Coronavirus: Remedies For Hong Kong Construction Contractors.

Legal News & Analysis - Asia Pacific - Hong Kong - Construction & Real Estate

Asia Pacific Legal Updates

 

17 March, 2020

 

Coronavirus: Remedies For Hong Kong Construction Contractors.

 

Construction contractors in Hong Kong have had a difficult year with the slower award of government contracts, social unrest affecting business sentiment and now the need to implement special work measures to prevent the spread of the coronavirus.

 

The current outbreak of the coronavirus, officially Covid-19, is an issue of concern for construction organisations including the Hong Kong Construction Material Association Limited and the Construction Site Workers General Union, as construction contracts are being badly affected.

 

While it is hoped that employers will take a sympathetic view of the impact of the outbreak on construction works and grant contractors extensions of time and additional costs, experience shows that contractors need to be ready to protect their own interests if disputes arise. Contractors should take action. Doing nothing and hoping for the best is not an option.

 

Contractual basis

 

Common standard form contracts used in Hong Kong include:

 

  • the MTRCL Entrustment Contract (MTRC);
  • the Hong Kong Government General Conditions of Contract for Civil Engineering Works 1999 edition (GCC 1999);
  • the Airport Authority Hong Kong General Conditions of Contract for Building Civil Works August 2011 edition (HKAA 2011);
  • the Standard Form Building Contract published by the Hong Kong Institute of Architects 2005 edition (HKIA 2005); and
  • the NEC3 ECC (NEC3).

 

With the exception of MTRC, none of these standard form contracts refer expressly to epidemics or spread of diseases. MTRC clause 55.1 requires the contractor to comply with orders and regulations issued by the government if there is an outbreak of illness of an epidemic nature, but does not provide for extensions of time or payment of additional costs.

 
Outbreak of illness does not fall within the meaning of "excepted risks" used in most of the standard forms ... So contractors may have to rely on other clauses in the contract.

Tim Hallworth, Legal Director

 

Outbreak of illness does not fall within the meaning of "excepted risks" used in most of the standard forms that might otherwise have entitled contractors to time or money. So contractors may have to rely on other clauses in the contract such as:

 

  • suspension;
  • force majeure and prevention;
  • change in law;
  • instruction by the engineer;
  • delay in delivery of materials;
  • variation;
  • delay as a result of the engineer's flexible working arrangements; or
  • special circumstances.

 

Consider the relevant contract provisions

 

The standard forms of contract often provide routes for the granting of extensions of time and additional cost due to the coronavirus on one basis or another. However, contractors will need to carefully analyse the relevant facts and their particular contract provisions and amendments.

 

Some examples of possible bases of entitlement under the common standard form contracts used in Hong Kong are:

 

Event

GCC 1999

MTRC

HKAA 2011

HKIA 2005

NEC3

Suspension (if ordered by employer / engineer / architect due to outbreak)

Time and money

(clauses 50(1)(b)(viii), 54(2)

Time only

(clauses 68.1(h), 72.1 and 72.2)

Time and money

(clauses 44.3(a)(xii), 49.1 and 55.1(xii))

Time and money

(clauses 23.3(c), 25.1(3)(j) and 27.1(2)(e))

Time and money

(clause 60.1(4))

Force majeure (if coronavirus outbreak is a "force majeure" event)

No force majeure clause therefore no time and no money

No force majeure clause therefore no time and no money

No force majeure clause therefore no time and no money

Time only

(clause 25.1.3(a))

Time and money:

not force majeure but an event neither party could prevent (clause 60.1(19)); clause often amended so only time not money

Change in law (if contractor needs to comply with any new law or regulation in relation to coronavirus)

No time and no money

No time and no money

No time and no money

No time and no money

Potentially time and money

if provided for in NEC Option X2 / additional condition

Instruction by the employer / engineer / architect to take “special work arrangements”

Potentially time and money

if amounts to suspension (see above), access restriction (clause 50(1)(b)(vi)), or variation (see below)

Potentially time and money

if amounts to suspension (see above), access restriction (clause 65), or variation (see below)

Potentially time and money

if amounts to suspension (see above), access restriction (clause 42), or variation (see below)

Potentially time and money

if amounts to suspension (see above), access restriction (clause 25.1.3(s)) or variation (see below)

Potentially time and money

if amounts to a suspension (see above), access restriction (clause 60.1(2)), variation (see below), or breach (clause 60.1(18))

Delay in delivery of materials (from China due to the coronavirus)

No time and no money.

Contractor is generally responsible for materials and delivery (clause 10) - if material is to be provided by employer then money only (clause 63(e))

No time and no money.

Contractor is generally responsible for materials and delivery (clauses 1.1.60 and 10.1(c))

No time and money with no such express provision.

No time and no money

Contractor is generally responsible for materials and delivery (clause 8.1.1) - if material is to be provided by the Employer then time and money (clauses 25.1(3)(r) and 27.1(2)(j))

Potentially time and money

See under force majeure above, also entitlement where supplies by employer or third parties (clauses 60.1(3), (4), (16) and (18)); but clauses often amended so only time for neutral events and delays by third parties

Variation (if coronavirus led to variation as defined in contract)

Time and money

(clauses 50(1)(b)(iv) and 63(b))

Time and money

(clauses 68.1(b) and 80)

Time and money

(clauses 44.3(a)(xiii) and 55.1(xv))

Time and money

(clauses 25.1(3)(h) and 27.1(2)(c))

Time and money

(clause 60.1(1))

Delay as a result of engineer / architect / employer's flexible working arrangements

Potentially money only(clause 63(a))

Potentially time and money(clauses 7.4, 9.7, 16.4 and 68)

Potentially time and money(clauses 7.5, 44.3(a)(i) and 55.1(i))

Potentially time and money(clauses 25.1(3)(l) and 27.1(2)(g))

Potentially time and money(clauses 60.1(3), (5), (18) and (19)); clauses often amended so only time for neutral events and delays by third parties

Any other special circumstance

Time only(clause 50(1)(b)(xi))

No similar blanket provisions - not within meaning of "excepted risk"

No similar blanket provisions - not within meaning of "excepted risk"

No similar blanket provisions - not within meaning of "excepted risk"

Potentially time and money:

see under force majeure above

 

Contractors may also consider common law remedies such as claiming damages for breach of an implied term – for example, that the employer will not hinder the contractor from carrying out and completing the works. However, the primary basis of any entitlement should be the relevant and applicable terms of contract.

 

It is not always clear which route will be the best basis of entitlement for the contractor. Contractors may not be able to point to one clause for a full remedy, and may have to rely on multiple provisions - used in conjunction with the common law - in order to be granted both time and money. Contractors will need to carefully analyse the terms of the contract as well as any special conditions in order to determine their entitlement, and legal advice should be sought if necessary.

 

Contractors should act promptly to protect their interests by making formal notifications and providing the necessary particulars in accordance with the contract and on time. This is especially important as a number of standard form provisions operate as conditions precedent to entitlement. It is also essential that contractors record the effect of the outbreak of the coronavirus on the works in terms of both time and cost.

 

This article was published in Out-law here.

Pinsent Masons

 

For further information, please contact:

 

Tim Hallworth, Pinsent Masons

tim.hallworth@pinsentmasons.com