Out-Law Analysis | 30 Mar 2020 | 3:00 pm | 6 min. read
Measures put in place by the German government, as well as some of Germany's neighbouring countries' governments, in response to the Covid-19 pandemic are causing considerable disruptions to the construction industry.
All German federal states have implemented regulations providing for 'social distancing' and even prohibiting the carrying out of certain business activities. Bavaria, Germany's second most populated federal state, implemented some of the most stringent restrictions and only allows the carrying out of 'essential' businesses; such 'essential' businesses, at present, including the construction sector.
Government measures do not at this stage altogether prevent the operation of construction sites. However, significant uncertainties remain. The next few months will be particularly challenging for employers and contractors alike, as they seek to adapt to the Covid-19 measures whilst having to comply with their contractual obligations.
In a first step key issues that are likely to arise in Germany would include the following:
Force majeur under German law
The availability of claims under construction contracts will be dependent upon the individual contract. Where a contract contains a force majeure clause the respective content will, thus, be key; provided, however, the force majeure clause is not in the nature of 'general business terms' (Allgemeine Geschäfsbedingungen) or, where it is, survives the 'fairness test' (Inhaltskontrolle) in accordance with Sec. 305 et seq. of the German Civil Code (Bürgerliches Gesetzbuch – BGB), failing which it will be void. Contractors need to be aware that unless a force majeure provision in their contract explicitly refers to pandemics, Covid-19 will not automatically qualify as a force majeure event.
The most widely used set of 'general business terms' relating to the execution of construction works in Germany is the VOB/B (Vergabe- und Vertragsordnung für Bauleistungen/ Teil B: Allgemeine Vertragsbedingungen für die Ausführung von Bauleistungen). The VOB/B refers to force majeure (höhere Gewalt) in Sec. 6 and Sec. 7 VOB/B, but does not set out a definition of force majeure or any particular force majeure events.
The BGB also does not define force majeure or any particular force majeure events. However, Sec. 275 BGB provides for an exclusion of the obligation to perform where it is impossible for the obligor, and for anyone else, to perform (Unmöglichkeit). For any event to qualify for that purpose it is required that
Although Covid-19 has been declared as a pandemic and may be considered as an unforeseeable event beyond the control of the parties it does not necessarily, per se, prevent a party from performing its obligations under the contract. However, the consequences arising from Covid-19 – such as lockdowns, curfews, border closures or other restrictive measures – may indeed prevent a party from performing its obligations which needs to be assessed on a case by case basis.
Thus, parties cannot merely rely on Covid-19 to excuse non-performance or delays, but must demonstrate a causal link between the Covid-19 measures and how they prevented performance of the contractual obligations. In relation to contractor delays this in particular means that the respective contractor will still have to comply with the requirements established by German courts to demonstrate an entitlement to extension of time, in particular by way of a concrete construction process analysis (konkrete bauablaufbezogene Darstellung).
Further, parties must undertake reasonable efforts to mitigate any potential delay or loss. Thus, it is recommended that the parties keep records of all the steps taken by them in this regard.
Other relevant German statutory law provisions
A party may also seek to rely on the concept of 'hardship' under Sec. 313 (1) BGB, which would allow for an adjustment of contractual terms or even its termination, provided the following two conditions are fulfilled:
In practice, meeting these two conditions is rather burdensome and the concept of hardship will only apply in exceptionally dire circumstances.
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