The construction industry is synonymous with disputes. Throughout the years various steps have been brought in to try and alleviate these disputes – from adjudication to the Prompt Payment Code, but will the construction industry be able to weather the storm brought by the pandemic?
As soon as the pandemic hit the immediate response was to think ‘force majeure’. Unfortunately, this hasn’t always been the perfect solution parties thought and there has been significant debate over
- Whose terms and conditions were incorporated in the contract?
- Whether the FM clause was wide enough to cover the situation?
- Did the FM clause incorporate disease and epidemic?
- Has Covid-19 really impacted or is it just an excuse?
- Does it terminate the contract or delay performance?
- What obligations are there to mitigate loss?
FIDIC Model contracts
Under the FIDIC model contract, used many a lot of multi national companies, both parties are permitted to terminate where a continuous force majeure period exceeds 84 days. (The contractor must be reimbursed for any works already performed).
Looking at the FIDIC wording, COVID-19 would appear to qualify as a force majeure situation as per clause 19.1 of the FIDIC 1999 models it is an:
- exceptional situation
- beyond the contracting party’s control;
- which such party could not reasonably have provided against before entering into the Contract;
- which cannot be avoided or overcome; and
- which is not substantially attributable to the counterparty.
This period of 84 days will expire in the next few months, depending on when notice was served, and obviously could give rise to a great number of disputes.
Is litigation/arbitration the only way?
Litigation is costly, lengthy and the outcome is always uncertain. We have been warned of the courts facing a huge deluge of litigation once we return to the ‘new normal’ world and so what was already lengthy litigation will take even longer to resolve – by which time the parties involved could be insolvent.
Litigation and adjudication, aside from being costly and imposing a decision on the parties also have the consequence of damaging relationships.
Mediation, although not the required method of dispute resolution in UK construction contracts, is nonetheless available to those in the construction industry.
Instead of costs, time and uncertainty, mediation offers the parties
- A quick solution
- Cost savings
- The opportunity to talk openly about their real issues
- Lateral thinking to provide a solution for both
- The chance to maintain the contractual relationship for when matters calm down
Parties need to discuss disputes pragmatically, now is not the time to be getting embroiled in lengthy and costly litigation.