Civil Engineering May 2022 | Vol 30 No 4

32 May 2022 Civil Engineering A BRUTAL WAKE-UP CALL The pandemic highlighted the importance of correct contract documentation and ensuring that there is a clear understanding in respect of what has been signed by the parties. At the beginning of the pandemic, much focus was placed on force majeure clauses in contracts to mitigate the delays and other losses suffered by contractors due to the pandemic, lockdowns, and changes in laws. However, as the pandemic progressed, employers began adopting the view that the pandemic was no longer an unforeseen event and that contractors should instead start making provision for it and its effects when tendering. As a result, it has now become common place for contractors and employers to include clauses in their contracts to deal with Covid-19 events and associated effects. RUSSIA-UKRAINE WAR’S IMPACT ON CONTRACTORS AND EMPLOYERS The consequences of the Russia-Ukraine war are already wreaking havoc worldwide. It is therefore prudent to consider the associated difficulties and risks faced by contractors in South Africa and ways to mitigate those risks. First, what are some of the practical difficulties that contractors may face due to the war? While the following list is not exhaustive, the expectation is: Q Q Exceptional increases in the price of oil, which in turn will lead to higher costs to run construction plant and equipment as well as increased staff transport costs. Costs of material such as uPVC are likely to go up along with staff living costs. Q Q Shortages of other construction goods and materials such as steel due to sanctions and embargoes. Q Q Increases in the costs of basic foods. Russia and Ukraine ex- port a quarter of the world’s wheat. Without this supply, prices will soar which will impact individual cost of living and staff meals. In turn, cost of living increases will create pressure for wage negotiations with unions. Contractors who have concluded fixed-price contracts or who have agreed to escalation formulae will be faced with price increases that cannot be recovered from employers. At MDA Attorneys, we are assisting several clients by negotiating clauses into their new contracts to protect them from the future impacts of exceptional price increases. But what about contracts that are currently being executed? STANDARD FORM CONTRACTS AND RISK The South African construction and engineering industry utilises four standard form suites of contracts, namely the FIDIC, NEC, GCC and JBCC. Each of these standard form contracts manages and apportions risk differently. What is common in each suite is that provision is made for unforeseen events or events that cannot be provided for when the contract is concluded. The entitlements under these provisions differ from contract to contract and are sometimes subject to amendment. CLAUSES RELEVANT TO CONTRACTORS FIDIC 1999 – clause 19.1 read with 19.4 Clause 19.1 defines force majeure as “an exceptional event or circumstance (a) which is beyond a party’s control, (b) which such party could not reasonably have provided against before entering into the contract, (c) which, having arisen, such party could not reasonably have avoided or overcome, and (d) which is not sub- stantially attributable to the other party.” It specifically includes war and hostilities as acts of force majeure . Clause 19.4 provides a mechanism for a contractor to submit a claim if any act of force majeure prevents them from performing their obligations in terms of the contract. Where a contractor can show that the war has prevented them from performing their obligations, they will be entitled to claim the time and costs as- sociated with such prevention. Therefore, if a contractor has entered into a FIDIC contract and is somehow prevented from executing or completing the works due to the Russia-Ukraine war, clause 19.1 read with 19.4 could be used to submit a claim for an extension of time and the associated costs. The NEC 3 ECC Clause 80.1 of the NEC3 provides a list of employer’s risks which includes, “Loss or damage to the works, plant and materials due to war, civil war, rebellion…” and clause 60.1(14) provides that an event which is an employer’s risk can give rise to a compensation event. As this clause deals with physical loss and/or damage caused to the works or plant and materials which is occasioned due to war, it seems highly unlikely to find application to the cur- rent circumstances. Clause 60.1(19) provides that an act which “stops the contractor completing the works or stops the contractor from completing the works by the date shown on the accepted pro- gramme” and which “neither party could prevent, [and which] an experienced contractor would have judged at the contract date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for it and is not one of the other compensation events listed in the contract.” This clause may entitle the contractor to submit a claim based on delays caused by a war. However, it does not deal with the situa- tion where the contractor is able to complete the work, but at an increased cost. The GCC, Third Edition, 2015 The GCC 2015 is possibly the most useful of the standard form contracts in the context of the Russia-Ukraine war as it provides a mechanism for the contractor to submit a claim for additional costs in the case of war and/or economic sanctions. Clause 8.3.1.1 states that, “The excepted risks are risks of damage or physical loss or any other loss caused by or arising di- rectly or indirectly as a result or consequence of war, invasion, act of foreign enemies, hostilities or warlike operations (whether war be declared or not) or imposition of economic sanctions between governments…”. Clause 8.3.2 states that, “If, in carrying out the works, any of the excepted risks other than pertaining to the damage and/or physical loss referred to in Clause 8.2.2.2, 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 in accordance with Clause 10.1”. The negative aspect of this clause is that it contains a closed list of excepted risks. This means that if the exceptional inter- national event which is causing the additional costs does not fall within the ambit of this clause, then the contractor has no remedy available.