on the subject.

Firstly, Sub-Clause 8.4 (Extension of Time for Completion) provides that an extension of time is warranted in the case of ‘Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions…’. This seems to provide a fairly clear entitlement to an extension of time, but not the payment of costs.

Secondly, FIDIC also possibly provides entitlement to an extension of time under Sub-Clause 19.4 (Consequences of Force Majeure). This is however arguable because to be considered as a force majeure event, the conditions contained in Sub-Clause 19.1 (Definition of Force Majeure) must be satisfied and it is not certain that they are. Undoubtedly, there is enough uncertainty here to anticipate a strong defensive argument from the other side of the fence, so a persuasive argument must be included in any claim.

Sub-Clause 8.4 (Extension of Time for Completion) does not provide entitlement to the payment of Costs, so the matter of Costs is dependent on the virus being considered as a force majeure event. Even if agreement is reached about the virus being a qualifying event, there is however another hurdle to overcome because Sub-Clause 19.4 (Consequences of Force Majeure) requires the event to have occurred in the Country. “The Country: is defined in FIDIC as ‘the country in which the Site (or most of it) is located, where the Permanent Works are to be executed.’ So, it seems that, unless the project is in a country where the virus has occurred and has a direct effect, then Costs may not be awarded. Once again, there, may be an argument if the government of the country has introduced measures that have affected the project.

There are of course other considerations to be made before a claim is justifiable, some of these include:

• How has the virus affected the Contractor and his subcontractor’s activities?
• What activities have been or are likely to be delayed?
• Are the affected activities on the critical path?
• Can the effect of the delays be demonstrated to predictably have an effect on the Time for Completion?
• Have appropriate notices been given in a suitable format?
• Does the Contractor have contemporary records to substantiate and ascertain the effects of the delays?

All of the above, of course, is just good professional practice when it comes to investigating and preparing claims, but it’s surprising how many contractors fail to comply and then wonder why their claims are rejected or, at best, take a long time to resolve.

This blog was written by ICCP Executive Officer and Fellow, Andy Hewitt. Andy has also written a detailed paper for members that discusses COVID-19 in relation to the FIDIC 1999 contracts (Red and Yellow Books). If you’re an ICCP member, please login to the Member’s Area to download. 

If you would like to learn more about claims, check out our training partner, Claims Class.

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