Out-Law / Your Daily Need-To-Know

Coronavirus: impact of lockdown exit on global infrastructure

Out-Law Analysis | 22 Apr 2020 | 9:14 am | 3 min. read

Global governments seem unlikely to reach consensus on how best to lift coronavirus-related lockdowns, leading to additional complexity for cross-border infrastructure projects and their supply chains.

Generally speaking, political consensus made it relatively easy to impose the initial Covid-19 lockdowns but, as economies have slowed dramatically, that political consensus has been harder to find in relation to exit strategies. It now seems relatively clear that, in the absence of global coordination, the lifting of lockdowns will be incremental and jurisdictionally specific - which could impact on rights and remedies, and notifications already given under construction contracts. For example:

  • what if site closure is no longer expressly required as a matter of government legislation or regulation, but the ongoing impact of Covid-19 means that performance remains prevented, hindered or delayed? Has the cause of delay evolved, so as to change rights and remedies?
  • what if lockdown has been lifted in the jurisdiction of performance, but ongoing lockdowns in other jurisdictions continue to prevent, hinder or delay performance, for example by impacting on global supply chains?

Initially, one of the main areas of focus for the infrastructure sector was to understand the rights of contractors and their supply chains to seek relief from the contractual and commercial consequences of the delay and disruption that was an inevitable effect of the lockdowns. Candidates included employer change, other employer prevention and force majeure - a contractual defence under which a party is relieved from liability for non-performance in certain circumstances. See our Out-Law guide to force majeure and Covid-19.

Laing Ian

Ian Laing

Partner, Head of Infrastructure, Head of Asia

While the progress of some of the works may no longer be "prevented", as is usually the test for a force majeure clause, the carrying out of the works is likely to be more costly, less efficient and delayed.

For the purposes of this discussion only, we will assume that the coronavirus, and associated actions of governments, qualifies as an event of force majeure under major standard forms of construction contracts in most jurisdictions. There may be legitimate questions of prevention, change in law and other contractual remedies that are likely to be dependent on the particular terms of the construction contract and issues of causation, but these are not relevant for current purposes.

What we are now seeing in some jurisdictions is 'full' lockdown being lifted, with government-imposed site operating conditions or employer requirements as to the operation of the site imposed in its place. While the progress of some of the works may no longer be "prevented", as is usually the test for a force majeure clause, the carrying out of the works is likely to be more costly, less efficient and delayed. Perhaps most fraught of all is the scenario in which the government formally lifts the lockdown and an employer insists on recommencement, the adherence to government 'recommendations' and the protection of workers from illness.

How does a contractor protect its interests in these scenarios? From a practical perspective, the incremental recommencement of work can lead to contractors having to invoke several different contractual protections and entitlements. Contractors are likely to find themselves issuing notices for several interconnected events under alternative contract provisions, keeping the position under review as the situation evolves and adjusting accordingly. It is possible that, in time, contractors will have to demonstrate the interrelated impacts of separate measures as these have accumulated, and then again as they are scaled down – something that might ultimately look a little like a disruption analysis.

To employers, this might feel like a contractual game – but, in reality, all parties are grappling with the need to administer the contract in circumstances that neither of the parties ever genuinely anticipated and for which many contracts are not designed to adequately cater. Notices are, first and foremost, communication tools, and should be regarded as a means by which the parties can collaborate for the benefit of the project, as well as protection of their legitimate business interests.

What is needed for all participants is a degree of consistency and leadership. Governments should do their best to navigate a path to their exit strategy on a national or regional level and to communicate it to employers and contractors alike. In the absence of government leadership, employers and contractors should seek to agree a way through that minimises and balances their respective exposures to financial pain, and that seeks to recommence the works at the same time as protecting the health and welfare of the workforce.