Construction Law

Covid-19:

Rethinking public sector tenders and contracts

Despite the likelihood that the Covid-19 virus will be with us for many months to come, it appears that public sector construction tenders are not including clauses in their contracts to deal with the global outbreak. By Natalie Reyneke*

MDA Attorneys recently reviewed several tender packages and their accompanying contract conditions posted for public sector work. The exercise revealed that not one of these tenders included a clause related to the pandemic.

As construction law specialists, MDA Attorneys has worked to clarify how the pandemic could and should be dealt with in contracts that are currently being negotiated and signed. This follows months of assisting contractors with claims relating to the nationwide lockdown and its impact on construction projects in the country. Most claims envisaged the use of the force majeure provisions of contracts and, in some cases, clauses that entitle the contractor to benefits due to a change in legislation, and/ or unforeseeable shortages in the availability of materials or goods.

Clearly, the pandemic can no longer be seen as a force majeure event, having already occurred; in addition, the potential ramifications are no longer unforeseeable. Although the specific contract form being used is key, we can assume that the ramifications are not only foreseeable (such as a move between levels of lockdown that could restrict movement) but that these ramifications could have been provided for under the contract.

Areas of impact

To identify the relevant clauses and provisions that need to be reconsidered in new construction contracts, the various areas of impact caused by this event must be identified. The following was gleaned from what we have seen to date: • Works on-site were suspended or stopped as a whole (whether by instruction directly from the employer or its agent, caused by this unforeseen event, and further forced by regulation implemented by governments). • Government regulations resulted in border closures (affecting international trade and shipping, further affecting the supply chain, materials and goods delivery). • Restriction of movement by people (only allowed to work from home, demobilisation of people from the site, requiring additional travel arrangements for the workforce). • Health and safety implications (additional measures had to be put in place, social distancing had to be applied, hand sanitisers, regular washing of hands, wearing of masks, immediate alertness, and actions to be taken regarding medical testing upon experiencing of Covid-19 symptoms, to name a few measures). The majority of the public works tender documents reviewed incorporated the General Conditions of Contract for Construction Works (GCC), Third Edition, 2015, 2nd Print.

For this reason, our suggestions refer to this contract form. It should be noted that provisions and suggestions mentioned are not comprehensive.

Amendments to applicable laws

In terms of Clause 4.1.3:

“The Contractor shall, in fulfilling the Contract, comply with all applicable laws, regulations, statutory provisions and agreements.”

Clause 6.8.4 states:

“If at any time within 28 days before the closing date of Tenders or thereafter, any Act of Parliament, Ordinance, Regulation or by-law… is amended and this results in additional, or reduced cost to the Contractor… such additional or reduced cost shall, after consultation… be added to or deducted from the Contract Price.”

What this implies is that the contractor is only required to make provision in their tender for compliance with the laws applicable 28 days prior to the tender closing date. As the virus begins to resurge in several provinces, it is prudent to consider the implications of a prescription by the Occupational Health and Safety Act (No. 85 of 1993) for more stringent requirements within the time period from 28 days prior to tender closing. This would be an employer’s risk. Should another lockdown be prescribed under the Disaster Management Act (No. 57 of 2002), it may be seen as a change in the legislation that will yet again be an employer’s risk.

Events that occur after commencement instructions

Clause 5.4.3 provides that:

“The Employer shall, upon the Employer’s agent’s instruction to commence carrying out the Works… give the Contractor right of access to the Site and possession of the whole Site.”

Then Clause 5.4.3 states that:

“If the Contractor suffers a delay to Practical Completion and/or incurs proven additional cost from a failure of the Employer to give possession… the Contractor shall be entitled to make a claim… (time and money).”

Should a Covid-19-related event occur after the employer’s agent has instructed the contractor to commence the carrying out of the works, will the employer get relief from a force majeure type clause? Let’s unpack this. First, the term force majeure is not a recognised term in South African law and a definition of what force majeure means under the contract is generally provided for in each contract. The GCC does not use this definition. It uses the definition for “excepted risks” instead and sets out what these excepted risks are in clause 8.3. While the usual force majeure clauses found in contracts would suspend a party to the contract’s obligations if it would not be possible to perform them during the occurrence of the event, the GCC contract does not.

Clause 8.3.1 states:

“The excepted risks are risks of damage or physical loss or any other loss caused by or arising directly or indirectly as a result or consequence of…. 8.3.1.7 epidemic famine or plague.”

Clause 8.3.2 then states that:

“If, in carrying out the Works, any of the excepted risks, other than pertaining to loss or damage to the works… causes the Contractor to suffer delay to Practical completion and/or brings about proven additional costs, the contractor shall be entitled to make a claim.”

Would the impact of the ongoing Covid-19 pandemic be seen as an excepted risk? Clearly there are important considerations that need to be answered when employers are preparing documents for tender by contractors. Judging by what we’ve seeing to date, the risk all falls on the employer.

What can be done?

In the face of the ever-changing life cycle of the pandemic, employers may be faced with claims for not only time but additional money from contractors. It therefore makes sense to ensure that the pandemic and its potential impacts on the time and cost of a project are factored into the tender documents. Our recent exercise of researching available tenders appears to indicate that this is not being done.

Should pandemic-related issues be a shared risk between both parties? Perhaps. Considering that public sector projects are governed by strict budgets, however, it would certainly be a waste for pandemic-related contractor claims to eat into budget contingencies for potential variations to the works. Of course, if additional costs due to the pandemic have been built into the budget, this is a moot point.

Employers need to be aware that identifying particular clauses or provisions of a contract for possible amendment is much simpler now, including: • delays and/or other events preventing performance, which will entitle a claim for extension of time with related costs • access, mobilisation, demobilisation to and from site • health and safety • price adjustment, escalation in supplier costs • types of insurances to be considered for proper cover relating to certain unforeseen events and the impact caused as a result • termination of the contract. In summary, Covid-19 is likely to continue to wreak havoc on South Africa’s construction sector and parties need to be agile and prepared for further possible impacts. Not only is Covid-19 no longer unforeseen, but certain changes have necessitated new health and safety requirements.

When negotiating new construction contracts, the parties must carefully review the circumstances and expressly define Covid-19-related events as well as the entitlements to time and money that could be claimed by the contractor.

The risks and circumstances to each respective project will vary per project, so possible areas of risk to each particular project will need to be identified and researched. With this in hand, the provisions of the contract must be reviewed with a view to agreeing to clear, balanced duties and responsibilities for efficient, cost-effective operations.

*Natalie Reyneke is a director at MDA Attorneys.