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The impact of covid 19 on the implementation of construction contracts and dispute resolution procedures in China
Chen Mingfei, China
Chen Mingfei has a master's degree in civil engineering and a bachelor's degree in civil engineering and law. He is currently studying for his PhD in management science and engineering and has a wide range of experience in engineering law and arbitration, serving as arbitrator of eight arbitration institutions in China.
Chen Mingfei serves as a Senior Consultant in China Mobile Group Design Institute Co.,Ltd, mainly engaged in engineering consulting and engineering law related research.
The COVID-19 outbreak has had a significant impact on the production and life of Chinese society, especially in labor-intensive construction enterprises. In order to contain the COVID-19 epidemic, almost all provinces and cities across the country ordered the suspension of construction projects at the beginning of the outbreak, and construction projects basically fell into an ice age.
Up to now, some cities in China still set relatively strict conditions for starting work, which impedes the resumption of work and production. This paper discusses the impact of Covid 19 on the performance of construction contracts and dispute resolution procedures in China, and proposes the corresponding countermeasures.
Legal characterization of covid-19 in china Since the outbreak of Covid 19, the National Health Commission has classified the novel coronavirus pneumonia as a Class B infectious disease in compliance with the Law of the People’s Republic of China on Prevention and Treatment of Infectious Diseases, but to apply to it the preventive and control measures for a Class A infectious disease. Thirty-one provinces and municipalities in China have activated Level 1 public health emergency response.
A spokesman for Commission for Legislative Affairs of the NPC Standing Committee said Covid 19 is force majeure. Subsequently, 《Guiding Opinions of the Supreme People’s Court on Several Issues Concerning Properly Handling Civil Cases Related to COVID-19 Epidemic in Accordance with the Law (I)》 pointed out that in the trial of civil Covid 19 cases, the people's court shall accurately apply the specific provisions of force majeure and strictly grasp the applicable conditions, that is, the Covid 19 outbreak in China has been characterized as “force majeure”. But its application has been strictly controlled. The party who claims that the force majeure rule should be applied and the liability should be exempted partly or wholly shall bear the burden of proof to prove the fact that the inability to partly or fully perform its civil obligations is caused by the force majeure event.
The impact of covid 19 on the performance of construction contracts At the start of Covid 19 outbreak, most provinces in China issued “order to stop construction work”. Such administrative orders directly lead to the suspension and delay of resuming work. Even after the Covid 19 is effectively controlled, many construction enterprises still lack the required motivation to resume/return to work. The main reasons are as follows:
(1)
(2) (3)
(4) the protection and isolation facilities at the site cannot meet the standards of resuming work. Workers temporarily stay at home because of health concerns. The nationwide traffic control measures make it difficult for equipment and personnel to be in place in time. Delayed delivery of purchase contracts and so on. Many construction enterprises were forced to stop work because they could not meet the conditions to resume work, and only 58.15% of China's housing construction and municipal works were resumed by March 8, 2020.
In addition, questions which trouble both parties are how to share the loss of work stoppage, the increase of extra cost of epidemic prevention, the increase of material cost such as personnel and machinery and the cost of working fast to shorten the time limit for construction delay.
It is therefore, open to question how both parties are to perform according to the original contract. How to resolve the burden of these costs and losses will be the biggest obstacle is around the performance as outlined in the contract between the two parties.
Although the administrative department of construction has issued some guidelines to ensure the normal performance of construction contracts, the impact of the Covid 19 has made the reality of returning to work under such conditions challenging.
In order to understand the difficulties and challenges by enterprises and the corresponding countermeasures, and to provide better and more targeted services to Chinese construction enterprises, CCIA conducted the questionnaire on Impact of Covid-19 on Chinese Construction Enterprise. As shown in Figure 1, the survey report indicates that the biggest impact of the Covid 19 on construction enterprises is the schedule delay.
Figure 1: How Covid 19 impacts the construction enterprises
Others Difficulties in implying marketing plan Salary increase for employees Cost increase in maintainance Difficulty in hunting labor forces Cost increase for pandemic provention Surge in prices of raw materials Impact of transportation and logistics Disruption of upstream material supplier Unable to diver as contracted Supply reduce of labor force and staff Capital waste or cost increase due to site wide shutdown schedule delay in construction production 2.86%
16.29% 19.90% 20.65% 26.37% 26.62% 31.09% 41.17% 42.41% 55.85% 66.04% 68.91%
0.00% 20.00% 40.00% 60.00% 80.00% 90.55%
100.00%
The impact of covid 19 on dispute resolution procedures for construction contracts In response to the impact of the Covid 19, the people’s courts at all levels and arbitration institutions have recently issued notices to make adjustment arrangements to ensure the implementation of relevant procedures to the greatest extent, and these arrangements include litigation or arbitration services, online court hearings, property preservation and enforcement during the period of Covid 19prevention and control.
But for the dispute settlement involving the contract of construction project, especially the delay dispute resolution, it is always the primary goal of both parties to determine the responsibility and share the loss as soon as possible. Therefore, the dispute resolution of construction contract has more urgent requirements for the rapid progress of litigation/arbitration procedure.
Inevitably, the Covid 19 control measures taken by the people’s courts at all levels and arbitration institutions have delayed the process of dispute settlement related to the construction project to some extent. The Control measures for different items are shown in Table 1.
Table 1. Control measures during COVID-19
Subject Items
Court/Arbitration suspension of scene filing
Institution
Court/Arbitration suspension of scene trial
Institution
Court suspension of scene court execution
Contract parties
Contract parties
Unable to obtain evidence in time due to COVID-19 Unable to attend the session due to COVID-19
Control measures
Submit filing materials online or by mail Postpone the hearing
Complete property preservation or execution by online means
Delay proof Postpone the hearing
Although the people’s courts at all levels and arbitration institutions encourage online filing, online consultation, or filing by mail through the online platform or WeChat Official Account, small procedures, and so on, compared with the scene filing, problems such as who to contact after submitting the filing materials by mail or online and the processing cycle are very uncertain.
As far as the trial arrangement is concerned, the trial activities have been basically suspended in the worst-affected areas. At the same time, the courts or arbitration organizations also actively explore online trial platform to promote the remote handling of cases. The mode of online trial should, however, respect the parties' independent choice, and there are many cases in which some parties do not agree with the online handling of cases. Therefore, in the case of the party refuse to cooperate, the online trial is likely to be difficult to achieve. Control measures such as traffic control and delayed resumption of work to a certain extent hinder the implementation of preservation and enforcement measures.
Suggestion to new normal
Covid 19 has spread rapidly around the world, and is likely to push the world economy into a severe recession. The risk to the global economy with the slowdown caused by Covid 19 is likely to cost at least $1 trillion, however, the doomsday scenario in which the world economy grew at only 0.5%, would involve a $2 trillion hit to GDP xxxv
Obviously, the construction industry is not immune to such an existential threat either. In order to make the construction industry better adapted to this new normal, the following suggestions are proposed:
1. Strengthen site management
2.
3. Construction site management and control should be strictly implemented, especially the entry and exit registration establishment and temperature detection system. According to the actual construction, we should promptly equip ourselves with adequate epidemic prevention materials. All participants must wear masks and take personal protective measures.
Promoting the efficient resolution of disputes
In the process of litigation or arbitration, the Internet and other means should be fully utilized to solve conflicts in efficient forms as soon as possible, improve the efficiency and quality of dispute resolution, and ensure the efficient performance of contracts.
Accelerating the transformation of the construction industry
The Covid 19 is both a crisis and an opportunity. We should take this opportunity to further promote the application of digital technology and intelligent technology in construction as well as pre-fabricated engineering, so as to accelerate the transformation and upgrading of construction industry.
