EFFECT OF CORONA VIRUS ON CONSTRUCTION INDUSTRY IN UGANDA: LEGAL PERSPECTIVE
Across the globe, the construction industry has been greatly impacted by the coronavirus. In a bid to contain and slow down the spread of the disease, the Government put up restrictive measures under the Public Health Act notably, The Public Health (Notification of COVID – 19) Order, 2020, The Public Health (Prevention of COVID – 19) (Requirements and Conditions of Entry into Uganda) Order, 2020, Public Health (Control of Covid-19) Rules, 2020, and Public Health (Prohibition of Entry into Uganda) Order, 2020. The Regulations among others provided for the closure of hardware shops required construction sites to provide accommodation for the employees at the site and prohibited employees from leaving the site. It prohibited the use of public and private vehicles except those that were being used in the provision of essential services. The Ministry of Works and Transport also issued Standard Operating Procedures (SOPs) for Building Construction Sites which required construction sites to have in place COVID-19 guidance signage on the site, clinic, first aid room among others. Construction sites were required to ensure the constant provision of water for frequent hand washing or sanitizers while observing social distancing. As a result of the above measures, many construction sites and projects had to stall or had activities suspended. Affected projects included; 20km Kayunga-Busaana road, Hoima International Airport construction, Kampala Flyover project among others. For contractors that managed to continue with construction, implementation of the SOPs had immediate cost implications on them.
The impact of coronavirus raises many questions in the construction industry such as; (i)Whether a contractor can invoke “force majeure” on the ground of COVID-19 in order to suspend the execution of works and
(ii) Whether a contractor may be entitled to additional costs incurred in the project in connection with the implementation of SOP measures in the construction sites?.
(iii) Can contractors invoke frustration in the absence of a force majeure clause in the contract? This article attempts to answer the above questions. The standard form contracts commonly adopted in Uganda include; East Africa Institute of Architects Form of Contract, International Federation of Consulting Engineers (FIDIC) Standard Form Contract 1999 and 2017 edition, PPDA Standard Conditions of Contract among others.
Invoking Force Majeure to suspend execution of works
Unlike FIDIC standard form contracts, the other standard form contracts do not define “force majeure” and as such, do not provide explanation of events that may constitute it. For that reason, I will rely on FIDIC Standard Form Contracts to attempt to answer the above questions.
Under the FIDIC forms of contract, either Party may be prevented from performance of its obligations under the contract by Force Majeure. For such party to be excused from performance on the basis of force majeure, he must first give notice evoking force majeure. Force majeure is addressed in clause 19.1 of Red Book, Yellow Book, Silver Book 1999 edition. The 2017 revised edition replaced force majeure with Exceptional Event which is defined under Section 18.1 of the Red book, Yellow Book and Silver Book. The sub-clauses provide that a “Force Majeure” or an “Exceptional Event” (depending on the edition of the book) means an event or circumstance which;
(i) is beyond a Party’s control;
(ii) the Party could not reasonably have provided against before entering into the Contract;
(iii) having arisen, such Party could not reasonably have avoided or overcome; and
(iv) is not substantially attributable to the other Party.
Clause 19.1 then goes on to give some examples of events or circumstances which may constitute Force Majeure. Although epidemics like COVID 19 is not among the examples or events listed in the clause, it is my opinion that the measures imposed by the Government to check the spread of the disease made it impossible for most contractors to execute construction contracts. The measures under the Public Health Act are a force majeure or an exceptional event. They were enacted into laws which all contractors are supposed to abide by.
Entitlement to an extension of time
The relief available to the affected party following Force Majeure is among others entitlement to an extension of the time for performing the affected obligations under Section 19.4 of Red Book, Yellow Book and Silver Book 1999 edition, or Section 18.4 of Red Book, Yellow Book and Silver Book 2017 edition. The time extension must correspond to the period of the time for which the party evoking force majeure was unable to perform. Both the employer and the contractor may also choose to terminate the contract depending on the period of the force majeure event.
Entitlement to costs incurred in the implementation of SOPs measures
Under FIDIC standard form contracts, the contractor is entitled to be paid for costs incurred in the process of complying with the laws from time to time under Section 13.7 of the Red Book, Yellow Book and Silver Book 1999 edition or under Section 13.6 of the Red Book, Yellow Book and Silver Book 2017 edition. As pointed out earlier, the Public Health Regulations (law) imposed specific COVID-19 health and safety measures by requiring Contractors to among others; accommodate workers at the construction sites, provide sanitizers, running water. It is my opinion that costs incurred in the implementation of SOPs measures may be recoverable by contractors.
Invoking frustration in the absence of force majeure clause
A party to a contract can only invoke force majeure relief if the contract provided for it. Bearing in mind that some construction contracts do not provide for force majeure, such parties can make recourse to the doctrine of frustration of contract. Section 66 (1) of the Contract Act 2020 provides that where a contract becomes impossible to perform or is frustrated and where a party cannot show that the other party assumed the risk of impossibility, the parties to the contract shall be discharged from the further performance of the contract. Section 7 Clause 62.1 of the PPDA General Conditions of Contract for the Procurement of Works also provides that if the Contract is frustrated by the outbreak of war or by any other event entirely outside the control of either the Employer or the Contractor, the Project Manager shall certify that the Contract has been frustrated.
If the construction contract became physically or commercially impossible to perform, due to the SOPs imposed by the Government as a result of COVID-19, the doctrine of frustration can be invoked to discharge the parties from their obligations. However, frustration should only be invoked as a last resort because unlike force majeure which would entitle the parties to an extension of time, frustration would lead to termination of the contract which may not necessarily be the intention of the parties.
There are many other aspects of construction contracts that may be affected or will continue to be affected by the SOPs measures. For those reasons, parties to the construction contracts need to constantly review it to ascertain their rights and obligations to ensure that they communicate with each other whenever need arise. Important to note is that entitlements only arise where the necessary notices have been given under the subject contract and within the stipulated time.