CORONAVIRUS (COVID-19) GLOBAL PANDEMIC – A FORCE MAJEURE EVENT?

DOCUMENT/S:

  • Principal Building Agreement
  • Nominated/Selected Subcontract Agreement
  • Minor Works Agreement (clause 17.0)

DISCLAIMER The purpose of this publication is to give advice on the most effective use of the JBCC documents. Advice is given in good faith and JBCC disclaims all liability for any loss, damage or expense that may be incurred through acting on such advice

CORONAVIRUS (COVID-19) GLOBAL PANDEMIC – A FORCE MAJEURE EVENT?

The impact of the COVID-19 global pandemic on the Republic of South Africa has among other restrictive measures resulted in our State President Mr Ramaphosa declaring a national disaster on Sunday 15 March 2020 and on Monday 23 March 2020 imposing a nationwide lockdown in terms of inter alia the Disaster Management Act 57 of 2002 (the Act).

The nationwide lockdown became effective from midnight (00:00) on Thursday 26 March 2020 and currently set to endure until midnight (00:00) on Thursday 16 April 2020. The possibility exists that the nationwide lockdown may be extended beyond that date

Construction sites and related activities across South Africa, in compliance with the imposition of the nationwide lockdown and regulations promulgated to enforce and manage the nationwide lockdown in terms of inter alia the Act, must temporarily close and cease to operate from midnight (00:00) on Thursday 26 March 2020

These unprecedented circumstances have created numerous challenges across all South Africans’ day-to-day business activities and personal lives, which include the challenge of managing the unavoidable impact correctly in terms of the applicable provisions of each contract regulating the contractual relationships between employer, contractor and subcontractors

The COVID-19 scenario differs from all other delay and cost claims. The typical time bars in all standard form contracts to give notice or lose the opportunity to claim should however still apply for this event – the prompt provision of relevant information by all involved to present and resolve the COVID-19 claims remains essential. This Advisory Note attempts to provide the procedure parties have to follow as outlined in the JBCC May 2018 edition agreements

23.0 REVISION OF THE DATE FOR PRACTICAL COMPLETION – Coronavirus

23.1 The contractor is entitled to a revision of the date for practical completion by the principal agent without an adjustment of the contract value for a delay to practical completion caused by one or more of the following events:

23.1 – 4 …….

23.1.5 Exercise of statutory power by a body of state or public or local authority that directly affects the execution of the works

23.1.6 Force majeure

INTERPRETATION

Unfortunately, there is in our view neither an immediately obvious correct nor necessarily a “one size fits all” solution to this challenge. It is critical, therefore, that each contract (and its applicable provisions) be carefully considered in each case

The immediate (and perhaps most obvious) course is to invoke contractual provisions regulating a force majeure situation, where these are available in terms of the relevant contract. However, while it is undoubtedly correct that the COVID-19 global pandemic qualifies as a force majeure event, the nationwide lockdown imposed on Monday 23 March 2020 (not the COVID-19 global pandemic) is the immediate event causing the temporary closure of most construction sites and ceasing of related on-site construction activities across South Africa for at least 13 working days (the 10th and 13th of April are public holidays and the 17th of April falls outside the lockdown period)

Force majeure as defined in the JBCC in the respective sub-clauses 1.1 of the PBA and NSSA can be shortened to read as an exceptional event or circumstance that could not have reasonably been foreseen or anticipated by the parties that prevents the contractor from executing or completing the works

The announcement of the nationwide lockdown for 21-days from midnight on Thursday 26 March 2020 resulted in the temporary closure of most construction sites and the ceasing of related on-site construction activities across South Africa. Therefore, the COVID-19 global pandemic is not the event causing the temporary closure of most construction sites and the ceasing of related on-site construction activities as a direct result of a force majeure event

The JBCC PBA (and NSSA) sub-clause 2.1 [Laws, Regulations and Notices] provides:

The contractor shall comply with the law [CD], obtain permits, licences and approvals required and pay related charges for the execution of the works [17.1.4]. The employer shall comply with the law [CD], obtain permits planning, building or similar permissions and pay charges for the works other than those which are the responsibility of the contractor [26.4.1]

Law is defined in sub-clause 1.1 as “the law of the country [CD]”, which is assumed for present purposes to be the law of the Republic of South Africa. The contractor and employer each have an overarching statutory obligation to comply with the law. The imposition of the nationwide lockdown in terms of the Act and regulations issued thereafter pursuant to that legislation to manage the nationwide lockdown, therefore, constitute laws as defined in the PBA and NSSA

The PBA (and NSSA) clause 17.0 [Contract Instructions] provides:

17.1 The principal agent may issue contract instructions to the contractor regarding:

17.1.4 Compliance with the law, regulations and bylaws [2.1] (our underlining)

The principal agent therefore enjoys a specific discretion in this regard. To the extent that the contractor / subcontractor has an overarching statutory obligation to comply with the law including especially the nationwide lockdown and subsequent regulations issued in terms of the Act, it is unnecessary for the principal agent to issue a contract instruction regarding compliance with the imposition of the nationwide lockdown imposed on Monday 23 March 2020 in accordance with the Act

In the absence of a contract instruction (which in any event need not be given by the principal agent), the statutory obligation to comply with the imposition of the nationwide lockdown requires temporary closure of most construction sites and ceasing of related on-site construction activities for at least 13 working days, would in the prevailing circumstances be interpreted widely as “an event or circumstance that is beyond the control of the parties, albeit that in the prevailing circumstances it is not a force majeure event

In accordance with PBA and NSSA clause 23.0 [Revision of the Date for Practical Completion] a contractor / subcontractor would (subject to timeous provision of the required notice in terms of the PBA and NSSA sub-clauses 23.1.5 and 23.1.6) be “entitled to a revision of the date for practical completion by the principal agent without an adjustment of the contract value (PBA and NSSA clause 23.1).

A contractor / subcontractor is obliged, in addition to timeously furnishing the required notices to, in accordance with PBA and NSSA sub-clause 23.4.1, “take reasonable steps to avoid or reduce such delay”.

Undoubtedly, the imposition of the nationwide lockdown on Monday 23 March 2020 in accordance with the Act, which has caused the temporary closure of most construction sites and ceasing of related on-site construction activities across South Africa, is an “exercise of a statutory power by a body of state or public or local authority that directly affects the execution of the works”.

In accordance with PBA and NSSA clause 23.0 [Revision of the Date for Practical Completion] a contractor / subcontractor would (subject to timeous provision of the required notice in terms of PBA and NSSA sub-clause 23.4.2) be entitled to a revision of the date of practical completion but without an adjustment of the contract value

COMMENT

The process of submitting a notice for a delay to practical completion is relatively straight forward as provided for in sub-clause 23.4 of the JBCC PBA and NSSA. However, the provision of all relevant information by the contractor from when he is able to quantify the delay in terms of the programme remains important (see sub-clause 23.5). There may, over and above the 13 working days delay during the lockdown period be further delay claims to assess, as work is unlikely to commence on the 17th of April as result of unavoidable logistical delays, such as availability of materials and goods and imported items, or subcontractors (domestic or specialised) no longer in business. The difficulty then arises how to allocate costs incurred as a result of such delays. Generally, where the employer or his agents are at fault, the contractor will be compensated as per sub-clause 23.2. In the COVID-19 scenario neither party is to blame and the contractor including his subcontractors will not be compensated as per sub-clause 23.1 – see discussion under INTERPRETATION. The question can then be raised whether there should be any consideration for the additional costs to be shared by the parties?

Contractors / subcontractors and their staff may suffer serious financial hardship during the legally enforced lockdown, if salaries cannot be paid as no money is earned and regular expenses such as plant hire, insurance premiums, etc must continue to be paid. The likely scenario is that subcontractors will be affected more than principal contractors. Certain government sponsored grants may be claimed – but payment may take some time and the quantum is unlikely to be ‘generous’

Registration is open, on www.smmesa.gov.za, for small and medium-sized businesses that require help during the coronavirus crisis

ACKNOWLEDGEMENT

JBCC wishes to acknowledge the assistance of MDA Attorneys, and more particularly to Vaughan Hattingh and Natalie Reyneke (directors) in compiling this Advisory Note. MDA Attorneys, inter alia, has expertise in all matters relating to construction law, and their free advice has contributed to a better understanding of the underlying legal principles about the COVID-19 lockdown.

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