What is the most commonly used standard form construction contract used in the country?
In South Africa, the most common standard form construction contracts are the International Federation of Consulting Engineers (“FIDIC”) forms of contract. The predominant forms are the first editions (published in 1999) of the:
- Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (also known as the Construction Contract or the “Red Book”);
- Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works Designed by the Contractor (also known as the Plant and Design-Build Contract or the “Yellow Book”); and
- Conditions of Contract for EPC/Turnkey Projects (also known as the EPC/Turnkey Contract or the “Silver Book”).
The FIDIC Red, Yellow and Silver Books are collectively referred to as the “Rainbow Suite”. Clause references and capitalised terms in this section refer to those used in the Rainbow Suite (1999 editions), unless specifically stated otherwise.
Does the contract include provisions on force majeure?
The FIDIC Red, Yellow and Silver Books all include provisions on Force Majeure at Clause 19.
Sub-Clause 19.1 defines “Force Majeure” as “an exceptional event or circumstance:
(i) which is beyond a Party's control;
(j) which such Party could not reasonably have provided against before entering into the Contract;
(k) which, having arisen, such Party could not reasonably have avoided or overcome, and
(l) which is not substantially attributable to the other Party.”
The definition of Force Majeure does not require that the event or circumstance be unforeseeable. Accordingly, contracts entered into post the Covid-19 pandemic would not be precluded from citing Covid-19 as being an event of Force Majeure, even though it was existing and known to the parties at the time of entering into the contract.
Sub-Clause 19.1 includes a non-exhaustive list of events (including, among others: (i) war; (ii) rebellion; (iii) riot; (iv) munitions of war; and (v) natural catastrophes) that may constitute Force Majeure, subject to conditions (a)-(d) above being satisfied. Epidemic, pandemic and/or plague are not included in the non-exhaustive list of Force Majeure events in Sub-Clause 19.1. Notwithstanding, the Covid-19 outbreak could arguably be construed as a “natural catastrophe” and would likely satisfy conditions (a)-(d).
Sub-Clause 19.2 states that if “a Party is or will be prevented from performing any of its obligations” by Force Majeure then it shall give notice “within 14 days after the Party became aware, or should have become aware, of the…Force Majeure.” The Party shall then be excused performance of such obligation, although payment obligations shall not be excused. A party seeking to rely on Force Majeure relief must be able to show that it is actually “prevented” from performing its obligations under the Contract – it is not sufficient for such obligations simply to be disrupted or made more expensive to perform. In the context of the Covid-19 outbreak, prevention could arguably include government measures imposed to limit the spread of Covid-19, including lockdown and quarantine measures and the suspension of issuing certain permits and visas.
Under Sub-Clause 19.3 both Parties have a duty to “use all reasonable endeavours to minimise any delay”. In the context of the Covid-19 outbreak, mitigation could include adjustments to the programme and resource management to minimise delay to the works. Also, the sourcing of alternative suppliers for goods, equipment and materials to mitigate against disruption to the supply chain.
Sub-Clause 19.4 provides that, if Sub-Clauses 19.1-19.3 (above) are satisfied and subject to the Contractor’s claims procedure and notice requirements set out in Sub-Clause 20.1, a Contractor will be entitled to an extension of time and, in certain circumstances, Cost. Cost would only be available in case of events “of the kind” described in sub-paragraphs (i) to (iv) above, where events (ii) to (iv) must occur in the country where the Works are being executed. Natural catastrophe is thus excluded as an event of Force Majeure that entitles a claim for Cost. As mentioned above, even though epidemic, pandemic and/or plague are not included in the non-exhaustive list of Force Majeure events in Sub-Clause 19.1, Covid-19 could arguably be construed as a “natural catastrophe”. In such case, a contractor would be entitled to claim for time but not Cost.
Sub-Clause 19.6 provides that either Party may terminate the Contract if “the execution of substantially all the Works in progress is prevented for a continuous period of 84 days by reason of Force Majeure… or for multiple periods which total more than 140 days due to the same notified Force Majeure.” This entitlement to terminate only arises if the Contractor is prevented from executing substantially all of the Works in progress, which is a high threshold to satisfy.
Does the contract include provisions for alternative relief that may be relevant to projects impacted by COVID-19?
Sub-Clauses 8.4 provides the Contractor is entitled to claim an extension of time, subject to the claims procedure at Clause 20, if completion of the Works is or will be delayed by, among other things, “Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions”. In the context of the Covid-19 outbreak, Contractors, whose supply chains are impacted by the pandemic, could seek to claim time relief under this clause. However, such relief may not be applicable for contracts entered into post-the Covid-19 outbreak, as the shortages must be “Unforeseeable” (i.e. “not reasonably foreseeable by an experienced contractor by the date of submission of the Tender”).
Sub-Clause 8.5 provides that, if the Contractor has “diligently followed” procedures laid down by public authorities and such public authorities cause “Unforeseeable” delay or disruption, the Contractor may claim an extension of time under Sub-Clause 8.4. In the context of the Covid-19 outbreak, the lockdown and quarantine measures and the suspension of issuing certain permits and visas could arguably constitute delay or disruption caused by public authorities. Again, relief is only available if such delay or disruption is “Unforeseeable” (see above).
Sub-Clause 13.7 provides the Contractor is entitled to claim an extension of time and Cost, subject to the claims procedure at Clause 20, in relation to any “change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws)…made after the Base Date, which affect the Contractor in the performance of obligations under the Contract.” “Laws” means “all national (or state) legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally constituted public authority.” Given the relatively wide definition of Laws, the introduction of quarantine and lockdown measures relating to Covid-19 could arguably entitle the Contractor to claim time and Cost. Such change in Laws must occur after the “Base Date”, being “28 days prior to the latest date for submission of the Tender.”
Sub-Clause 17.4 provides the Contractor is entitled to claim an extension of time and Cost, subject to the claims procedure at Clause 20, in relation to Employer’s risks set out in Sub-Clause 17.3. Such risks include, at sub-paragraph (h), “any operation of the forces of nature which is Unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions.” If the Covid-19 pandemic is deemed a force of nature, then relief may be available to a contractor that suffers related loss or damage that is “Unforeseeable” (see above) or that could not reasonably have been prevented against. This second limb could allow contractors to claim for foreseeable loss related to Covid-19 (i.e. under contracts entered into after the pandemic outbreak).
Do the laws of the country provide for force majeure relief?
Force majeure does not form part of South African common law. However force majeure clauses are often included in contracts subject to South African common law and there is a body of case law from the South African courts in which they have considered force majeure clauses which have been the subject of litigation.
Do the laws of the country provide for alternative relief that may be relevant to projects impacted by COVID-19?
South African common law recognizes the principle of supervening impossibility of performance. The event must be objectively and absolutely impossible and not merely burdensome. These events are known as vis major (major force), or casus fortuitous (accidental occurrence). When such an event occurs, the obligations of both parties are extinguished.
Parties to contracts often include an appropriate force majeure clause, as supervening impossibility is usually more difficult to prove.
As with force majeure clauses, whether or not supervening impossibility of performance has occurred is fact specific and can be complex.