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Impact of the coronavirus (covid-19) outbreak on construction law

a) Potential disruptions and impact on existing and future construction projects arising from the MCO and Covid-19 outbreak

For construction projects, all works are to be stopped. Only critical works which if discontinued would lead to danger and/or harm to the workers, the public or the environment are allowed. As such, Contractors or Sub-Contractors would inevitably be concerned that they will be held responsible for delay. Employers may also be facing consequences of delay from the purchasers or users of the facilities to be built, if applicable.

b) Suggested solutions / remedies

Force Majeure or Frustrating Event?

Force Majeure

See above for general discussion on Force Majeure clauses.

In the de facto standard form building contract in Malaysia, which is the PAM 2006 Contract, there is a Force Majeure provision in Clause 23.8(a) which definition would appear to cover the present situation.

For public projects, the standard form of contract used would be the JKR 203 Standard Form of Contract. The definition of “force majeure” in Clause 57.2 (Clause 58.2 - Rev 2010) of the JKR Contract is not clear as whether it would cover the Covid-19 or the MCO.

Frustrating Event

It is arguable that MCO and Covid-19 could be treated as a frustrating event entitling the parties to treat the contract as void as becoming impossible to perform after the contract was made pursuant to s. 57(2) of the Contracts Act 1950.

Extension of Time

Simple Non-Standard Contracts

This will depend on whether there are extension of time provisions, and if the delay events include epidemics, government order and etc. This is unlikely to be the 

case in simple contracts. In such a situation, the delay is likely to be at the contractor’s risk, unless it is such as to frustrate the contract.

PAM 2006

The MCO would constitute a “Relevant Event” entitling the contractor to make an application for extension of time to the Architect under the Clause 23.8(a), (d), (p), and (w) of PAM 2006, provided that the conditions precedent as to notice and particulars of delay are complied.

JKR Contract

A contractor is allowed to apply for extension of time for force majeure. However, the definition of “force majeure” does not include epidemic as was done in PAM 2006. Resort must be had to Clause 43.1 (i) of the JKR Contract to claim for extension of time on the grounds of inability to secure goods, materials and/or services during the MCO.

Loss and Expense Arising from the Delay

Simple Non-Standard Contracts

As MCO and Covid-19 are not caused by the Employer, it is what is called a “neutral event” and there will not be any basis for compensation for delay.

PAM 2006

In short, the events provided for in Clause 24.3 of the PAM 2006 all require the delay events to be somewhat attributable to the Employer, architect or consultants. As mentioned above, the MCO and the Covid-19 outbreak are neutral events and do not fall within any of the event provided for in Clause 24.3 of the PAM 2006.

JKR Contract

Similarly, for public projects, the events that would entitle the Contractor to claim for loss and expense under Clause 44 of the JKR Contract is limited to those stipulated in Clause 43,1 (c), (d), (e), (f) and (h). Given that the MCO and the Covid-19 pandemic do not fall within any of the said provisions, the Contractor will not be able to claim for loss and expense.

For the Employer

Simple Contract

Under a simple contract in theory the risk for the MCO would likely be the Contractor’s, so there is a theoretical risk the Employer can claim damages for delay, although it is unlikely to be pursued in practice.

PAM 2006 and JKR Contracts

Subject to compliance with the contractual requirements for notification etc, under these contracts’ Contractors would be entitled to an extension of time, so it is very unlikely that the Employer would be able to impose liquidated damages on the Contractor.