WCS2022 Proceedings 21
WCS2022 Proceedings 21
WCS2022 Proceedings 21
ABSTRACT
1. INTRODUCTION
The world has been affected by crises such as Spanish Flu in 1918, Asian Flu in 1957,
and Hong Kong Flu in 1968 during the last century, and Severe Acute Respiratory
Syndrome - SARS in 2002, Swine flu in 2009, and Ebola in 2014 during near past
(Vithana et al., 2020). COVID-19 is the prevailing crisis, announced as a pandemic by
the World Health Organisation (WHO) and expeditious diffusion worldwide (Husien, et
al., 2021). Kiraz and Ustun (2020) stated that the world had faced a critical situation
where none could foresee its impact. The prevailing COVID-19 pandemic has been a
massive threat to the contractual performance in many industries, including the
construction sector (Niraula, et al., 2008). Apart from the high risk of infection through
droplet contamination and exposure to the virus, workers and professionals in the
construction industry are currently facing a job risk with the novel Coronavirus pandemic
1
Department of Building Economics, University of Moratuwa, Sri Lanka, jayathilakardww.21@uom.lk
2
Department of Building Economics, University of Moratuwa, Sri Lanka, anuradha@uom.lk
249
R.D.W.W. Jayathilaka and K.G.A.S. Waidyasekara
(Zheng, et al., 2021). COVID-19 outbreak reminds the researchers about the need for
creative responses to contractual challenges arising with pandemics (Pedamon and
Assileva, 2021). The construction organisations have been daunted with COVID-19 due
to the uncertainties and less awareness on contractual challenges resolution (Andres, et
al., 2020). Furthermore, Bailey et al. (2020) expressed that events such as the COVID-19
pandemic generally engage contractual provisions concerning the consequences of
unforeseen events. Evidently, the construction industry was always embroiled with
protracted and costly dispute resolution procedures (Construction Leadership Counsil
[CLC], 2020). In addition, Sierra (2021) stated that the terms time and money are related
to disputes in construction projects, and the most common conflicts are finance-related
and time-related failures.
Moreover, the author disclosed that the prevailing pandemic situation had aggravated
both these problems. The pandemic originated by COVID-19 adverts the necessity of pre-
preparation to overcome unforeseen risks and have contingency plans for managing
projects in the construction sector (Ogunnusi, et al., 2020). Therefore, it is prudent to
address the pandemic’s impact at the beginning and end of the crisis to prepare for any
future potential and learn lessons for future preparations of the construction industry
(Iqbal, et al., 2021).
This paper aims to review available most common contractual provisions related to cases
within the construction industry, globally and locally, to determine whether these
available cases can implement when parties to the contract claim their entitlements for
pandemic-related challenges. The paper is structured as follows. First, a brief introduction
to the study, followed by the research method adopted, a compressed literature synthesis,
an insight of the research methodology adopted for the study, and a discussion of findings.
Finally, the conclusion is formed based on the key research findings of the study.
2. RESEARCH METHOD
A researcher can review existing researches using several methods (Grant and Booth
2009). To achieve the aim of this research study, a comprehensive review of case laws
was conducted. Available cases in counties like United State (US), France, England and
Wales, Ghana, Singapore and China were incorporated to come up with a good review.
reported that multiple questions remain within the construction industry and the pandemic
situations, which have not been answered yet.
Category Challenges
Organizational • Lack of safe working environment
Factors • Challenges due to work from-home practices
• Managing a heavier workload
• Management team’s lack of leadership knowledge and skills
Economic • Reduced accessibility to updated tools and equipment needed to
Factors accomplish the tasks
• Uncertainty regarding future of workplace
• Supply chain disruptions
• Cash flow delays
Psychological • Social isolation due to teleworking
Factors • Stress and burnout
Individual • Responsibility for personal and family needs when working
Factors • Learn communication tools and overcome technical difficulties
• Feelings of not contributing enough to work
• Adjusting to new work schedules
Moderating • Effect of COVID-19 on vulnerable groups
Factors • Gender-based impacts
• Impacts on migrant workforce
Delays in permits or license, Escalations in prices, High demand of suppliers and
manufacturers, Increase of claims and disputes, Lack of funding, Less productivity in site
works, Payment delays, Project abandonment, and Suspensions or terminations of
projects are the other issues summarised by Alsharef, et al. (2021), American Society of
Civil Engineers [ASCE] (2020), and Osuizugb (2020), in addition to the general
challenges identified by Pamidimukkala and Kermanshachi (2021). On the other hand,
Zamani, et al. (2021) mentioned project duration, construction material, and human
resources are the three main factors related to project operations. According to the
authors, project operations were delayed because COVID-19 smashed these three factors.
Although parties to the contracts needed to restart project activities, the inherent labour-
intensive nature of the construction project caused additional challenges due to the onsite
necessity of construction task delivery and the constraints on the feasibility of social
distancing on an active job site (Zheng, et al., 2021). The most common reasons for delays
in projects are that the daily working period has been shortened and the absence of
employees to the assigned work on time (Alenezi, 2020). Construction parties should
always be aware of uncertainties, incompleteness, and unforeseeable circumstances
affecting construction costs (Elhag, et al., 2005).
3.1.2 Contractual Challenges with a Pandemic in Construction Job Sites
The contractual challenges, stakeholders’ obligations, and contractual provisions may
differ from the general situation in pandemics like COVID-19 (Andres, et al., 2020).
Kabiru and Yahaya (2020) addressed the impact of COVID-19. They discovered that
professionals face legal challenges in the construction industry - e.g., contractual issues
raised to assist contractors in claiming loss and expenses and extension of time (King, et
al., 2021). Proper contract administration is one of the main challenges the construction
stakeholders face with this crisis (Niraula, et al., 2008). Legal provisions in several
contractual documents related to construction contracts may vary among countries and
from project to project (Ogunnusi et al., 2020).
The government, as the client, should revise the contract to aid the contractor to claim
losses for projects delayed due to lockdown, and the government should grant an
Extension of Time (EOT) to cover the period of projects stopping (King, et al., 2021).
Figure 1 presents the contractual challenges related to a pandemic situation in the
construction industry identified by Jayathilaka and Waidyasekara (2022) through a
systematic literature review.
Contractual
Challenges
due to
Pandemics
compensation for the unavoidable costs incurred due to the change in the law (FIDIC,
2017).
Figure 2 compares “force majeure” and “changes in law” clauses in standard forms of
contracts.
Figure 2: Force majeure clause vs changes in law clause in standard forms of contracts
Under many forms of contract, including the FIDIC forms, a force majeure event would
typically entitle a contractor to an EOT for critical delay caused by the event, but not to
compensation for costs incurred during the period of delay, except in agreed-upon
circumstances (FIDIC, 1999).
Changes in the law/legislation clause would be more useful than the force majeure clause
in the current COVID-19 situation, where the contract can still be performed, but there is
delay and increased cost due to compliance with government regulations (Ford and Bloch,
2020). Parties to the contract should analyse the additional time and costs and contractual
provisions under force majeure and legislation changes to be aware of risk allocation
between parties (Baker, 2021).
Dealing with the force majeure clause is crucial when there is a pandemic situation, and
carefully drafted contractual provisions would ensure that parties are not liable when the
situation is out of the parties’ control (Benarroche, 2020). Furthermore, Bailey, et al.
(2020) expressed, contractually, events such as the COVID 19 pandemic generally do
engage contractual provisions concerning the consequences of unforeseen events.
Moreover, when there are more case laws available to apply for unforeseen situations, it
may help construction parties to unravel the contractual challenges quickly. Still, the issue
is the unavailability of applicable case laws related to unforeseeable circumstances
(Cartwright, et al., 2020).
Parties to the contract in construction projects should be aware of the construction
industry-related case laws, which can apply to pandemic situations for the future use of
potential contractual issues (McLennan, 2021). Therefore, this paper reviews available
most common contractual provisions addressed in few cases related to the construction
industry which can be applied to unravel contractual challenges in a pandemic situation.
Table 2 presents contractual provisions related to cases applicable to a pandemic situation
by reviewing recent past literature.
Country Case
United States • JN Contemporary Art LLC vs Phillips Auctioneers
(US) • Rudolph vs United Airlines Holdings
• R & B Falcon Corp. vs American Exploration
• LLC vs Conoco Phillips
• Am. Nat. Red Cross vs Vinton Roofing Co
• SNB Farms, Inc. vs Swift & Co.
France • Lebeaupin vs Richard Crispin & Co,12 McCardie J
• General Construction Co. Ltd vs Ibrahim Cassam & Co. Ltd
England and • Fibula Air Travel Srl vs Just-US Air Srl
Wales • Entertain Video Limited and Others vs Sony DADC Europe Limited and
Others
• McCardie J in Lebeaupin vs Crispin
• Clifford Gardner vs Clydesdale Bank Limited
• Thames Valley Power Ltd vs Total Gas & Power Ltd
Ghana • Tennants (Lancashire) Ltd vs CS Wilson & Co Ltd
• Seadrill Ghana Operations Ltd vs Tullow Ghana Ltd
Singapore • Holcim Singapore Pte. Ltd vs Precise Development Pte Ltd
China • Li Ching Wing vs Xuan Yu Xiong
United States (US)
New York courts use strict interpretation for legal issues. Cartwright et al. (2020) stated
US courts rely on the express language, and only events specifically listed in the delay
clause will excuse performance as well as determine that any construction delay caused
by the COVID-19 pandemic is way beyond the “reasonable control of the parties,” and
covered with force majeure clauses. Moreover, California requires the party invoking the
clause to prove reasonable efforts to avoid the consequences of the force majeure event.
A decision given for JN Contemporary Art LLC vs Phillips Auctioneers, LLC, No. 1:20-
cv-04370-DLC in the Southern District of New York has presented the COVID-19
pandemic as a ‘natural disaster’ that is beyond the parties’ ‘reasonable control’, and thus
triggered the force majeure clause (McLennan, 2021). McLennan (2021) stated the case,
Rudolph vs United Airlines Holdings, Inc., 2021 WL 534669, related to US District
Court, provided that there must be some point where a force majeure event ends and a
schedule change or irregular operation begins. The author further mentioned that the mere
existence of a force majeure event was not sufficient, and demonstrating causation was
essential. The defendant could not rely on the force majeure clause. Moore and Cornelius
(2021) stated that Texas Supreme Court held that a force majeure event is not an excuse
for non-performance when a prior material breach has occurred. Moreover, the author
discussed that, in the construction industry context, a contractor seeking to claim a
pandemic as an “Act of God” force majeure excuse for its failure to meet a specific
turnover date would have to demonstrate that no concurrent delays existed. The following
cases suggest pandemics may fall into a “catch-all” provision:
London has ruled that landlords are entitled to recover rent and service charges owed to
them by tenants whose businesses were mandated to close by coronavirus restrictions.
Based on the case, Entertain Video Limited and Others vs Sony DADC Europe Limited
and Others, the Technology and Construction Court has recently considered the meaning
of a force majeure clause which could have implications for how these clauses are
interpreted within construction contracts. Fenwick (2021) stated the clause, “Neither
party shall be liable for its failure or delay, if such failure or delay is caused by
circumstances beyond the reasonable control of the party affected including but not
limited to riot, civil commotion, malicious damage, etc. as well as pandemics”. As per
the mentioned clause, the current COVID-19 pandemic comes under the force majeure
clause.
The case McCardie J in Lebeaupin vs Crispin (1920) 2 KB 714 was applied for many
situations in England. It established that the events independently happening come under
the force majeure category (Albertini, 2020). Further, Clifford Gardner vs Clydesdale
Bank Limited (2013) provides that a flu pandemic belongs to the force majeure category.
According to the case Thames Valley Power Ltd vs Total Gas & Power Ltd (2006), no
reported cases are testing the scope of the term “force majeure” in the context of some
types of standard forms of contracts (Albertini, 2020).
Saudi Arabia
The Saudi Arabian Supreme Court issued decision No. M/45/M of 08/05/1442AH (the
KSA Decision) 2020, and the decision sets out how contracts governed by Saudi law will
be impacted by COVID-19. The Saudi Arabian Supreme Court has confirmed that
COVID-19 is considered an ‘emergency event’ and will be deemed a force majeure if
certain conditions are met (McLennan, 2021).
Ghana
Some standard forms of contracts do not have the word ‘prevent’, and on behalf of that,
there may be another term (Lucy and Chambers, 2019). The case of Tennants
(Lancashire) Ltd vs CS Wilson & Co Ltd [1917] AC 495 provides the following
requirement for parties to the contract, which should be present when seeking
entitlements. “Parties shall put their full effort to minimise the impact, void, or overcome
the circumstances of force majeure.” When dealing with a pandemic, Seadrill Ghana
Operations Ltd vs Tullow Ghana Ltd [2018] EWHC 1640 case is also important because
it highlights the key importance in the context of a pandemic. In this case, the Court
emphasised that “the force majeure event must be causative to the contractual breach and
that reasonable steps to avoid the effects of force majeure event must be taken” (Lucy
and Chambers, 2019).
Singapore
Holcim Singapore Pte. Ltd vs Precise Development Pte Ltd (2011) provides that “the
force majeure event must be causative to the contractual breach and that reasonable steps
to avoid the effects of force majeure event must be taken” (Lucy and Chambers, 2019).
China
Li Ching Wing vs Xuan Yu Xiong (2004) 1 HKLRD 754 case is related to SARS
pandemic, and the Court held that even though that is an unforeseeable circumstance,
contractual parties should fulfil their duties and obligations accordingly to have the
applicable entitlement (Hansen, 2020).
4. CONCLUSIONS
Since this is the first time most construction stakeholders face a pandemic situation like
COVID-19, many disputes have occurred, are still occurring, and may occur in future
regarding contractual provisions available in the construction industry. According to the
findings, the most common contractual provisions which are applicable to contractual
conflicts in pandemic situations available in the construction industry are ‘Force Majeure’
and ‘Changes in Legislation’ clauses. Accordingly, the Laws in terms of the Contracts
have been changed in preventive measures of the COVID-19 pandemic. Parties to the
contract should pay attention to whether they will depend on the available clauses and
terminologies related to the pandemic or adjust available provisions concerning the crisis
COVID-19. Since COVID-19 is a novel pandemic crisis, only a few cases are available
within the construction industry. Most of the cases have mentioned ‘pandemic’ as an
‘unforeseen situation beyond the reasonable control of the parties’. If more case laws are
available to apply for unforeseen situations, it may help construction parties to unravel
the contractual challenges easily; however, the issue is the unavailability of applicable
case laws related to an unforeseeable circumstance. Due to the unavailability of particular
contractual provision to ‘pandemic’ with in the standard forms of contracts, identified
cases will be provided ground for applicable contractual implications to the contractual
challenges faced by the construction industry in a pandemic situation. Further, parties to
the contract must determine whether they should include new contractual provisions
within the standard forms of contracts or use the existing provisions with minor changes.
Finally, construction stakeholders should pay attention to available legal cases to
implement when claiming their entitlements to be a success in coming contractual
challenges related to pandemic situations.
5. ACKNOWLEDGEMENTS
The authors wish to acknowledge the support from the Senate Research Committee of the
University of Moratuwa, Sri Lanka under the Grant SRC/ST/2021/01.
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