In a recent E-Live webinar hosted by Construction Business News Middle East and in partnership with du, Joanne Strain, Partner, King & Wood Mallesons, Dubai, examines how the post-COVID-19 era will impact future construction contracts
(VIDEO: E-Live Webinar Recap: Legal Challenges in Construction)
The webinar revolved around how contractors are dealing with COVID-19 pandemic from a legal point of view. COVID-19 has disrupted almost every industry and with projects being delayed due to a variety of reasons due to COVID-19, how do current contracts give reprieve to contractors and what may future contracts look like to ensure that contractors are protected in the future.
Here’s what Joanne had to say on this topic:
“As contractors and developers across the UAE continue to address the financial and operational disruptions caused by COVID-19, many are re-examining existing commercial terms, and lessons have been learned as to how future contracts can be improved.
Force majeure clauses remain in sharp focus. Many contractual clauses can be improved by expressly including, or excluding, epidemics and/or pandemics from their terms. Parties should consider whether a future outbreak of COVID-19 would have the potential to be a force majeure event, or if this would be excluded as a foreseeable event.
Many contracts offer protection to parties in the event of non-performance caused by a change in the law. As we readjust to a new normal, more contracts can be expected to expressly provide for whether regulatory guidelines issued by government entities, such as the Department of Economic Development, municipalities or the UAE Ministry of Health, should fall within this definition.
Changes to government regulations and international border restrictions have had a significant impact on project execution, forcing contractors to improve domestic supply chains, often at their own expense, to avoid further time delays. In future, risks can be mitigated by carrying out thorough due diligence on the supply chain pre-contract. Contractual promises can be incorporated to ensure a diversified supply chain source from sub-contractors, with early notice provisions if a supply chain becomes concentrated in a single jurisdiction, to allow for preventative steps being taken.
Recent disruption events have caused many to review business disruption insurance, often finding a lack of cover for harm not entailing damage to property. In future, wider policies, which may include an extension of cover to where the insured is prevented from access to premises, can be expected to be a more popular choice.
More generally, recent months have seen a surge in commercial parties asserting provisions of the law which may assist in circumstances of distress and non-performance, most notably the hardship and force majeure clauses under the Civil Code. While it is clear the law offers some protection, in some circumstances where, for example, unforeseeable events of a public nature render commercial terms unfair or impossible to perform, the best and safest course is undoubtedly to build express contractual protection into the contract itself.
Vague and imprecise contract terms too often result in early disputes as to whether the given terms apply to any particular situation and should be avoided. On the other hand, a well-drafted clause can offer certainty as to the respective parties’ options on the occurrence of a disruption event, as well as a road map for combatting the inevitable consequences.
The UAE construction sector has proved itself to be resilient in dealing with the very significant challenges posed by COVID-19 events, responding with versatility to changing regulation and the increased health and safety demands of operations during the pandemic. Communication between stakeholders has been key. Going forward, commercial parties share a common interest in negotiating commercial terms that reflect the lessons learned along the way.”
