MCO 2.0 & BEYOND : EFFECTIVE CONTRACT MANAGEMENT
by Lim Chee Yong, Lee Hishammuddin Allen & Gledhill
Construction projects both local and abroad have not been spared by the lasting (and continuing) impact of the COVID-19 pandemic (“COVID-19”). The risks and challenges faced by the local construction industry have been well documented in the press. Risk of delays and increasing construction cost, both of which require swift and effective mitigation, threatens successful completion of a construction project.
As we cross the 1-year mark since the Government’s imposition of the movement control order (“MCO”), we briefly examine some of the key issues faced by contractors and explore the steps to be taken (and due consideration to be given) in providing some degree of relief to contracting parties.
#1: Understanding Your Contract, EOT & L/E Claims
It is not uncommon for contractors’ claims for relief, either for additional time or monies, to be rejected by contract administrator against the competing interests of employers who themselves are subject to the uncertainty of the pandemic. There may be an inherent suspicion that contractors will attempt to rely on COVID-19 in inflating claims and hiding delays for which they are culpable. Contractors should therefore properly review and understand the underlying contract.
Whether a global pandemic, such as COVID-19, entitles contractors to additional time would be dependent on the exact wording of the extension of time provision. Terms such as force majeure and unforeseeable event beyond parties’ control would appear to provide additional time to contractors.
Some standard form of contracts identifies acts of the Government[1], e.g. imposition of MCO, and the unforeseen disruption to the supply chain[2] as entitling contractors to additional time. Aside to Government projects under the purview of the Public Works Department, contract administrators have been directed[3] to grant 84 days to account for MCO 1.0, with the discretion to grant an additional 30 days for the remobilisation of labour and ramping up of works.
Entitlement to additional time does not necessarily lead to entitlement to loss and expense. Even if contractors are able to identify a trigger event giving rise to additional time, contractors may not always be entitled to loss and expense flowing from such trigger event[4].
#2: Respect Conditions Precedent
Contractors could be precluded from later bringing a claim or asserting its contractual rights if conditions precedent in the underlying contractual provisions are not met. Some provisions may go as far as stating that a contractor expressly waives its rights to a claim if the condition precedent is not complied with strictly.
Extension of time and loss and expense provisions often require contractors to submit its claim[5] within a prescribed timeframe. Typically, this could be a matter of days or within a 1-month period. Where the period for compliance is less clear, it is generally understood that there must be no undue delay[6] in submitting a claim. After all, “a timeous notice given at the relevant time will allow contemporaneous matters to be investigated more easily rather than insipid complaints raised years later”[7].
Conditions precedent should therefore be strictly adhered to ensure that contractors do not inadvertently waive their entitlements as a result of a late/incomplete claims.
#3: Document Management Is Mandatory, Not Optional
All claims must be supported with contemporaneous documents. Disputes are won on documents and not factual witnesses/lawyers. Even the best lawyers and/or claims consultants will struggle to successfully present a claim if there are substantial gaps in documentary trail that goes against the contractors’ claim narrative.
COVID-19 fast-tracked the notion of remote working, highlighting the significant shift towards reliance on electronic records. Contractors should therefore ensure that a well-organised, electronical document management system is maintained. Properly implemented, such a system will significantly ease efforts (essential management time and resources) to identify and locate correspondence, claims and notices between contracting parties to address future claims and/or disputes.
#4: Re-assess Commitments In Future Contracts
By the very definition of force majeure, i.e. circumstances that are unknown, unexpected or beyond parties’ control at the time of contracting, issues of foreseeability may restrict the reliefs afforded by force majeure provisions for future COVID-19 related claims in contracts that are entered into after MCO 1.0. Given the widespread awareness of the scale and impact of the pandemic since March 2020, contractors’ future COVID-19 costs (both in terms of time and monies) are likely to be regarded as foreseeable and excluded as a force majeure event.
Contractors should therefore properly consider if new contracts being entered into provide sufficient reliefs against, among others, disruptions to the supply chain/sub-contractors and any new measures that may be imposed by the Government to curb the spread of any future pandemics (not just COVID-19).
Conclusion
As best practice, a contractor should therefore –
- from an early stage, evaluate the underlying contract and understand the reliefs provided including any procedural steps or conditions precedent that must be complied with to properly safeguard its legal and commercial rights;
- introduce, implement and maintain a document management system to record the project documentary trail to support any claims that it may wish to make (or address any claims against the employer); and
- carefully consider, before entering into future contracts, the safeguards and reliefs afforded against future pandemic-related disruption claims.
[1] See Clause 23.8(p) and 23.8(w) of PAM Contract 2006 (With Quantities).
[2] See Clause 43.1(i) of PWD Form 203A (Rev. 1/2010).
[3] Circular from the Director-General of Public Works dated 22.6.2020 [Ref: JKR.KPKR:121.010/05 Jld.19 (19)].
[4] See, for example, Clause 44 of PWD Form 203A (Rev. 1/2010). Loss and expense claimable only under limited circumstances. Force Majeure, disruptions to supply chain and compliance with authority’s requirements do not give rise to loss and expense entitlement.
[5] The underlying provision determines whether only the notice of intention to claim must be submitted, or that both the notice and supporting particulars be submitted together, within the specified timeframe.
[6] In Hillingdon London Borough Council v Cutler [1967] 3 WLR 246, “forthwith” was interpreted as a reasonable time thereafter provided that no harm is done.
[7] Yuk Tung Construction Sdn Bhd v Daya Cmt Sdn Bhd and another appeal [2020] MLJU 1084 at [71].