Coronavirus (COVID-19) has had and continues to have a negative impact on the economies of most countries resulting in severe consequences that have impacted almost all industries on a global basis. The Ugandan market is no exception to this considering the recent spike in the number of recorded coronavirus case in Uganda over the past weeks. This article seeks to assess the impact of this pandemic from the Ugandan legal perspective on businesses in general with specific focus on the construction industry. This serves to give practical guidance to the Ugandan Construction industry players on likely challenges that might arise from the Coronavirus outbreak.
This article is divided into three broad sections: (1) General Impact of Coronavirus on Business entities in Uganda; (2) General Impact of Coronavirus on construction project management in Uganda and (3) Special impact of Coronavirus on FIDIC 1999 Red Book Contracts concluded under Ugandan Law.
General impact of Coronavirus on business entities in Uganda:
There has been a general disruption of the ordinary flow of the supply and demand chain resulting directly from health safety measures like lockdown/stay at home, quarantine and social distancing put in place by government to manage the COVID-19 epidemic. The said disruption predestined that several businesses could not carry out their contractual obligations as earlier anticipated leading to likely breach of contract.
From a legal perspective, all business transactions across the country are given legal standing through a contractual standpoint and conformity of the business transactions shall be a defining feature for successful legal claims directly linked to coronavirus in Uganda. As a result, it is imperative for us to define a contract. According to Section 10 of the Contracts Act 2010, a contract is an agreement made with the free consent of the parties with the capacity to contract, for a lawful consideration and with a lawful consideration to be legally bound. The Contract Act stipulates that a contract may be oral or written or may be implied from the conduct of the parties. It is also important to note that any business transaction for which the value is above UGX. 500,000/= (Uganda Shillings Five Hundred Thousand Only) must have a written contract under Ugandan Law.
The negative consequences of the coronavirus epidemic on business entities is the unexpected downward disruption on the supply and demand forces for goods and services leading to serious performance hiccups. Many business’s performance targets have been grossly affected by the Covid-19 crisis and this might result in serious performance-related legal concerns for business in Uganda. For any business entity’s failure to perform or deliver within a fixed time depends on the nature of business undertakings at hand. This requires determination of whether time was of the essence to the business’ undertaking in question. This serves to guide the legal flexibility on solutions available to the parties in case parties opt for a subjective course in resolving their disputes.
General impact of Coronavirus on construction project management in Uganda
Construction project management is a holistic approach which considers a project in its entirety from start to finish. It does not view the different units within a project in isolation but instead provides a perspective of how each unit input and effect will be coordinated to complement each other in order to produce the final required outcome. For example; the management of a construction project seeks to blend the design elements of a building with the structural and service elements, buildability aspects, health & safety regulations, maintenance, resources and other numerous units to efficiently accomplish the multiple goals of the project.
Consistent availability of cash flow is key for a vibrant construction industry anywhere in the world. Infrastructural development cash flows from foreign direct investment, Public-Private Partnerships and individual investors have been disrupted or delayed as investors or business partners seek to reorient their investment goal to cope with the new challenges or opportunities presented by the COVID-19 pandemic. Cash flow issues combined with health & safety measures introduced to manage the spread of the Coronavirus like social distance have resulted in scope changes, site shutdown, demobilization, supply chain interference, safety budget increments, and cost adjustment.
Project managers and owners must objectively cope with the negative consequences as a result of the COVID-19 epidemic on their construction sites by effectively dealing with delay claims, disruptions and recovery or acceleration needs. They should also workout strategies and tactics to deploy in projects’ change and cost management. The quality and flexibility of the project players like contract management team, compliance team and claims team will come in handy during these trying times.
Impact of Coronavirus on FIDIC 1999 Red Book Construction Contracts concluded under Uganda Law.
The use of standard forms of contract in the Ugandan construction industry is majorly linked to the government’s utilization of private sector funding resources for public projects like roads, hospitals, and electric power projects. Some of the Private sector players like World Bank, local investors and foreign direct investment partners prefer legalizing their business engagements with standard contract form established institutions like the International Federation of Consulting Engineers (FIDIC), the Joint Contracts Tribunal (JCT), the New Engineering Contracts (NEC) and the Association of Consultant Architects (ACA) – project partnering contract (PPC2000) that have been tested and tried over a long period of time.
The choice of standard contract form depends on:
- The type of work to be executed,
- Size of the project in question,
- Public and private sector joint ventures, and
- Procurement method to be used.
The most widely utilized standard contract forms are the FIDIC Contracts specifically the FIDIC Red Book 1999 by entities like the Uganda National Roads Authority.
This article also seeks to point out entitlement clauses flowing out of disruption, delay and force majeure under the FIDIC Red Book 1999 that are likely to arise from the side-effects of the coronavirus on the construction industry in Uganda as listed below;
Sub-Clause 8.4 (Extension of Time for Completion) provides that an extension of time is warranted in the case of ‘Unforeseeable shortages in the availability of personnel or Goods caused by an epidemic or governmental actions…’ This sub-clause provides for a possible entitlement to an extension of time but does not provide for entitlement to the payment of costs.
Sub-Clause 19.4 (Consequences of force majeure) provides the following:
If the Contractor is prevented from performing any of his obligations under the Contract by force Majeure… and suffers delay and/or incurs Cost by reason of such Force Majeure, the Contractor shall be entitled subject to Sub-Clause 20.1 (Contractor’s Claims) to:
- An extension of time for any such delay, if completion is or will be delayed, Sub-Clause 8.4 (Extension of time for completion), and
- If the event or circumstance is of the kind described in sub-paragraphs (i) to (iv) of the Sub-Clause 19.1 (Definition of Force Majeure) and, in the case of sub-paragraphs (ii) to (iv), occurs in the Country (Uganda), payment of any such Cost.
However, in order for entitlement to an extension of time and costs to be considered under Sub-Clause 19.4 (consequences of Force Majeure) the conditions contained in Sub-clause 19.1 (Definition of Force Majeure) must be satisfied:
According to this Clause, “Force Majeure” means an exceptional event or circumstance:
- Which is beyond a party’s control,
- Which such party could not reasonably have provided against before entering into the contract…
- Which, having arisen, such party could not reasonably have avoided overcome, and
- Which is not substantially attributable to the other party.
The Coronavirus clearly qualifies under force majeure as defined above and any party to the contract can lawfully plead the same.
Sub-Clause 19.1 (Definition of force Majeure) however continues:
Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) to (d) above are satisfied:
- War, hostilities (whether war be declared or not), invasion, an act of foreign enemies,
- Rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war…
- Riot, commotion, disorder, strike or lockout by persons other than the Contractor’s Personnel and other employees of the Contractor and Subcontractors,
- Munitions of war, explosive materials, ionizing radiation or contamination by radio-activity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio-activity, and
- Natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity.
The coronavirus cannot be said to be ‘of the kind listed’, so this point is arguable and Contractors can expect a push back from Engineers or project manager and Employers because the matter is not clear cut.
For the payment of Costs, Sub-Clause 19.4 (Consequences of force Majeure) require the event to have occurred in the Country and as such a country is defined in FIDIC as the country in which the site (or most of it) is located, where the permanent works are to be executed. There is no doubt that coronavirus has been evidenced in Uganda and any event directly linked to the Coronavirus epidemic in Uganda might qualify under Force Majeure.
Sub-Clause 19.2 (Notice of Force Majeure) states that:
If a Party is or will be prevented from performing any of its obligations under the Contract by Force Majeure, then it shall give notice to the other Party of the event or circumstances constituting the Force Majeure and shall specify the obligations, the performance of which is “or” will be prevented. The notice shall be given within 14 days after the Party became aware, or should have become aware of the relevant event or circumstance constituting Force Majeure.
The Party shall, having given notice, be excused performance of such obligations for so long as such Force Majeure prevents it from performing them and each party must reasonably endeavor to minimize or mitigate project delays arising out of Force Majeure. A party shall give notice to the other party when it ceases to be affected by the Force Majeure. This implies that pleading force Majeure under FIDIC Red Book does not automatically mean the end of business for the project parties but will result in project suspension for an unknown period of time.
Entitlement to an extension of time is provided under Sub-Clause 8.4 (d) and Sub-Clause 19.4 but this is subject to the termination by Engineer under Clause 3.5 of the FIDIC Red Book 1999. Any dispute arising from the Engineer or project manager’s decision might entitle the aggrieved party to trigger the dispute resolution clause from further management of their dispute.
Any Entitlement under FIDIC standard contract forms depends on the notice requirements being complied with. Therefore, failure to give lawful notice leads to zero entitlement because communication and collaboration are very important in Construction Industry and FIDIC seeks to foster the same.
In conclusion, construction law and construction project management all emphasize the pertinence of collaboration and communication during and after construction works and it is my professional prediction that those who seek to take advantage of the said two principles shall emerge as winners during and after the Coronavirus pandemic. Those with bespoke construction contracts that do not cover project delay, disruption and force Majeure can always seek refugee under Sections 47, 64, and 66 of the Contracts Act 2010.