The enforcement of the Movement Control Order (“MCO”) from 18th March 2020 brought most construction sites to a standstill. The movement control was later relaxed. As of May 2020, most construction sites could resume work but with heightened safety and health measures.
Earlier articles by Gan Partnership have explored the provisions under which the Agreement and Conditions of PAM Contract (PAM Contract), Fédération Internationale des Ingénieurs-Conseils Conditions of Contract for Plant and Design-Build (FIDIC Form), and the Asian International Arbitration Centre Standard Form Contract (AIAC SFC) may permit an extension of time (“EOT”) and possibly a loss and expense (“L&E”) claim by the contractor.
The focus of this article is on the relaxation of the MCO and its effect on EOT and L&E claims. It was announced by the government on 1st May 2020 that most industries in Malaysia would be allowed to operate from 4th May 2020 (“CMCO”). With that relaxation, the contention that work on site was prevented is no longer available.
Introduction
Under the CMCO, the government stated that social distancing and other necessary regulations must be adhered to while contractors continue their operations. The Construction Industry Development Board (“CIDB”) and Ministry of Public Works have circulated the Standard Operating Procedures (“SOP”) for the construction industry, entitled “Prosedur Operasi Standard (SOP) Dan Garis Panduan Kebenaran Beroperasi Serta Pergerakan Pekerja Bagi Projek Pembinaan Dalam Tempoh Perintah Kawalan Pergerakan (PKP) Fasa Ke-4”, as well as a new SOP for the construction sector available on the Ministry of Public Works website.
Collectively, these measures include:
-
Daily temperature readings of each employee reporting to the site
-
Employers ensuring employees observe social distancing on site
-
Thorough disinfection of all vehicles transporting the contractor’s employees before each use
The government emphasised that all construction companies operating during the CMCO must strictly adhere to these SOPs. Failure to comply may result in a forced shutdown of the site by the government. In such a case, the contractor would unlikely qualify for an EOT under most construction forms, as the forced shutdown could be viewed as having been wrongfully caused by the contractor.
Notwithstanding permission to operate, concerns remain about costs from low productivity due to SOP disruptions. The government may also shut down the entire site if a positive COVID-19 case occurs, and the cost of disinfecting the site may fall on the contractor.
Opting to Operate
The relaxation of the MCO does not completely remove a contractor’s entitlement to EOT and L&E if such a right existed during the MCO. Naturally, the ability to work at a slower pace due to SOPs would likely reduce those entitlements.
In practice, work flow may be significantly impacted. Social distancing may be virtually impossible, as workers of various trades must work in close proximity to carry out tasks safely. Work schedules may require substantial improvisation, and there may be knock-on impacts even after operations return to normal. Supply chain disruptions may extend beyond the MCO or CMCO, requiring a delay analysis to ascertain the effect of reduced work rates and the extended global lockdown. Each project site will be affected differently.
A Positive COVID-19 Case?
If, upon recommencing work, a worker tests positive for COVID-19, the site may be shut down for disinfection. Is this a force majeure event? A “lockout”? Or a directive of a statutory authority?
One view is that the delay is caused by the pandemic or MCO, allowing the contractor to rely on certain contract provisions for EOT and possibly L&E. Another view is that the relevant event is the worker contracting the virus, post-pandemic, post-MCO, and post-CMCO. Works were already permitted (albeit regulated by SOPs), and the infection caused the shutdown. This latter view may be the stronger interpretation.
However, this does not automatically deprive the contractor of EOT or L&E. Contractual entitlements depend on the contractor’s compliance with SOPs and reasonable steps to safeguard health and safety on site. Contractors cannot fully isolate workers from the virus, especially asymptomatic carriers. Compulsory COVID-19 tests are only 60-70% accurate, and some personnel (e.g., visiting tradesmen or artistes) are not under the contractor’s control.
Courts have recognised that contractors in possession of a site may not be responsible for all incidents on site (see Tenaga Nasional Bhd v Ahmad Zaki Resources Bhd; Dow v AMEC Group Ltd).
The cause of infection and whether it could reasonably have been prevented by the contractor must be considered. The contractor bears an initial burden to show compliance with SOPs and reasonable steps to protect health and safety. If satisfied, the infection and resulting shutdown may not be attributable to the contractor.
In such cases, a contractor may be entitled to an EOT under:
-
PAM Contract: Clauses 23.8(a), (d), (p), or (w)
-
FIDIC Form: Clauses 8.5 or 19.1
-
AIAC SFC: Clauses 23.8(b)(i), (vii), (ix), or (xiv)
Failure to adhere to SOPs or demonstrate reasonable safeguards may disentitle the contractor to EOT. Most standard contracts deny EOT for delays caused by contractor negligence or omission.
Opting Not to Operate
With the relaxation of the MCO, continuing suspension of works is self-imposed. Most standard form contracts do not encourage such conduct and may disentitle the contractor to EOT. Arguments based on potential future shutdowns must be supported by independent evidence.
Conclusion
A contractor is generally expected to recommence work upon relaxation of the MCO and take reasonable steps to prevent infection. Compliance with SOPs is a minimum requirement. Under most standard form contracts, the contractor may still be entitled to EOT, and in some cases L&E, if SOP compliance causes delay or disruption. In the event of a shutdown due to infection, the contractor must first show SOP compliance and reasonable safeguarding measures.
This article is authored by:
Ar. Anthony Lee Tee
Group Chief Operating Officer and Transformation Officer
Bina Puri Holdings Berhad
Foo Joon Liang
Partner, Gan Partnership
E: joonliang@ganlaw.my
Carissa How
Associate, Gan Partnership
E: carissa@ganlaw.my
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice. The position stated herein is as of the date of publication on 1st June 2020. For enquiries, please contact Gan Khong Aik (khongaik@ganlaw.my).
