COVID-19

construction contract
checklist in common
and civil law countries

dentons.com • 1
2 • dentons.com
Contents

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04

Completed projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05
• The works were substantially complete when COVID-19 struck but
no completion/takeover certificate has been issued – where do I stand?.. . . . . . . . . . . . . . . . . . . . . . . . . 05
• Completion has taken place and the defects liability period has ended
but the performance security has not yet been returned – what can I do? . . . . . . . . . . . . . . . . . . . . . . . . 06

Ongoing projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07
• Progress and completion have been delayed – can I get an EOT?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07
• Should I accelerate the works?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09
• Should I terminate the works?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09
• As an Employer, should I terminate the works?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
• Is there any other time-related relief outside of the contract?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
• Can I recover my increased costs due to COVID-19?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
• Am I exposed to supply chain risk such as claims from subcontractors? . . . . . . . . . . . . . . . . . . . . . . . . . . 13
• The currency of payment in my contract has fallen considerably in value – what can I do?. . . . . . . 13
• Can I apply for some form of state aid?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
• Is there any other cost-related relief outside of the contract?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Practical matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Future projects.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
• What contractual issues should be reconsidered?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
a. Method of procurement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
b. Performance security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
c. Drafting of force majeure and change of law clauses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
d. Inclusion of hardship clauses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
• What other ways can I protect my business?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

dentons.com • 3
Introduction

The construction sector is unique, unpredictable approach taken to resolving construction problems
and involves a wide variety of actors. The socio- can differ in important ways in each.
economic fallout of COVID-19 represents an
The most fundamental difference is that common
enormous challenge for all involved, from employers
law jurisdictions are more deferential to the letter
and contractors to subcontractors, workers and
of the contract than their civil law peers. This
suppliers. This note is a Q&A guide covering the
deference is a corollary of the principles of freedom
entire chronology of a construction project, whether
of contract and pacta sunt servanda, while civil law
it be a public works infrastructure project or a private
courts (although recognizing the same principles) are
sector renewable energy project. The questions are
more willing to intervene on the basis of mandatory
relevant to any international construction contract
provisions, principles or doctrines. To keep the guide
affected by COVID-19.
to a digestible length, we have focused on some
The keystone for dealing with problems that arise on of the main common and civil law legal systems
construction projects is the construction contract in Europe, which are, needless to say, reflective
agreed to by the relevant parties. When referring to of the approach taken in other common and
international standard forms, we base our analysis civil jurisdictions in Europe and beyond.
mainly on the FIDIC Conditions of Contract for
Building and Engineering Works Designed by the It is drafted mainly from the perspective of
Employer (commonly known as the “Red Book”) contractors but will also be of interest to
2017 and the NEC4 Engineering and Construction subcontractors and suppliers in terms of project
Contract since they are the most widely used model risk management. Many answers also approach
the relevant questions from the employer’s point of
international construction contracts.1
view. While a survey of measures taken in Europe
Notwithstanding the preponderance of the regarding the construction sector reveals that only
contractual provisions, sometimes the law can a small portion of project sites have been shut down,
intervene. It may supplement contractual provisions most projects have suffered time and cost impacts
through rights or obligations that apply, where the as a result of the virus. The focus, then, is on the legal
contract is silent or vague on a certain point. It may options available when responding to time and cost
also override contractual provisions where they are consequences. It also provides practical pointers in
contrary to mandatory elements of the relevant law. terms of navigating this period of uncertainty while
This is why the governing law must be examined minimizing economic and dispute risk. The final
alongside the contract when problems part of the guide sets out a number of takeaways
are encountered. in respect of future projects that may currently be in
the planning stage. This is in recognition of the fact
This guide covers both common and civil law that the virus has revealed certain aspects of large
approaches to dealing with the most likely questions construction projects that may need to be
to be asked by General Counsel or construction re-assessed in light of a threat that may be with
contract managers. This dual approach is necessary us for some time yet.
to provide meaningful answers to companies with
projects in both types of jurisdiction since the

1. Note that while FIDIC refers to “employer” and NEC to “client”, “employer” will be used throughout this guide.

4 • dentons.com
Completed projects

The works were substantially a statutory decennial defects strict liability period
(independent of any contractual defects liability
complete when COVID-19 struck period) runs from the time of takeover, for example,
but no completion/takeover 10 or 15 years after completion under art. 1591
Spanish Civil Code. This is a further incentive for the
certificate has been issued contractor to claim that takeover should take place,
– where do I stand? or has taken place, as soon as this can credibly
be argued.
The common law distinguishes between substantial
completion (when the works are capable of Typically, this question will be covered by the
being used for their intended purpose) and full provisions in the contract which normally provide
performance (when all items of work completed). that, if the contractor has notified the engineer
Most model form international construction contracts that the works are ready to be taken over, but the
are based on the assumption that the employer will employer does not reply within a certain time
take over the project upon substantial completion, after notification (28 days in FIDIC), the works are
but that the contractor is still subject to its contractual considered completed and a taking over certificate
obligations until full performance is certified. is considered to have been issued within weeks
(14 days in FIDIC) after receipt of the notification by
Sub-Clause 10.1 FIDIC, concerning taking over of the engineer.3 There can also be deemed takeover
the works by the employer, refers to the works being where the employer has used the works.4 Under
completed such that they can be used for their NEC4, once the contractor has completed the works
intended purpose without any minor outstanding in accordance with Clause 11.2, it has achieved
work and defects substantially affecting safe use of completion and the employer has no say in relation
the works. Under NEC4, completion means that the to this. The employer must take over the works no
contractor has done the work set out in the scope later than two weeks after completion and any use
has corrected defects which would have prevented by the employer of the works is deemed takeover
the employer from using the works or others from of the same subject to limited exceptions.5
doing their work.2
Where the contract does not set out the procedure
Whether substantial completion has occurred is for takeover (or does so in very vague terms which
a common bone of contention on projects since are not inconsistent with any applicable provisions
it typically means that, since the works should of any civil codes), civil law jurisdictions typically have
thereupon be taken over by the employer, the codified provisions on what constitutes takeover.
employer assumes responsibility for the care of This can provide more certainty than a purely case
the works (subject to the defects liability period) law approach in common law jurisdictions. In France,
and/or cannot impose contractual penalties or for example, takeover is defined in the Civil Code as
delay damages. Also, in many civil law jurisdictions, “the act by which the employer declares acceptance

2 Clause 11.2(2) NEC4.

3 Sub-Clause 10.1 FIDIC.
4 Sub-Clause 10.2 FIDIC.
5 Clause 35 NEC4.

dentons.com • 5
of the work with or without qualifications”.6 There can Completion has taken place
also be deemed takeover by the employer where the
works are essentially complete; the employer has and the defects liability period
taken possession and the contract price has been has ended but the performance
paid in full.
security has not yet been
This can lead to situations where it is in the
returned – what can I do?
employer’s interest to argue that there has been
implicit takeover e.g., if the contractor is insolvent, There may be a delay by the employer in issuing
the employer could thus achieve recovery through the performance certificate, which in turn causes
the provider of the decennial insurance. a delay getting back the performance security.
Under Sub-Clause 4.2.3(a) FIDIC, the Employer must
However, a recent French Court of Cassation
return the performance security to the Contractor
decision makes it clear that, despite the vast majority
within 21 days after the performance certificate
of the contract sum being paid by the employer, and
has been issued and the Contractor has thereafter
the latter having taken possession of the works, the
cleared the site.
presumption of tacit takeover can be overridden
by a prior formal notice of dissatisfaction sent by If the Contractor has not been able to clear the site,
the employer wherein it demands that paid-for it may be in the parties’ mutual interests to agree that
unexecuted work be completed.7 It is also relevant the security will be released upon the contractor’s
that, in the cited case, the employer had started legal clearing of the site provided that is feasible within
proceedings against the contractor and had another a reasonable time. Otherwise, the contractor may
party complete the works before it took possession. have to make a claim under Sub-Clause 20.1 FIDIC.
In these circumstances, the court held that there had NEC4 ECC does not expressly address this question.
been no implicit takeover and the employer’s claim
against the insurer on this basis was rejected.

6 French Civil Code, art. 1792-6.

7. Court of Cassation, Third Civil Chamber, 5 March 2020, Appeal no. Z 19-13.024.

6 • dentons.com
Ongoing projects

Progress and completion have acts, decrees, rules, ordinances, orders, treaties,
international law and other laws, and regulations
been delayed – can I get an and by-laws of any legally constituted public
extension of time (EOT)? authority.”12 A recent FIDIC Guidance Memorandum
on COVID-19 states that such changes can be dealt
In FIDIC, the contractor is most likely entitled to with either as a variation – as an “adjustment to the
an EOT where completion is delayed for the execution of the Works”13 – or as a claim event.14
following reasons:8
• Prevention from performing certain obligations
• Unforeseeable shortages in the availability of due to an “Exceptional Event” (the 2017 FIDIC
personnel, goods or employer-supplied materials suite term for force majeure).15 Where continued
caused by epidemic or governmental actions.9 performance has become impossible due to
Although the provision refers to an epidemic, it is government-declared shutdowns of project
almost certain to cover the current pandemic. sites or restrictions on movement, the relevant
measures should be evaluated to determine
• Unforeseeable delay or disruption caused to
whether they meet the requirements for an
the contractor by diligent adherence to public
Exceptional Event. The FIDIC Guidance states that
authority procedures.10 This could be the case
such prohibition of construction activities may
where frequent site inspections or site-entry
qualify as an Exceptional Event but emphasizes
requirements hinder the work of the contractor.
that “the most problematic part of the test” is likely
• Delay as a result of one or more changes in laws.11 whether a party “could reasonably have avoided
“Laws” are defined broadly as encompassing “all or overcome” the event though implementation of
national (or state or provincial) legislation, statutes, the relevant health and safety measures.16

8.  This entitlement is subject to compliance with the claims procedure in Sub-Clause 20.2, as is the case with all entitlements under FIDIC provisions
mentioned in this guide. This requires providing notice, keeping records and detailing the claim (including claims at monthly intervals if the
event’s effect is prolonged). Under NEC4 ECC, sub-clause 61.3 applies and time and cost entitlement is assessed under Clauses 61 to 66.
Failure to give adequate notice may result in a loss of entitlement to relief.
9. Sub-Clause 8.5 FIDIC. “Unforeseeable” means not reasonably foreseeable by an experienced contractor by the Base Date i.e., 28 days before the
date for submission of the tender (Sub-Clauses 1.1.4 and 1.1.8.5 FIDIC).
10. Sub-Clause 8.6 FIDIC. Note that there may also be scope for a disruption claim against the employer where the employer takes disruptive
measures beyond those legally required. For instance, it may be that self-imposed measures of an employer necessitate a change in the method of
performance as planned by the contractor at the time of the bid such that the work can no longer be carried out in that manner and/or productivity
decreases. However, disruption is not in itself a cause of action and the contractor must establish a legal basis under the governing law.
11. Sub-Clause 13.6 FIDIC.
12. Sub-Clause 1.1.49 FIDIC.
13. Sub-Clause 13.6 FIDIC.
14. FIDIC Guidance Memorandum to Users of FIDIC Standard Forms of Works Contract, April 2020, pp. 7-8.
15. Sub-Clause 18.1 defines an Exceptional Event as “an event or circumstance which: (i) is beyond a Party’s control; (ii) the Party could not reasonably
have provided against beyond 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.” An important point to note, in the context of future outbreaks, is the lack of requirement
of the unforeseeable nature of the event or circumstance. Note that the ICC has recently updated its suggested model force majeure provision,
which defines force majeure as “ the occurrence of an event or circumstance that prevents or impedes a party from performing one or more of its
contractual obligations under the contract, if and to the extent that that party proves: (a) that such impediment is beyond its reasonable control;
and (b) that it could not reasonably have been foreseen at the time of the conclusion of the contract; and (c) that the effects of the impediment
could not reasonably have been avoided or overcome by the affected party.”
See https://iccwbo.org/publication/icc-force-majeure-and-hardship-clauses/.
16. FIDIC Guidance Memorandum, p. 8.

dentons.com • 7
• Where an employer has unilaterally decided, manager gives an instruction to the contractor stating
without there being any government-imposed how the event is to be dealt with.
shutdown of construction activities, to suspend
The same wording as in clause 19.1 is found in
progress of part or all of the works under
Clause 60.1(19) regarding events which constitute
Sub-Clause 8.9.17
“compensation events” i.e., events that may result
• If the contractor suffers delay due to a decision in additional time and costs being granted to the
by the employer to restrict the contractually agreed contractor.20 The contractor must notify the employer
access to the site without being legally required within eight weeks of becoming aware that the event
to do so.18 has happened and failure to do so may disentitle the
• If the contract suffers delay due to changed contractor to relief.21
working arrangements and slower decision-
It is noteworthy that, under Sub-Clause 18.3 FIDIC,
making of the employer’s personnel (including
there is an express duty to “use all reasonable
the engineer or the employer’s representative),
endeavors to minimize any delay” caused by an
unless the employer successfully argues that the
Exceptional Event. NEC4 does not contain such
circumstances are due to an Exceptional Event.19
an express duty but provides that the contractor
In the NEC4 ECC, there is no specific force majeure and project manager have an early warning
clause, but Clause 19.1 deals with “Prevention” and obligation where an event could affect price, dates
provides that if an event occurs which a) stops the of completion or performance.22 Failure to warn
contractor from completing the whole of the works, will be taken into account by the project manager
or from completing the whole of the works by the under Clause 61.5. Contractors should give such
programmed date, and which b) neither party could warning if they have not already done so. Mitigation
prevent and “an experienced contractor would commonly has two dimensions, as stated in the SCL
have judged at the Contract Date to have such Protocol: the Contractor must take reasonable steps
a small chance of occurring that it would have been to minimize its loss, and not take unreasonable steps
unreasonable to have allowed for it”, then the project that increase it. In the short term, this could involve

17. Sub-Clause 8.10 FIDIC.

18. 
 Sub-Clause 2.1 FIDIC. Note also that, under Sub-Clause 4.15 FIDIC, if an access route to the works becomes unavailable because of changes
of a third party (who, for example, goes further than legally required in responding to COVID-19) after the Base Date, and the Contract suffers
delay, the Contractor may be entitled to an EOT.
19. Sub-Clause 8.5(e) FIDIC.
20. Any additional time entitlements of the contractor are dealt with in Clauses 61 to 66 NEC4, as noted above.
21. Clauses 61.3 and 61.4 NEC4.
22. Clause 15.1 NEC4.

8 • dentons.com
efforts to source alternative suppliers, equipment, It is important to point out, however, that certain
materials or workers or methods of transport. common and civil law jurisdictions, like England,
Wales, France and Ireland have no established case
It is difficult to know how far courts will extend the law on constructive acceleration, so one should not
practical implications of the concept of mitigation rely on the doctrine as a means of recovering the
in the future. For example, in view of the likelihood resultant costs. As a practical matter, given that the
of future “lockdowns” or economic “shutdowns” lifting of COVID-19-related restrictions will likely be
after the current ones are eased, should contractors piecemeal, remobilization of many construction
consider the use of alternative construction sites will likely be staggered, and so acceleration
methodologies or practices for the remainder of may be difficult.
the project, where they are practicable and could
circumvent potential future lockdown-induced
Should I pace the works?
delays? Upon remobilization, parties should sit
down to decide how already known time (and cost) Where the contractor is facing delays in deliveries
consequences should be dealt with rather than of material or equipment essential to tasks on the
letting such issues fester. critical path, it may make economic sense for the
contractor to decelerate (i.e., pace) non-critical works,
Should I accelerate the works? especially if these works are more expensive during
the quarantine period than they might be later on
The contractor may be instructed to accelerate with fewer restrictions in place. This is also true
works or may take the initiative to do so in order to where part of the delay is due to the employer’s
avoid significant delay damages. In the latter case, acts or omissions.
however, the contractor should first seek to agree
with the employer the time (and cost) consequences In all cases, it is critical that the contractor:
of the acceleration measures it plans to take.
1. Understand float ownership on the project;
Under Sub-Clause 8.7 FIDIC, if delay is caused
2. Notify the employer and the contract administrator
by an unforeseeable shortage of labor or materials
of its reasons for pacing; and
due to an epidemic or governmental actions, and
the engineer orders acceleration measures, then 3. Document its resource management to justify
Sub-Clause 13.3.1 applies to this variation by its decisions.
instruction such that the contractor is entitled to
an EOT (and costs). This is, therefore, a relatively Should I terminate the works?
straightforward measure with a set procedure.
As a rule, termination should be considered a last
Under NEC4, the contractor (or the project manager) resort, due to its potentially far-reaching economic,
can propose acceleration to achieve completion relational and reputational consequences. Many
at a date prior to the scheduled completion date payment issues may be resolved in the coming weeks
(it does not contemplate acceleration in order to as further financial support is agreed at international
achieve the completion date) and such proposal and national levels.
and the contractor’s quotation for the acceleration
Nevertheless, circumstances may dictate that it is
is subject to the project manager’s approval.23
the most prudent, or only, option. Under FIDIC, if “the
However, if the employer argues that the contractor’s execution of substantially all the Works in progress
delay is not excusable (e.g., that the force majeure is prevented for a continuous period of 84 days” or
clause in the contract does not cover COVID-19), the “for multiple periods which total more than 140 days”
contractor may wish to accelerate to avoid potentially due to a notified Exceptional Event, then either party
having to pay liquated damages for late completion. may terminate the contract. Valuation of the work
The contractor should also make it clear to the performed is then required.24
employer that it is entitled to the EOT and that it is
undertaking constructive acceleration measures.

23. Clause 36 NEC4.

24. Sub-Clause 18.5 FIDIC.

dentons.com • 9
The contractor can also terminate: employers. The employer is entitled to terminate
due to an Exceptional Event in the same way as
• If the employer has failed to make a payment the contractor under Sub-Cause 18.5. Sub-Clause
and cannot provide evidence of its ability to 15.2 FIDIC sets out the employer’s entitlement to
pay the contract price within 42 days of the terminate for default of the contractor under a range
contractor’s request; of circumstances.
• If a prolonged suspension or more than 84 days
The most likely cause to occur owing to COVID-19
affects the works (and no permission to proceed is
(assuming a narrowly drafted force majeure clause
provided within 28 days of request and no further
and prolonged and detrimental COVID-related
suspension agreed); or
restrictions) are financial difficulties of the contractor
• If the employer has issues with its solvency.25 and abandonment of the works by the contractor
Under NEC4 ECC, a contractor can terminate where: or delay damages exceeding the maximum agreed
amount.28 Under NEC4 ECC, the employer can
• The employer has not paid an amount due under terminate for similar reasons.29
the contract within 13 weeks of the date it should
have made the payment; In international construction contracts, termination for
convenience may also be an option and it is typically
• The employer has issues with its solvency; afforded only to the employer. However, local laws
• The parties “have been released under the may prevent or restrict an express contractual right
law from further performance of the whole to terminate for convenience, particularly in civil law
of the contract”; jurisdictions, where both parties have an obligation
to act in good faith, and if the employer either is in
• The contractor was instructed to cease or not breach at the time of seeking to exercise the right
to start any substantial work and has not been or seeks to exercise the right to avoid paying profits
instructed to begin again within 13 weeks; to the contractor on the remainder of the contract
• A “prevention” event under Clause 19.1 has occurred.26 price. Indeed, such a step by the employer could
constitute a breach of contract. An example of a civil
Generally, suspension of the works should be
law protection afforded to contractors in this regard
carefully considered before termination and, where
is Article 707 of the Qatar Civil Code, according
that suspension is justified by, for example, the
to which the employer has a right to terminate
employer’s failure to make payment, any time or cost
a construction contract at any time subject to the
consequences of the suspension (or from “reducing
contractor’s entitlement to payment for loss of profit
the rate of the work”, similar to pacing) suffered by the
on unperformed works.
contractor can be recovered from the employer.27
By contrast, in its recent decision in Northrop v BAE,
One should also bear in mind any duty to mitigate
the English Court of Appeal upheld a provision
when assessing termination options.
allowing termination for convenience in the context
of a dispute concerning a license agreement, despite
As an employer, should I the fact that the supplier might not be compensated
terminate the works? in respect of certain purchase orders to which it
applied.30 This broadly follows a prior English High
The same caution that contractors should exercise Court decision, TSG v South Anglia Housing, where
when considering termination also applies to the Technology and Construction Court upheld

25. Sub-Clauses 8.12 and 16.2 FIDIC.

26. Clauses 91.4, 91.5, 91.6 and 91.7 NEC4.
27. Sub-Clause 16.1 FIDIC provides for an EOT and/or payment of costs plus profit.
28. Sub-Clause 15.2.1(g), (a) and (b), respectively. Sub-Clause15.2.1(g) sets out the employer’s entitlement to terminate if the contractor “becomes
bankrupt or insolvent; goes into liquidation, administration, reorganisation, winding-up or dissolution; becomes subject to the appointment of a
liquidator, receiver, administrator, manager or trustee; enters into a composition or arrangement with the Contractor’s creditors; or any act is done
or any event occurs which is analogous to or has a similar effect to any of these acts or events under applicable Laws.”
29. Clauses 91.1 and 91.7 NEC4. Note that Clause 91.3 NEC4 also entitles the owner to terminate where the contractor has “[s]ubstantially broken a
health or safety regulation” and Clause 91.5 allows the employer to terminate where the parties have been released under the law from further
contractual performance.
30. Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C41) Ltd [2015] EWCA Civ 844.

10 • dentons.com
a contractual clause providing for termination at will Although the above options are open to the
without any compensation for termination costs employer, one should bear in mind that most
or lost profits.31 This was despite the Claimant’s contractors in the construction industry are being
argument that there was an implied term of good negatively affected by COVID-19 and that many
faith based on the parties’ contractual agreement to industry bodies, including FIDIC, have called for
work together in a spirit of “trust fairness and mutual solidarity and understanding in the implementation
cooperation”. The Court held that “[e]ven if there was of contracts during this difficult time.33 Termination
some implied term of good faith, it would not and under such circumstances could risk compromising
could not circumscribe or restrict what the parties relationships, or ultimately being considered
had expressly agreed” in their termination clause. wrongful, and the search for a financially stronger
replacement contractor may take time. Moreover,
However, in the case of civil law jurisdictions, the use governments have already provided, and may well
of such clauses in circumstances where the employer need to provide more, financial support measures
is in breach of the contract is more controversial. to contractors. This may go some way to shoring up
Equitable principles may well come into play to their balance sheets and preventing insolvency. As
limit the right e.g., the maxim that a person should such, one should not make rash decisions simply
not derive an advantage from his own wrongdoing
because the contractual entitlement exists, and one
(Commodum Ex Injuria Sua Nemo Habere Debet).
should always seek expert legal advice.
FIDIC provides for termination for convenience by the
employer and Sub-Clause 15.6 FIDIC provides that Is there any other time-related
valuation of the performed works upon termination relief outside of the contract?
for convenience by the employer shall include the
amount of any loss of profit or other losses and Outside of the four corners of the contract, and in
damages suffered by the contractor as a result of the both common and civil law jurisdictions, certain
termination. This may discourage the employer from measures taken by governments can assist parties
exercising the option. NEC4 ECC does not entitle in proving force majeure so as to obtain an EOT
the employer to terminate for convenience and any under their contract or under governing law. For
such termination by the employer would entitle the example, on January 30, 2020, the China Council
contractor to various costs.32 for The Promotion of International Trade announced
that it would issue force majeure certificates to

31. TSG Building Services PLC v South Anglia Housing Limited [2013] EWHC 1151 (TCC).
32. Clauses 90.2 and 91.6.
33. FIDIC Guidance Memorandum and FIEC Press Release dated 23 March 2020.

dentons.com • 11
qualifying applicants. Sufficient documentary Can I recover my increased costs
evidence of the delays including proof of cancellation
of transportation, export contracts and customs due to COVID-19?
declarations are required to secure certificates.34
It is unlikely that Sub-Clause 18.2 FIDIC relating to
However, affected parties must bear in mind that
Exceptional Events allows recovery of COVID-19-
even such certificates will mostly corroborate, but not
induced additional costs where the virus is deemed
prove, the occurrence of force majeure.
an Exceptional Event. Such recovery is available
Many countries have declared states of emergency only for a closed list of qualifying events, which
or alarm, which also serve to strengthen force does not include anything directly comparable to
majeure-related arguments. In Spain, due to the a pandemic. As such, a Contractor may be best-
extraordinary nature of COVID-19, Royal Decree advised to seek recovery through the change of laws
8/2020 of March 17, 2020 granted concessionaires provision instead.38 Under Sub-Clause 13.6 FIDIC, if
the right to request the economic rebalance of the the Contractor incurs additional costs as a result of
concession agreements by extending their term a change in laws (as broadly defined in the Red Book),
by up to 15% or by modifying the economic terms the Contractor is entitled to payment of such costs.
of the agreement.35 The subsequent Royal Decree An optional clause in NEC4 ECC also entitles the
10/2020 of March 29, 2020 effectively suspended contractor to costs in such event.39
construction projects from March 30 through April
Where an employer has unilaterally decided, without
9, 2020, and work on existing buildings has been
there being any government-imposed shutdown of
significantly restricted since April 12, 2020.36 On
construction activities, to suspend progress of part or
a related note, the European Construction Industry
all of the works under Sub-Clause 8.9, the contractor
Federation (“FIEC”) has requested the European
may be entitled to costs plus profit under Sub-Clause
Commission to declare COVID-19 a force majeure.37
8.10 for any resultant additional costs incurred. If the
Contractors who are involved in projects with
contractor incurs additional costs due to a decision
a completion date during such periods would
by the employer to restrict the contractually agreed
be well advised to request a time extension from
access to the site, the contractor may be entitled to
the granting authority.
costs plus profit under Sub-Clause 2.1.40 Recoverable
In civil law jurisdictions, force majeure provisions in increased costs could include, without limitation, the
the relevant civil law codes can also provide relief cost of equipment, materials, labor and overheads.
although this is typically subject to contrary provision
Restriction of access by the employer, a test
in the parties’ contract. Article 1105 of the Spanish
or inspection by the supervisor which causes
Civil Code, for example, allows a party to avoid
unnecessary delay, failure of the employer to
liability for unforeseeable events or unavoidable
provide materials, facilities and samples for tests and
foreseeable events but its terms are overridden by
inspections, and an event which is a “Prevention”
any express contractual stipulation regarding liability
(comparable to force majeure) under Clause 19.1, also
in the event of force majeure. In France, art. 1218 of
entitle the contractor to costs under Clauses 60.1(2),
the French Civil Code defines force majeure but it is
(11), (16) and (19) NEC4.
possible for the parties to contractually override this
definition (or to exclude its application entirely).

34. https://www.reuters.com/article/us-china-health-trade/china-trade-agency-to-offer-firms-force-majeure-certificates-amid-.
35. Royal Decree-Law 8/2020, of 17 March 2020, on urgent extraordinary measures to tackle the economic and social impact of COVID-19, Art. 34.4.
36. Also relevant is the subsequent Royal Decree-Law 10/2020 of 29 March 2020 on a recoverable period of paid leave for employees who render in
person services related to activities not classified as essential, with the aim of reducing people’s movement in an effort to fight the spread of the
COVID-19 virus. Art. 2 of this instrument effectively suspended construction projects from 30 March through 9 April 2020. and work on existing
buildings has been significantly restricted since 12 April 2020 under Order SND 340/2020, of 12 April 2020, regarding suspension of certain
activities relating to works on existing buildings where the is a risk of COVID-19 infection for persons not related to those activities. Construction
was not deemed an essential service under this instrument.
37. FIEC Press Release entitled “Negative Impact of COVID-19 on the Construction Industry: 3 Urgent Measures Required Immediately”, dated 23
March 2020.
38. FIDIC Guidance Memorandum, p. 9.
39. Option X2 Changes in the Law, NEC4.
40. It should also be noted that, under Sub-Clause 4.15 FIDIC, a Contractor may be entitled to costs resulting from unavailability of an access route as
a result of the changes to the route by a third party.

12 • dentons.com
Am I exposed to supply chain In relation to governing law, one of the main
difficulties springs from the fact that, as previously
risk such as claims from mentioned, many civil law systems provide for force
subcontractors? majeure relief in the relevant civil codes, whether or
not the contract provides for the same. This is not the
Whether force majeure disruptions further down the case in common law systems, which are creatures of
supply chain can excuse a party from non- or varied contract in this respect. Therefore, a contractor may
performance under its own construction contract not qualify for relief under the force majeure clause in
is not always a straightforward matter. With back- its English law-governed contract with the employer,
to-back risk allocation in the force majeure clauses, whereas its subcontractor may obtain relief as against
a qualifying event at the initial raw material supply the contractor in the civil law-governed contractor
level can be accepted all the way up the line to the between the two parties (usually provided that no
contractors and owner. However, this is often not the express contrary provision was made by the parties).
case and the risk allocation can become complicated As a practical matter, to avoid asymmetry in the risk
where a) the force majeure provisions in the relevant allocation despite different governing laws, careful
contracts are drafted differently, and/or b) where the drafting is crucial.
governing law of the contracts is different.

In the case of a), there are two scenarios. The first

The currency of payment in my
is that the contract between the owner and main contract has fallen considerably
contractor is silent as to force majeure events
further down the line. The second is the approach
in value – what can I do?
of some standard form contracts that provide that Currency fluctuation is a problem in countries facing
a main contractor seeking relief on the basis of severe inflation or deflation and COVID-19 presents
a subcontractor’s inability to perform due to force risks of either. Several emerging market currencies
majeure can only do so where the event being have been hit by a global market sell-off in favor of
relied on also qualifies as a force majeure under the US dollar as a perceived safe-haven currency.
the main contract.41 The foreign exchange risk has been further
aggravated by falling oil and other commodity
In each scenario, the contractor may be in an
prices, since many emerging market economies
awkward position if the force majeure provision in its
heavily depend on such commodities such that the
contract with the subcontractor encompasses the
performance of their currencies and demand for
event in question, but the force majeure provision in
their commodities are linked.
its contract with the owner does not. In this case, the
contractor may be on the hook for delay damages Currency fluctuation is typically addressed in
without the ability to claim, in turn, against the international construction contracts through the
subcontractor. If the opposite occurs, the contractor use of formulas designed to adjust payment in
can, in theory, rely on the force majeure clause in response to fluctuations or through the choice of
the main contract but its subcontractor cannot do a major currency. Even where the chosen currency is
the same in its contract with the contractor. In effect, a major currency, the foreign reserves of developing
the subcontractor is in breach of the subcontract, countries may be depleted. This could be an issue
and whether this impacts on the main contractor’s in the context of a large construction project with
reliance on the force majeure provision in its contract a state as an owner. An important factor in terms
with the owner will depend on the wording of the of whether this improves is whether the IMF issues
latter and detailed analysis of causal links. The further Special Drawing Rights (international reserves
subcontractor would most likely be liable to the that can be used to obtain major foreign currencies
contractor for any delay even though the contractor from other countries) to such countries – a step that
is not so liable to the owner further up the chain. is currently being debated.

41. Sub-Clause 19.5 of the FIDIC Conditions of Contract for EPC/Turnkey Project (1999 Edition).

dentons.com • 13
Can I apply for some form Is there any other cost-related
of state aid? relief outside of the contract?
At the EU level, the Commission issued a Temporary The principle of pacta sunt servanda – the sanctity
Framework to enable EU Member States to provide of the written word of contracts – is a fundamental
aid to support their economies within the framework principle of contract law in both civil and common
of the existing state aid rules. The Framework is based law jurisdictions. Since parties are deemed to have
on Article 107(3)(b) of the Treaty on the Functioning of freely entered into a contract, they should not, in
the European Union, which provides that state aid can principle, be permitted to avoid or unilaterally modify
be declared compatible with the common market their obligations. Nevertheless, faced with an event
if it remedies a serious disturbance in the economy as significant as COVID-19, parties may rely on certain
of a Member State. It has enabled governments legal doctrines beyond the legal remedies provided
across the EU to provide a range of relief measures in their contracts.
such as state guarantees for commercial loans for
In common like jurisdictions like England, Wales and
nationally registered companies (which have been
Ireland, the doctrine of frustration may provide relief.
provided in France, Germany, Ireland and Spain along
This typically requires that:42
other Member States). The amounts guaranteed
vary considerably depending on the state but it is • A supervening event occurs without the default
an option worth exploring for financially stressed of either party;
construction companies.
• The contract makes insufficient provision for
At the same time, contractors should be mindful this event;
of potential contractual implications of receiving
• The event changes the outstanding contractual
state aid. They should obtain warranties from their
rights and obligations beyond what the parties
counterparty that the acceptance of any relief from
could reasonably have contemplated at the time
the state will not constitute breach of any warranties.
the contract was entered into, and/or the event
In addition, the contractor may have to accept to
makes it physically or commercially impossible
forego certain possible legal rights, such as not
to fulfil the contract; and
paying its own subcontractors further down the
supply chain, or enforcing securities against third • It would be unjust to hold the parties to
parties, in return for receiving the state aid. The the contract.
contractor may also be subject to additional positive
While these criteria constitute a high bar to reach,
obligations as a result of accepting the relief, such
in particular because – unlike force majeure, which
as making cost data available to the contracting
is a contractual creature that often affects only
authority on an open book basis. Some of these
certain obligations under the contract – frustration
issues are expressly set out, for example, in the model
applies extra-contractually and cancels the entire
deed of variation of NEC3 and JCT standard forms
contract, as opposed to just certain contractual
of contract under the UK government’s Procurement
obligations. Nevertheless, certain courts, like those
Policy Note PPN 02/20 for example. In this case, one
in Ireland, have considered the doctrine of frustration
should seek legal advice to ensure that the model
to be flexible and capable of new applications in
deeds are consistent with the contracts sought
appropriate circumstances and the potential of
to be varied.
COVID-19 to frustrate the purpose of contracts is
great. Therefore, the doctrine remains highly relevant.

In certain civil law jurisdictions, the effects of

particularly stringent government measures can
relieve a party from liability for failure to perform
its contractual obligations. In France, for example,
this doctrine is termed “fait du prince” and requires
definitive impossibility for the relevant party to

42. Collins v Gleeson & Ors [2011] IEHC 200, also discussing relevant English case law.

14 • dentons.com
perform the contract as a result of the measures.43 in a decision dated March 6, 2020. The doctrine is
Certain hardship provisions set out in civil codes typically invoked to reestablish the equilibrium of
may also apply in civil law jurisdictions, assuming the contractual performance where, due to intervening
parties have not expressly excluded their application and unpredictable events, it becomes excessively
in the contract in preference for a bespoke clause. onerous for one of the parties to perform its
contractual obligations or there is a significantly
For example, art. 1195 of the French Civil Code higher risk that the purpose of the contract will
provides that, if a change of circumstances, that be frustrated.45 The test of unpredictability of the
was unforeseeable at the time the contract was circumstances takes into account the circumstances
entered into, renders performance excessively and nature of the contract and whether the parties
onerous for a party that never agreed to assume could be deemed to have implicitly foreseen
such risk, that party can request renegotiation of the the occurrence of the events. The court held
contract from its counterparty (while continuing to that, typically, the remedy is modification, not
perform its obligations as much as possible during termination, of the contract and that the doctrine
renegotiation). Should the counterparty refuse is most likely to apply to long-term contracts which
to renegotiate, either party may agree to terminate require continuous performance. It thus excluded
the contract or jointly request a judge to modify it. the application of the doctrine to a contract with
If the parties cannot agree on the course to take, a two-year duration subject to renewal periods of
the judge can terminate or modify the contract as
one year. Since it is a doctrine and not codified, the
he/she sees fit.44
party alleging it must expressly mention it in its claim
A similar concept to this French concept of hardship for variation (or, less commonly, termination) since
(termed “imprévision”) is found in other jurisdictions the doctrine of iura novit curia (allowing a judge to
under the label of the doctrine of rebus sic apply the law s/he deems appropriate, irrespective
stantibus. For example, the Spanish Supreme Court of whether the parties put it forward) does not apply.
recently confirmed the contours of this doctrine

43. Court of Cassation, Commercial Chamber, 20 September 2017, Appeal no. 15-25.502.
44. This remedy is available only in relation to contracts concluded on or after October, 1, 2016 since it was introduced via the 2016 reform of the
French Civil Code.
45. STS 791/2020.

dentons.com • 15
Practical matters

Maintain detailed records like force majeure. The specific time periods will
depend on the clause in question and failure to
Contractors should keep project records evidencing comply can affect the ability to recover the related
the impact of the virus on cost, availability of labor time or cost entitlements.
and materials, progress and critical sequence
changes, approvals, and other project areas that FIDIC sets out the following notice obligations: 46
have been disrupted. They should make contingency • The contractor must notify the engineer if the
plans, along with a detailed inventory of the works are likely to be delayed or disrupted if any
equipment and materials on site in case of future necessary drawing or instruction is not issued
termination. Where additional work, or changed work within a reasonable time. A failure by the engineer
is required (e.g., a lack of a certain type of material in this regard can entitle the contractor to an EOT
means the design must be changed), the contractor and/or costs plus profit.
should immediately track the individual cost and
schedule impacts related to the required change, • The employer must notify the contractor of any
using individual activity/cost codes. Failure to do so material change in its ability to pay the remainder
could see any claim significantly reduced. of the contract price. Under certain circumstances
(including in relation to non-payment or an instruction
Discipline in record-keeping by all parties is all the to carry out a significant variation), the contractor has
more important given that some parties may seek to the right to request the employer to demonstrate that
opportunistically shore-up cash flow by commencing it can pay the remainder of the contract price.
various proceedings e.g., adjudication, which is cost
• Each party must give advance warning to each other
neutral and relatively rapid. In the English courts, it
and the engineer of any circumstances that may
has proven difficult to obtain injunctions against such
adversely affect the work of the contractor’s workers,
proceedings, even where the manner of appointment
increase the contract price or delay completion.
of the adjudicator has been called into question.
• The party affected by the Exceptional Event must
Sub-Clause 6.10 FIDIC sets out the required content
notify the other party at the time the effect is first
of progress reports, including the working hours of
felt, at regular intervals during the Exceptional
staff and equipment and the quantities and types of
Event when it is prolonged, and when the
materials used for each work activity, location and
Exceptional Event ends.
day of work.
Similar notice requirements apply under NEC4 ECC.47
Strictly comply with
Keep abreast of government
notice periods
announcements
Notifications are typically required in respect of
events which will likely cause delays or increase costs; Beyond government laws and regulations, there is
of material changes in financial circumstances, and proliferating governmental guidance, which, although
of the continuance of certain adverse circumstances not mandatory, can be extremely helpful in making

46. Sub-Clauses 1.9, 2.4, 8.4 and 18.2/18.3 FIDIC, respectively.

47. Clauses 16 and 61 NEC4.

16 • dentons.com
arguments of force majeure and claiming additional contracts. Under Sub-Clause 4.8 FIDIC, the
time and cost (see Question II.i.e above) or simply contractor must comply with all applicable health and
obtaining greater visibility regarding likely cash flow safety regulations and laws. Moreover, the contractor
from contractual counterparties during the crisis. or its health and safety officer must revise the health
and safety manual on an ongoing basis, which is
For example, the UK Cabinet Office has released a separate requirement to that of compliance with
helpful policy notes relevant to the construction any applicable health and safety regulations and laws.
sector, such as PPN 02/20 on procurement policy The revised manual must be submitted promptly to
and payment of suppliers to ensure continuity of the engineer. The employer is obliged to ensure that
service during the COVID-19 pandemic, together its personnel and any contracted workers comply
with guidance on how to implement the measures with the same health, safety (and environmental)
contained therein. This guidance sets out a number requirements as the contractor.48 The contractor
of options for relief in construction contracts such as: must also ensure that “suitable arrangements
• Accelerated payment of invoices submitted by are made for all necessary welfare and hygiene
suppliers to enhance cash flow for the supplier requirements and for the prevention of epidemics”
and its own supply chain. If invoices are disputed, under Sub-Clause 6.7 FIDIC. Under Clause 27.4 NEC4
they may still be paid but the contract should be ECC, the contractor must act in accordance with
amended to provide for subsequent reconciliation the health and safety requirements included in the
and potentially set-off rights of the authority scope of works.
against future invoices.
Where the project is located in a jurisdiction with
• Certification of interim valuations where work has not an increased risk of seizures, nationalization or
been undertaken, based on valuations in the previous expropriation – e.g., for projects deemed to be vital
three months less supplier profit. The guidance to the relevant state’s interests or public health and
provides for contract terms to be amended to safety – particular vigilance should be exercised in
prevent contractual claims for costs due to COVID19 terms of site security, and plant and machinery left
being claimed in addition to this relief. on site. Under FIDIC and NEC4, ownership of plant
and materials can pass to the employer on delivery to
• It also makes clear that, as a general matter,
the site, and on bringing them within the designated
suppliers may not obtain double relief by claiming
work areas, respectively.49 If the contractor fears
from both the contracting authority (under the
future payment issues, it may wish to arrange for
contract) and the government (e.g., under the
alternative storage of the equipment, especially
Coronavirus Job Retention Scheme (CJRS) or other
during a shutdown.
COVID-19 support schemes) in order to achieve
double recovery for the same disruptive event.
Verify the requirements
For a regularly updated hub of information on
government announcements and legal changes
that apply in the event
relevant to construction, please visit the Dentons of rescheduling
COVID-19 Hub.
Where rescheduling part or all of the works, the
contractor should quickly ascertain whether further
Keep the construction site approvals or permits are required and who is
safe and secure responsible for obtaining them.

During the crisis, one should pay particular Under Sub-Clause 1.13(a) FIDIC, the employer is
attention to keeping construction sites safe, responsible for obtaining the required permits,
healthy and secure. licenses and approvals for the permanent (as
opposed to temporary) works. The employer
Health and safety regulations have long been
indemnifies the contractor in respect of delay or
a standard feature of international construction
failure to do so, provided the contractor has provided

48. Sub-Clause 2.3 FIDIC.

49. Sub-Clause 7.7(a) FIDIC and Clause 70.2 NEC4.

dentons.com • 17
reasonable assistance, and the contractor is entitled In the case of hearings, for example, and irrespective
to an EOT and/or costs plus profit if needed. Under of the arbitral institution in question, it is important
Sub-Clause 4.2.1 FIDIC, the contractor must also be for a party to ensure that evidence being provided
mindful of its obligation to extend the validity, at the by the other side’s witnesses has not been interfered
latest 20 days before it expires, of any performance with in any way. As such, cross-examination of the
security where, by reason of the COVID-induced other side’s witnesses should ideally take place in the
delay, the contractor has not been issued with the presence of a lawyer representing the client of the
performance certificate at the planned date. cross-examiner. Where there are many witnesses to
cross-examine and such travel arrangements are not
Carefully consider the possible, one should carefully assess the prudence
of continuing with the hearing instead of waiting until
prudence of participating a physical hearing is possible. There may also be
in remote hearings a particularly impactful demonstrative that a party
wishes to use at the hearing, the effect of which
Several international arbitration institutions have
might be lost in a remote hearing.
issued guidance on measures to mitigate the effects
of COVID-19 on arbitration.50 While many procedural
matters can be efficiently carried out remotely via
videoconference (or teleconference in certain cases),
and indeed have been for many years, there are
certain areas where parties may understandably have
reservations as to whether the virtual option is the
most prudent.

50. See, for example, the ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic; the Seoul Protocol on
Video Conferencing in International Arbitration; Nota sobre Organización de Audiencias Virtuales of the Madrid Court of Arbitration.

18 • dentons.com
Future projects

What contractual issues should it is particularly appropriate in this current time

of COVID:
be reconsidered?
• More effective scoping of uncertainty;
Method of procurement • Greater flexibility to overcome scarcities
COVID-19 has had an almost unique impact in that all (of materials etc.) and necessary changes to
parties to a typical international construction contract scheduling and performance;
are affected in one way or another. As a result, parties • A common approach at a time that all parties are
may consider alternative types of procurement, which adversely affected by a common obstacle which
tackle such challenges in a more concerted manner. means risk sharing, cooperation and openness
make more sense than ever; and
A good example is contract alliancing. Although it is
not yet a widespread practice internationally, it has • The availability of Integrated Project Insurance
had project successes, particularly in Australia where that is based on risks and outcomes rather than
it has been used on large public sector infrastructure liabilities and causes.
projects since the mid-1990s, and in Finland where it
A further example is that of public-private
appeared a decade later.51 It involves an agreement,
partnerships (“PPPs”). In the short to medium term,
whereby all parties agree to act in a certain way to
low tax receipts and very high levels of public
achieve a common goal. It marks a move away from
debt will reduce the borrowing capacity of public
the adversarial approach of traditional procurement.
institutions at all levels and will, as a matter of
The basic approach involves bespoke or heavily
economic expediency, increase the need for private
amended model form contracts between the
sector financing of infrastructure projects, such as
contractor and owner with limited claims allowed
healthcare facilities.
and a third party appointed to break deadlock.
A pure form involves a wider contract involving all The prospect of increasing numbers of PPPs is
parties (owner, contractor, architect, engineer and welcome, thanks to the sophisticated technology
subcontractors) where claims are heavily limited e.g., and management which private companies can
to willful misconduct or statutory breach. The various bring to the table. Moreover, given that such projects
parties operate as a cohesive entity whereby all are typically costed at the bid stage using a life-
parties participate in decisions and risk management cycle cost model (including long-term energy,
and jointly share profits and losses based on an maintenance, operational and financing costs), there
agreed formula. For example, all uninsured risks are is incentive and thus scope for value-engineering
shared. An alliance can be formed either through through optimization of energy and other operational
a SPV, in which all stakeholders have a shareholding, and maintenance costs by the concessionaire. Cost
or by forming a quasi-alliance without a formal SPV. certainty will be increasingly important for public
Apart from its technical advantages in developing authorities and carefully planned PPPs can provide
innovative solutions outside the parameters of this on many projects via fixed monthly availability
traditional contracts, there are several reasons why payments during the operations period.

51. Note that the NEC4 Alliance Contract (“ALC”) was introduced in 2018. Designed for use on major projects, it engages under a single contract
the client and all key members of the supply chain, called ‘Partners’ in the ALC. All alliance members have an equal voice and share in the
performance of the alliance as a whole as opposed to their own individual performance.

dentons.com • 19
However, there is also a wide variety of pitfalls to It also found that “[m]ost of the audited PPP projects
be aware of. First, there will likely be new legislation demonstrated inadequacies in the use of the PPP
in this area and demands for stricter security option. Risk-sharing arrangements were poorly
arrangements by private financiers. This could lead to conceived, resulting in ineffective or incoherent risk
more complex contracts that will need to be carefully allocation” favoring at times the public entity and at
negotiated (a PPP master contract typically covers all times the private partner.54 Despite the reservations
stages of the project, over a period of decades, from signaled in this Report, it is inevitable that budgetary
design through to operation and maintenance, as well limitations will require use of PPP. If correctly planned
as financing). Parties should pay particular attention and contractually set out, PPPs can achieve the
to clauses dealing with the developer’s responsibility anticipated results e.g., the Rion Antirion Bridge in
for labor shortages, delay and increased construction Greece which was completely ahead of schedule and
costs (which are typically assumed by developers within budget. Indeed, the EU has already committed
in PPPs). €45 million in a €90 million PPP for COVID-19
vaccine research through the Innovative Medicines
Second, certain projects may be particularly Initiative, a partnership between the EU and the
exposed to the effects of future upsurges in pharmaceutical industry.55
COVID-19 infection rates. For example, toll road
concessionaires’ revenues are disproportionately
Performance security
affected by decreased traffic or fees during the
crisis and indeed, we are seeing potential claims Different forms of performance security may
in relation to government measures that have be appropriate going forward. Performance
resulted in suspended toll fees. The renegotiation and payment bonds as well as letters of credit
of concession agreements for three motorway and guarantees are most common in current
projects in Greece (in 2013 and 2015, as a result international construction projects. Given the greater
of reduced traffic and thus toll revenue due to the uncertainty generated by COVID-19 and a greater
financial crisis) shows how seriously a prolonged risk of insolvency of project participants, letters of
downturn can impact such works.52 credit may (“LoC”s) increasingly be chosen over
performance bonds given the greater security they
For this reason, developers may therefore wish to
provide. This greater security naturally requires
ensure their return is not dependent, or dependent
a more burdensome commitment from the party
to a very limited extent, on such revenue sources.
providing it e.g., the issuing bank freezing the
Instead, availability payments may be a preferable
corresponding amount of funds of its client providing
option. For PPP social infrastructure projects like
the LoC or the latter having to use a line of credit with
hospitals, it is likely that the government would insist
the bank. This is because the bank that issues the
on availability payments being linked to the availability
letter of credit is obliged to pay the beneficiary upon
of hospital beds or certain hospital departments (like
demand, regardless of whether the bank’s client has
A&E and ICU) as a priority, with a significant payment
properly performed under the underlying contract.
reduction in the event of their unavailability.
The bank’s obligation is thus primary compared
Third, it will be crucial to avoid some of the mistakes to the secondary obligation in the case of a bond
made in the wave of PPP projects that followed (normally issued by an insurer) which requires default
in the EU in the wake of the 2008 financial crisis. under the underlying contract before the bond
A 2018 Special Report of the European Court of becomes payable.
Auditors found that many of these projects were
poorly prepared by public partners “resulting in Drafting of force majeure and
premature and insufficiently effective contracts change of law clauses
with private concessionaires”, delays and cost
overruns and that prior analyses were based on There are two basic ways to draft force majeure
overly optimistic scenarios of the level of final use.53 clauses. The first is to begin by setting out general

52. European Court of Auditors, Special Report on Public Private Partnerships in the EU: Widespread shortcomings and limited benefits, 2018, p. 29.
53. ECA Special Report, pp. 11-12.
54. ECA Special Report, p. 52.
55. https://sciencebusiness.net/news/eu-puts-eu45m-eu90m-public-private-partnership-coronavirus-vaccine-research

20 • dentons.com
principles and then provide an illustrative, non- The UNIDROIT Principles of International Commercial
exhaustive list of qualifying events. The second is Contracts 2016 contain art. 6.2 relating to hardship,
to provide an exhaustive list of events, followed by and the ICC has issued a revised model hardship
a list of general principles with which those events clause in March 2020. Either of these clauses could
must comply in order to qualify as force majeure be adapted for incorporation in the relevant contract.
events. Events such as “epidemic” and “pandemic”
will likely, and should, now be scrupulously defined. What other ways can I protect
This is similar to how extreme weather events should
be dealt with given what is now known about the
my business?
severity of climate change. Reference should be
made to the most authoritative sources of relevant
Enhanced due diligence of suppliers
information, such as the WHO. In view of the possibility of further upsurges in
infection rates of COVID-19, one should pay special
Regarding change of law clauses, it makes sense for
attention to the reliability of supply lines and put
both parties to, henceforth, define the notion of “law”
in place contingency plans, in case one or more
in as much detail as possible. This will help ensure
suppliers are prevented from performing their
that any COVID-19-related measures are covered and
contractual obligations.
risk can be allocated by the parties in a predictable
fashion. In certain contracts, broadly drafted force
majeure clauses can catch the effects of changes in Pandemic insurance
law where such specific clause does not exist. Many business interruption insurance policies
currently in place do not cover COVID-19.56 Such
Inclusion of hardship clauses policies will need to be renegotiated with insurance
companies in the future to ensure that coverage is
Particularly in common law jurisdictions – where the
extended to the extent possible.
main non-contractually based judicial relief in the
face of the effects of COVID-19 is the doctrine of
frustration – contractors would be well advised to
insist on the inclusion of a hardship clause in their
contracts. Contractors in civil law jurisdictions may
also wish to do so for greater certainty as to the
consequences of its invocation.

56. https://www.insurancebusinessmag.com/us/news/breaking-news/calls-for-business-interruption-insurance-cover-for-coronavirus-grow-
louder-220751.aspx.

dentons.com • 21
Contacts

Risteard de Paor Jean-Christophe Honlet Amy Kläsener

Partner, International Dispute Settlement Partner, International Arbitration Partner, Litigation and Dispute Resolution
Madrid Paris Frankfurt
D +34 682207359 D +33 6 73 73 72 38 D +49 172 638 5198
risteard.depaor@dentons.com jeanchristophe.honlet@dentons.com amy.klaesener@dentons.com

Alastair Young Bas van Schouwenburg

Partner, Construction and Engineering Partner, Real Estate
Dubai Amsterdam
D +971 56 5113001 D +31 6 28 15 94 99
alastair.young@dentons.com bas.vanschouwenburg@dentons.com

22 • dentons.com
dentons.com • 23
ABOUT DENTONS

Dentons is the world’s largest law firm, delivering quality and value to clients around the globe. Dentons is a leader
on the Acritas Global Elite Brand Index, a BTI Client Service 30 Award winner and recognized by prominent business
and legal publications for its innovations in client service, including founding Nextlaw Enterprise, Dentons’ wholly owned
subsidiary of innovation, advisory and technology operating units. Dentons’ polycentric approach, commitment to inclusion
and diversity and world-class talent challenge the status quo to advance client interests in the communities in which
we live and work.

dentons.com

© 2020 Dentons. Dentons is a global legal practice providing client services worldwide through its member firms and affiliates.
This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content.
Please see dentons.com for Legal Notices.

CSBrand-30759-COVID-19_Construction_Brochure — 15/05/2020

24 • dentons.com