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Coronavirus: Force Majeure Issues for Construction Projects

February 25, 2020
Firm Memoranda

Since being declared to be a Public Health Emergency of International Concern by the World Health Organisation on 30 January 2020, the coronavirus disease known as COVID-19 has spread to over 30 countries (as at the date of this alert). In addition to its tragic impact on public health, the spread of COVID-19 has led to significant and increasing negative impacts on commercial operations in China and entities doing business with Chinese companies. Some examples were set out in our alert on 18 February 2020.

We are now also being contacted by clients who are experiencing the impact of the virus and steps taken by various authorities to slow its spread on construction projects inside and outside China - which is the largest construction market in the world, a leading supplier of many construction materials used in projects around the world, and home to several construction contractors involved in substantial building projects in many countries - as well as supply chains involving China. It is likely that such difficulties will only increase, and that construction projects around the world will be faced with issues such as:

  • ships being unable to dock at Chinese ports for delivery or receipt of materials or goods;
  • Chinese firms refusing to accept imported materials on the basis that the domestic operations for which they were intended are suspended or are not at fully capacity;
  • workers intended to be deployed on projects overseas are unable to leave their home provinces or are denied entry to the countries in which they were to be deployed; and
  • disruption to supply chains and delivery schedules more generally.

As noted in our earlier alert, it is expected that businesses affected directly or indirectly by the consequences of the spread of COVID-19 will consider the application of force majeure.

Ultimately, whether force majeure applies in any particular situation will depend upon the legal system governing the parties’ relationship, the terms of their contract and the specific factual circumstances. From a practical perspective, it may also be complicated in connection with operations involving multiple parties, multiple jurisdictions and multiple contracts containing different terms.

This alert provides an overview of:

  • the concept of force majeure and how it applies in certain jurisdictions;
  • the treatment of force majeure in the most commonly used standard form contract in the construction industry, namely the FIDIC Silver Book (for EPC/turnkey projects); and
  • whether the spread of COVID-19 is likely to give rise to relief under the relevant provisions of the FIDIC Silver Book.

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If you have any questions about the issues addressed in this memorandum, or if you would like a copy of any of the materials mentioned in it, please do not hesitate to reach out to:
James Bremen
Phone: +44 20 7653 2270
Mark Grasso
Phone: +44 20 7653 2260