Update Real Estate & Construction | Special newsletter coronavirus
Corona on the construction site
The coronavirus has arrived in Germany. This is the central statement of the press conference held by Chancellor Angela Merkel on March 12, 2020. Ongoing construction projects are therefore also affected by the corona crisis, with considerable construction delays to be expected.
Contractual provisions are usually lacking
Contracts are reflecting the parties’ experiences and expectations. They provide for conceivable or expected circumstances, aiming to create legal certainty. No one could have expected a corona pandemic, however, that would lead to quarantine measures for individuals and cause entire plants to shut down. How to deal with construction delays and, in the worst case, construction halts if contractors are unable to procure building materials, their workers fall ill from the coronavirus or they are quarantined as a precautionary measure? Specific contractual provisions relating to the effects of the corona crisis on the construction period are usually lacking. These situations are therefore governed by statutory provisions and the regulations of the General Terms of Contract for the Execution of Construction Work (VOB/B).
The risk of delay in case of force majeure is borne by clients
In principle, contractors are liable for construction delays for which they are responsible. Examples include incorrect planning and coordination of material procurement and on-site work. In such cases, client are entitled to claim compensation from contractors for the damage caused by the delay.
In the event of force majeure, however, contractors are not responsible for delays. In this case, the client shall bear the costs arising from the delay alone. The client shall bear the risk of delay in this respect. The VOB/B expressly provides for an extension of the execution deadlines.
Corona per se is not force majeure
Force majeure is an unforeseeable, unavoidable, and external event. Even in the event of construction delays due to the corona crisis, these strict conditions do not always apply. If contractors claim to be unable to continue work because of a lack of inventory and the inability to procure building materials, it must be examined in each individual case whether they cannot procure the necessary building materials by other means, where necessary for considerably more money. The risk of rising prices up to the limit of unreasonableness is generally borne by the contractors.
Contractors must plan with foresight
It must also be examined, however, whether contractors would have been able to secure building materials at an earlier stage if they had planned their construction processes with foresight. Contractors need to check with their suppliers about inventory levels and potential production bottlenecks. This is all the more important in view of the fact that the coronavirus is not spreading so suddenly all throughout Germany that there would be no time to take preparatory steps. It has been known for weeks that not only medical supplies and pharmaceuticals are critically low. Further effects of the corona crisis are not always unforeseeable. If necessary, contractors need to store building materials procured as a precautionary measure at their own sites.
Force majeure in the event of official orders
Force majeure is deemed to exist, however, if contractors’ construction sites or entire companies are shut down due to official orders and their workers are quarantined. Contractors are neither obligated nor will it likely be possible for them to have services that they are supposed to perform with their own staff performed entirely by a third party. If only a part of the contractors’ workforce is absent, however, contractors will most likely be expected to compensate such absences by hiring third parties.
New construction contracts only with corona clauses
New construction contracts should in any event provide for “corona clauses” that unequivocally govern the handling of effects of the corona crisis between the parties, at least to the extent that they can be assessed at present.
Recommended action for the time being
Both clients and contractors should be engaged in joint crisis management at the current time. Inventory levels at suppliers are to be checked and documented, as well as the availability of third parties that could fill in for contractors’ workforce that is unable to work. This will most likely be the only way allowing contractors to prove that they have done everything reasonable to avoid construction delays.
On our topics page you will find further, daily updated information on the Corona crisis.