Global Claims in the Wake of Covid-19

COVID-19 Series of ArticlesArticle No.3

Global Claims in the Wake of Covid-19

The Covid-19 pandemic continues to cause widespread global disruption. In terms of the construction industry, it affects both material and labour, productivity, delivery times, and by doing so challenges companies’ liquidity and business models.

Contractors worldwide, look for different means for compensation from employers of additional costs and losses associated with the pandemic.  The federation of international contractors in Europe, EIC, collects information regarding the construction business during the pandemic.

There has also been some development in certain jurisdictions to help the construction business function during this turmoil.  In the UK for example, the Construction Leadership Counsel has published guidelines providing a starting point for all parties involved as to how they will deal with the COVID-19 pandemic going forward. These guidelines also include advise as to how the JCT and the NEC contracts should be amended to cater for the effects of the pandemic.

Another example is from the Republic of Philippines, where the Department of Labour and Employment confirmed that ‘in the case of contracts for construction projects, the cost of COVID-19 prevention and control measures shall be borne by the principals or clients of the construction / service contractor’.

These can certainly be helpful. However unless a joint action plan or series of measures have been agreed by international business organisations, professional institutions and governments, either to apply to certain jurisdictions or commercial zones,  the construction production will continue to suffer from disruption.  The effects of this disruption in the short term will be additional and increased costs of construction, time overruns and loss of new work.

What we have seen in practice to date is that the contractors that are able to continue work, despite all the difficulties and additional costs,  struggle to evaluate real and actual effects of Covid-19 to their projects, both in terms of time and money.  This is primarily because the pandemic is still new and we are not yet able to measure the full effects of it.  The traditional record keeping systems also fall short in recording the specific impacts caused by the measures taken on site and at the office.  Each event  (this could be a measure taken to tackle Covid-19 on site for example)  should be evaluated separately to set out cause & effect nexus, which requires through analysis of all the facts and evidence.

Given all the difficulties already caused by this pandemic, contractors tend to divert resources more on to complete work at the earliest time and budget possible, rather than spending enough time to fix their records and submit well particularized claims. This is not unexpected in a turmoil like this. For some the matter is even bigger than evaluating the economics of this unprecedented situation; it is more about survival.

Those who need additional cash flow to continue work however, tend to rush in global claims for quick remedy. In practice we have seen a few contractors succeeded with their global claims and granted compensation for additional cost and time. This is particularly in situations where there is an experienced client acting in good faith to bear some of the extra cost incurred by the contractor by reasons of the Covid-19 pandemic. Such clients generally have capacity to overlook restricting contract provisions, and they would be willing to do so for the sake of the project.  However clients of such quality are in minority and contractors pleading global claims with insufficient particularization bear the risk of having their claims rejected.

In this article we are going to discuss global claims in the wake of Covid-19.

What is a global claim?

There is no standard industry definition of what constitutes a “global claim”.  Different names are given, and used interchangeably; global claims, rolled-up claims, total cost claims, composite claims. Nevertheless, highly regarded authorities in construction law suggested definitions over the years;

The Society of Construction Law (SCL) 2nd Edition Delay and Disruption Protocol defines global claims as:

“A global claim is one in which the Contractor seeks compensation for a group of Employer Risk Events but does not or cannot demonstrate a direct link between the loss incurred and the individual Employer Risk Events.” 1

Recently in the case of Walter Lilly & Company Limited v (1) Giles Patrick Cyril Mackay and (2) DMW Developments Limited [2012], Mr Justice Akenhead said:

“What is commonly referred to as a global claim is a contractor’s claim which identifies numerous potential and actual causes of delay and/or disruption, a total cost on the job, a net payment from the employer and a claim for the balance between costs and payments which is attributable without more and by inference to the causes of delay and disruption relied upon.”

Global claims can be for two things; for additional time and or payment.

A global claim for additional time (extension of time) generally identifies causes of delay i.e. delay events but fails to show a direct link between cause and effect.  In terms of an additional payment claim, contractor cannot link costs to separate delay/disruption events and as such claims the net difference between actual and planned costs as a cumulative effect of events.

In the context of the Covid-19 pandemic there are generally two types of  direct cost claims; costs resulting from loss of efficiency caused directly by Covid-19 and or the measures taken to tackle it, and additional cost associated with such measures. By way of an example, while site teams working in shifts or in social distancing may be causing efficiency losses,  protective equipment like face masks, hand sanitisers and other additional equipment may be other means for additional direct costs.

Global claims carry great risk of failure. Therefore we suggest contractors avoid global approach if they can!. However if that does not seem feasible or even possible given the circumstances, we suggest claimants try to adhere to the following set of rules;

  1. Try to separate parts where cause and effect nexus can be proven.
  2. Where possible, demonstrate that it is impossible or impractical to separate out each event.
  3. The claim must be pleaded with sufficient detail to enable the employer to know the case against it.
  4. All other contractual requirements for a valid claim must be complied with.
  5. Any significant matters the employer is not responsible for must be eliminated.
  6. Sufficient evidence required to support causation and the losses/delays claimed.

 

A global claim including the aforementioned elements would likely have a higher chance to succeed, and pass the scrutiny at formal dispute resolution stages. Parties asserting global claims should also perform a thorough review of the legal requirements of jurisdictions in which they assert their claim.  It should be note that some jurisdictions are very cautious against global claims.

 

1- Society of Construction Law, Delay and Disruption Protocol (2nd Edition, 2017).

 



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