Myanmar unrest tests project contracts

Out-Law News | 07 Jun 2021 | 1:08 pm | 2 min. read

Project contracts in Myanmar are being tested to their limits due to the combined effects of the Covid-19 pandemic and political unrest, a specialist in contracts for major projects has said.

Bernard Ang of Pinsent Masons, the law firm behind Out-Law, whose work includes projects in Myanmar, said both employers and contractors operating in the country should review their contracts and undergo alternative scenario planning given the volatile situation in Myanmar, in order to determine the best options for them.

“It is rare that a single event, or two as is the case here, leads to the simultaneous application of so many clauses in a project contract, often thought of as ‘academic’ in contract negotiations,” said Ang. “The events in Myanmar have certainly put these clauses and their application under the spotlight.”

Contractual provisions dealing with force majeure, employer’s risks, epidemics, strikes, and civil unrest are those that have all taken on relevance, as a result of current events, according to Ang. Many other provisions add to the complexity of the risk analysis – including allocations of risks for unforeseeable shortages in goods and manpower, change in law, governmental actions, suspension and termination.

Contractors and suppliers unable to perform works under the contract could have a number of alternative contractual provisions to base their defence on. However, Ang cautioned that the consequences of each provision and their long-term operation need to be carefully mapped out and compared. He said that the volatile situation in Myanmar renders future events, such as sanctions or even civil war plausible, and such events could trigger even more contractual options, and/or require updating of mitigation plans and exit strategies.

As events continue to unfold, new remedies also appear. For example, the withholding of funding by lenders could trigger termination rights for contractors under the FIDIC forms, if the employer is thereby unable to provide assurance that financial arrangements are in place to enable the project to be completed.

Employers of distressed projects also have their own options, including mothballing their project via a partial or total suspension, or to opt for termination, whether for prolonged suspension, force majeure, or even for convenience, Ang observed. He said the consequences of each method of mothballing the project must be carefully weighed against a number of factors, including the likelihood of a swift return to normality, the relative costs of each option in terms of protective works and reinstatement upon resumption, and the likely state of the market when it is safe to resume – including the availability of construction expertise and resources in Myanmar.

Ang said that it is unlikely all these factors would have been adequately provided for under existing contracts, as no one foresaw the combination of these two events. He concluded: “It is likely that sensible parties will no doubt be mapping out a mutually agreed course of action outside of the existing contracts, including settlement agreements resulting in a win-win situation, or at least seeking to result in the least losses for both.”