Coronavirus: the impact on construction in Qatar

Out-Law Analysis | 07 Apr 2020 | 11:36 am | 8 min. read

The Qatar government has taken measures to curb the spread of coronavirus, Covid-19, and some of these will have an impact on the construction industry which is already dealing with a sudden and unexpected oil price war.

The measures affect people, supply chains and financing arrangements, but companies can take action to address the challenges they face.

The Qatari government has taken the following steps to limit the transmission of the virus:

  • suspended entry for a limited period of time to all residents who are currently outside the country;
  • shut down schools;
  • shut down the Metro;
  • introduced changes to bus services for travel between labour camps and sites;
  • suspended the entry of all valid visa holders, who are currently out of the country for a renewable period of two weeks effective from 18 March 2020 until further notice, with the exception of receiving any Qatari citizens coming from anywhere in the world;
  • directed that anyone entering Qatar must self-isolate for 14 days;
  • directed that 80% of the work force of the private sector are to work from home from 1 April 2020, with certain exceptions;
  • directed that the working hours of employees and workers in the public and private sector who are still required to attend their workplace are reduced to 6 hours per day from 07.00 - 13.00, although some projects considered to be in the national interests have been exempted from this restriction;
  • locked down an entire area of the Industrial Area where staff, labourers and materials for construction sites are located;
  • mandated the closing down of canteens in labour camps;
  • shut down certain sites in their entirety.

These measures have implications for the Qatari construction sector.

The people factor

The restrictions on flights into Qatar from countries such as India and the Philippines will have an impact on projects at mobilisation stage. Recruiting and moving employees from on and off site roles will become more challenging and short to medium term issues can be anticipated.

The closing of schools across the nation coupled with working from home guidelines will also impact, at least in the short term, companies' off-site employees, and may lead to reductions in productivity while companies put in place software capable of enabling remote working.

There is likely to be disruption to individual mobility as a result of the reduction in buses and the operation of fewer services, and restrictions on number of passengers, as well as the shutting of the metro services completely. Travel to and from construction sites, labour camps and HQ is disrupted and employers are facing demands for alternative travel arrangements to be put in place for employees.

In cases where employees are based in the Industrial Area and are locked down, they are being paid salaries while not working, causing imbalance to the project's finances.

In labour camps and on construction sites the obligation to provide food has been affected by the prohibition on dining in site canteens. The provision of food to employees by alternative, more expensive, means is an increased cost to employees.

The supply chain

Though there are severe travel restrictions for people this is not the case for cargo and freight transfer via sea and air, though delays have been reported due to staffing issues.

As the situation in China improves Chinese government containment and quarantine measures are being lifted and the production of materials and good from China, which Qatari contractors often depend on, will become available again soon.

As the Covid-19 epicentre shifts from China to mainland Europe and the US, the Qatar construction industry is likely to face shortages of materials from there. Contractors in Qatar are particularly reliant on suppliers and manufacturers in Europe for mechanical, electrical and plumbing products and the European impact may lead contractors to find alternative suppliers. This may affect the price of the goods themselves and raises questions about cancellation of purchase orders and the termination of existing contracts.

The delay and disruption 'up the line' will also naturally feature in claims for extensions of time and associated cost. Whether those claims are rooted in the contract or Qatari Civil Code depends on the wording of the contract and the remedies available contractually. Contractors may well be better, financially, to rely on the Civil Code provisions such as Article 171 (2) for compensation rather than a force majeure provisions which gives time but not money.

Project financing

Given the current uncertainty it is anticipated that contractors will face challenges obtaining financing from lenders unwilling to commit to supporting infrastructure projects.

Because of the drop in the oil price projects relating to the production of gas will face particular scrutiny from banks, which may be forecasting budget deficits and subsequent large scale de-scoping of capital state funded infrastructure and energy projects, as happened when the oil price dropped in 2014.

The slow momentum the public private partnership procurement model was gathering in Qatar may well be accelerated now, with Covid-19 as a catalyst for change. Lenders involved in funding those deals will of course be cautious about committing to such long-term projects until some degree of economic stability returns.

Disruptions to the supply chain and labour market increase the risk associated with complex infrastructure and energy projects, and the likelihood of delay and default. In such circumstances project finance is likely to be limited and banks will be carefully assessing the contractor making the request, the government's reaction to the Covid-19 pandemic to date and their own balance sheets, before committing.

How contractors can manage the business impact of Covid-19

There are steps contractors can take to manage the impact of the virus. To do this a team should be designated as a Covid-19 task force responsible for monitoring Qatar government guidance and communicating the measures being introduced every day to senior commercial directors.

  • Project directors, managers, lawyers and contract managers should review the terms of existing contracts both 'up the line' with employers and main contractors and 'down the line' with subcontractors, suppliers and manufacturers. For each contract, ask:
  • does it have a force majeure provision?
  • does the force majeure provision require performance to be 'impossible' or not?
  • do the Covid-19 implications fit into the scenarios described in the force majeure provision?
  • is notice required to be served and when?
  • does it give the contractor time and money or just time?
  • does the contract have a 'change in law' provision?
  • when is the 'suspension' provision triggered?
  • when is the 'termination' provision triggered, and is notice and a court order required?

Other measures include:

  • Prepare templates: usually contractors adopt a standard form template for subcontracts, suppliers and purchases. If a business adopts a single contractual response to the Covid-19 outbreak, it may be possible to prepare a template letter for use by everyone. This will save time and ensure consistency.
  • Produce a supply chain map: this should identify each supplier, where they are located, what they are producing and when it is due to arrive on site. This can be used to identify and anticipate blockages in the chain, review the relevant contract and plan alternative solutions.
  • Mitigate exposure: contractually there is usually either an express or an implied obligation to mitigate the impact of delays to progress. Options for dual sourcing, stockpiling and obtaining goods and materials from alternative sources should all be considered.
  • Draft Covid-19 into new contracts: any new contracts should contain specific provisions dealing with issues anticipated as a result of Covid-19 related measures.
  • Train: contract managers and procurement teams should be given training to ensure contractual rights and remedies are not inadvertently waived and variations introduced by employers are priced, or at least notified, accurately in light of recent government directives.
  • Signatory availability: those authorised to sign contracts may not be able to do so in person. Consider whether there workarounds are available including e-signature options.
  • Keep records: never has tracking the impact of a compensable event been more critical. Cash recovery from claims will become a key priority at every level of the supply chain. Ensure records are kept and insist the same from subcontractors.

The impact on people

There are actions companies can take to manage and reduce the impact of coronavirus on people.

Companies should stay up to date with the Qatar's government's most recent announcements about the issuance of new work permits, and travel restrictions.

They should conduct a health and safety risk assessment and put in place measures to ensure the health and safety of employees in line with Qatar government guidance.

Employees should be provided with clear, unambiguous policy changes and procedures.

Absence procedures should be reviewed. It may be preferable to permit notification of and requests for periods of absence to be made by email or phone. Coronavirus-related absence may be notified to a central inbox to track workforce impact and comply with reporting obligations.

Consider what steps should be taken to enable staff to work from home, such as issuing laptops, installing software, amending network capacity.

Hundreds of employees could be affected on any one project. Tracking each employee's personal situation including their visa status and extensions that may be needed due to travel restrictions, for example, will help monitor the impact.

Clear records and an audit trail of each action and decision taken can later be used as evidence of compliance and mitigation.

Health and safety

It is likely that additional buses will be needed to transport workers from their accommodation and labour camps to construction sites given the Qatar government directive limiting capacity to 50% or less. Identify alternative private transportation options and record the cost to later include in a claim for compensation if one is made.

Employees health and safety is paramount and a risk assessment should be conducted on every construction site and within every office building to ensure the working environment does not expose employees or visitors to infection.

Introduce measures to keep people safe, taking World Health Organisation advice into account, such as:

  • providing hand washing facilities, regularly restocking anti-bacterial soap and checking and cleaning the associated facilities;
  • providing additional hand sanitiser stations around the working environment;
  • communicating the hand washing protocols and other WHO advice through signage;
  • provide gloves and masks to employees regularly;
  • encourage social distancing;
  • consider screening visitors, such as with temperature checks;
  • consider restricting access to essential personnel only.

Insurance

All insurance policies should be reviewed, particularly 'business interruption' type policies, and notification obligations complied with. Contractors All Risk policies sometimes cover business interruption but it depends on the individual policy. Also, the insuring clause in the relevant policy will typically include a large number of significant exclusions. Accordingly, the cover that is provided by CAR policies can vary considerably and the individual wording must be checked carefully to determine what is (and is not) covered by a particular policy.

The classification of the virus by the Qatar government and international agencies such as WHO can influence the availability of insurance and should be monitored.

Companies should discuss existing cover with insurers and brokers and seek to understand where this might be applicable to broader business decision-making around activity cancellation or staff movements.

Many businesses will have claims relating to Covid-19 and insurers will be inundated. Notification obligations under the policy and procedures the policy requires the insured to follow should be implemented as a priority.