Global Vantage: FIDIC releases guidance note on impacts of COVID-19 and the invasion of Ukraine

In March, the International Federation of Consulting Engineers (FIDIC) released a Guidance Note in relation to the various FIDIC conditions of contract (i.e. Red Book, Yellow Book, Silver Book) with a focus on the impacts that the COVID-19 pandemic and 2022 invasion of Ukraine by Russia can have on those contracts.  The FIDIC Guidance Note discusses these events in the context of a ‘Force Majeure’ or ‘Exceptional Event’ under the relevant FIDIC contract, and sets out a number of scenarios for consideration of when a contractor is likely or not to receive relief for time or cost under the contract.

In this latest edition of Global Vantage, Antony Smith and Cameron Baker discuss the FIDIC Guidance Note as well as preconditions that contractors will need to be aware of regarding their entitlement before submitting a claim in relation to a ‘Force Majeure’ or ‘Exceptional Event’ under the relevant contract.  A full copy of the FIDIC Guidance Note can be found here.

Notice provisions in the contract

Contractors will need to be mindful that on the occurrence of any event impacting their project, they will not immediately be entitled to relief for time or cost, and will need to submit the relevant notice of claim pursuant to the applicable notice provision under the contract.  This will also include subsequent notices if the event is an ongoing delay and in some circumstances if required by the contract, notice that the event is no longer impacting the performance of the works by the relevant contractor.

Further, the FIDIC Guidance Note also discusses threshold matters that contractors are required to satisfy in order for a claim related to a ‘Force Majeure’ or ‘Exceptional Event’ to be valid.  In addition to the event being ‘exceptional’, the event must also:

1. be beyond the party’s control;
2. be one that the party could not reasonably have provided against before entering into the contract;
3. once arisen, be one that the relevant party could not have reasonably avoided or overcome; and
4. not be substantially attributable to the other party.

On the matter of COVID-19, the FIDIC Guidance Note addresses that points 1 and 4 might be easily satisfied. However, as this began in 2020 and impacts are still being experienced to the present day, a contractor may have a different threshold to overcome in relation to point 3 for a claim submitted today than it did in 2020.  This is because it is expected that contractors should now have experience in dealing with and developing strategies to address the impacts of COVID-19 on the project.  Therefore, what is reasonable has changed in terms of assessing a response by a contractor.

Time is not always money: Time and cost relief due to an event

A contractor will also need to be mindful when submitting a claim related to a ‘Force Majeure’ or ‘Exceptional Event’ that while they might be entitled to an extension of time for completing the works, it might not always be entitled to cost.

The FIDIC Guidance Note sets out for example that whether the event is a ‘natural’ or ‘man-made’ event will impact the entitlement of the contractor.  A natural event in the context of COVID-19 could be a site closure due to an outbreak and the contractor would not be entitled to a claim for its cost despite being awarded an extension of time.  A man-made event in the context of COVID-19 or the invasion of Ukraine by Russia would be any law or regulation of an authority preventing the execution of the works, for instance an enforced lockdown, curfew or border closure.

Scenarios in FIDIC Guidance Note

The FIDIC Guidance Note sets out 10 scenarios that address whether a contractor would or would not be entitled to time and cost in light of a claim for a ‘Force Majeure’ or ‘Exceptional Event’ due to the COVID-19 pandemic or invasion of Ukraine by Russia.  While this article will not set out in detail each scenario, we provide an overview of some of the examples considered:

1. The unavailability of goods because of COVID-19 or the invasion of Ukraine, with or without alternative sources of supplies.
2. The unavailability of goods because of a third-party country having trade bans against Russia.
3. The impact of inflation on costs and continuing performance of the contract.
4. The impact of no longer being able to complete the works due to COVID-19 or the invasion of Ukraine.

The purpose of both the FIDIC Guidance Note and this article is to provide an overview of how the COVID-19 pandemic and Russian invasion of Ukraine could impact a FIDIC contract, and are not to be taken as legal advice.  If you have a specific query related to a project or contract, please do not hesitate to get in contact with our project advisory team.