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COVID-19: What it means for infrastructure projects

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Added 20th May 2020 06:42 PM

Since its outbreak, the virus has affected many sectors, including the infrastructure sector in Uganda

COVID-19: What it means for infrastructure projects

Construction works on a building. The outbreak of the coronavirus pandemic has affected the infrastructure in Uganda. Photo/File

Since its outbreak, the virus has affected many sectors, including the infrastructure sector in Uganda

By Steven Mwandah

In March 2020, the World Health Organisation (WHO) declared the outbreak of the novel coronavirus (COVID-19) as a pandemic, several countries having reported cases of the virus since it emerged in China in December last year. The world has been caught unprepared for the COVID-19 pandemic and the consequent economic crash. These are unprecedented times in world history.

The prolonged quarantine, lockdowns and COVID-19 associated mitigation responses, has negatively impacted the manufacturing and supply chain of key equipment and materials used in infrastructure projects in Uganda. These include the construction of roads, hospitals, electricity generation plants, electricity distribution and transmission projects, office buildings, apartments, as well as shopping malls, among others.

As a direct effect of the interventions to combat the coronavirus, there has been a disruption in the distribution and supply chain for projects under construction, especially for things like electrical and electronic equipment, electromechanical equipment and installations and electrical switchgear, which come from places like China, ‘the world's factory', India, Japan, among others.

Also, the moratorium on public transport to promote social distancing has made it difficult for skilled and unskilled workforce/labour to commute to and from construction sites even with the possibility of encamping.

This Article examines the effects of COVID-19 on the development of infrastructure projects in Uganda, examines whether a party to make a claim for force majeure as a result of COVID-19 and in the second part, next week, considers what contractors can do to manage or mitigate the effects of the pandemic.

Effect on infrastructure projects in Uganda?

The possibility of prolonged lockdown has adversely impacted the supply chain of key equipment and materials used in construction and has also impeded the travel of the workforce to and from construction sites.

One prominent contractor in Uganda mentioned that the option of encamping workforce involves a 14-day pre-encamping quarantine to monitor the workforce's health condition whether or not they show signs of COVID-19 before they are taken to the camp.

This means construction sites have to shut down during this period. It, therefore, means that contractual completion dates, project commissioning dates and commercial operations dates of projects cannot be achieved by contractors, owing to a combination of factors related to the management of the pandemic.

Given the scenario above, what should project owners and contractors do?

Doing nothing or lamenting that ‘kolona atulibubi !!!!' (meaning coronavirus is killing us) is not an option. This is not one of those "Gavumentti etuyambe" (government should help you) situations, project owners and contractors will need to be proactive and think outside and around the box to stay in the game.

Contractors and project owners will have to be alert, proactive, creative and innovative to mitigate the COVID-19 economic and operational disruptions on infrastructure projects.

Under most agreements or contracts in infrastructure development (eg. EPC Contracts, Power Purchaser Agreements (PPAs), Interconnection Agreements, Operations & Maintenance (O&M) Agreements), the contractor bears the risk of any delay or failure to meet the commissioning date, completion date or commercial operations date on the stipulated date and will be liable to pay liquidated damages to the project owner if that date is not met.

In response to the coronavirus situation, some contractors in Uganda have declared COVID-19 as a force majeure event to avoid liability for Delay Liquidated Damages.

‘Force Majeure' refers to the occurrence of a significant, unavoidable event that is likely to prevent or impact the performance of a party to the contract (Force Majeure Event).

On the first impression, the COVID-19 outbreak and its consequential disruptions to supply chains look like a classic force majeure event. However, the definition of Force Majeure Event differs from agreement to agreement. The following four qualifying requirements are universally accepted as the basis of most definitions:-

The event or circumstance must be beyond the reasonable control of the affected party.

The event or circumstance could not be reasonably foreseen by the affected party.

The affected party could not reasonably have been expected to prevent or avoid the event or circumstance or its consequences.

The event or circumstance must have affected performance. Under Ugandan law, there is no statutory doctrine of force majeure.  Rather, the availability of force majeure as relief is a matter of contract and will depend on the specific wording in the agreement and the governing law of that agreement.

Typically, force majeure clauses have non-exhaustive lists of events or circumstances that would qualify as force majeure events with the effect that such clauses allow for other events or circumstances to be considered as force majeure events.

However, it is important for a party to carefully assess your contract to determine if your agreement has an exhaustive force majeure events list, if it excludes specific events or if it limits the scope of the force majeure in any manner.

In some agreements, widespread epidemics and pandemics may specifically be included as force majeure events, in which case one has to evaluate the effect COVID-19 has had on the party's performance obligations.

If the imposition of laws or actions taken by a government or public authority, such as restriction on movement, is also expressly stated as a force majeure event in your agreement, you can determine if any governmental restrictions that have been introduced negatively affect performance.

The inclusion or exclusion of these force majeure events in your agreement does not automatically include or exclude force majeure relief. For the affected party to successfully rely on a force majeure clause, it must show that it was able to perform its contractual obligations, except for the occurrence of an identifiable force majeure event.

Once the specific force majeure event has been ascertained, the party seeking to rely on force majeure relief must demonstrate that the procedural requirements set out in the agreement have been satisfied.

Typically, these include: notification requirements; force majeure clauses often impose an obligation on the affected party to notify the other contract parties of the occurrence of the force majeure event within a specified period.

The notice will often be required to have sufficient detail about the force majeure event and its impact on the affected party's ability to perform its obligations under the agreement.

Moreover, the force majeure clause usually also requires that the affected party provides the other contract parties with regular updates and; mitigation.

Additionally, force majeure clauses often require the affected party to show that it could not mitigate the consequences of the force majeure event for the claim to succeed.

Most engineering, procurement and construction contracts provide an express regime for the definition and management of the consequences of force majeure events by:

Classifying them as "delay events", which enables the EPC contractor to claim an extension of time to extend the date for commercial operation and a liability for delay liquidated damages are avoided.

Suspending both parties' performance obligations until the impact of the force majeure event has ceased.

Providing a right to terminate the contract if the force majeure event continues for an extended period of time.

Next week, we shall examine the legal aspects for contractors to get through and beyond the lockdown period.

The writer is a legal consultant

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