In South Africa, local construction projects are impacted by the novel coronavirus due to indefinitely delayed shipments of construction material. Since the first case of coronavirus was confirmed in Hong Kong in early February 2020, the government has imposed various measures in an attempt to contain the spread of the coronavirus. Factories in China remain closed as some regions extend shutdowns amid coronavirus quarantine efforts. Delayed shipment notices have been issued with calls for patience as China does its best to fight the epidemic.
Construction projects in China have been affected by:
- the delay caused by disruption to public services e.g. delay in issuing permits or approving drawings;
- the delay caused by the temporary suspension of work on-site e.g. workers being asked to self-quarantine; or
- insufficient construction workers in Hong Kong as a result of a quarantine imposed by Hong Kong or travel bans imposed by other countries
Who should be bare the risk of the resulting loss and delay?
The South African construction industry needs to mitigate possible damages. Contractors are analysing the contracts and financial impact that the virus could have on the projects in South Africa.
According to Natalie Reyneke, a director at MDA Attorneys, contracts typically place the risk of material delivery and delays on contractual completion times squarely on the shoulders of contractors. She notes that contractors may, however, have a reprieve if their contracts have adequate provisions to allow for time extensions. For example, the impact of the virus may be seen as an unforeseen circumstance that prevents either of the parties from fulfilling their obligations under the contract (force majeure).
A construction contract could also allow for time extensions when contractors cannot obtain materials or there is a shortage as a result of an unforeseeable epidemic.
Cost implications of the shipment delay
“Project delays have significant cost implications. When an event occurs that is beyond the control of the parties, they usually share the risk,” says Reyneke.
Then a contractor would bear the monthly expense of being on-site for longer than expected if there are delays, and the project owner would take the risk of other costs and expenses incurred due to late project completion.
Dr Michael Ade, chief economist of Seifsa (the Steel and Engineering Industries Federation of Southern Africa) that the industry body is currently advising its members not to travel to China. He says usually many of their members travel to China to negotiate and conclude contracts there.
“It is actually really sad to now have the impact of the coronavirus concerns on our industry. It comes just as we were hopeful in the light of recent trade agreement progress between China and the US.”
Ade is concerned that, if the virus is not contained or a vaccine developed within the next few months, the local steel industry will experience a negative impact, which could spill over into negatively impacting local production and employment. At the same time, he applauds the Chinese authorities for putting measures in place to deal with the virus.
What parties can do?
Parties should review their construction contracts and understand their contractual rights and obligations that may arise in the event of a disease outbreak, including an extension of time and loss and expense clauses.
In response to the outbreak, China is building new hospitals and has asked citizens to work from home where possible. With many workers not at factories, there are fears that the global supply chain could be squeezed and lead to even more construction industry delays.