Construction and consulting contracts: from coronavirus lockdown to normal contract life


Real Estate and Construction

Since the outbreak of corona pandemic, significant restrictions were imposed on public gatherings and cross-border passenger travel to prevent the spread of coronavirus. However, the implications affected even trade as the pandemic has also caused delays in, for example, the delivery of materials.

We discussed the implications of coronavirus control measures for construction and consulting contracts during the exceptional spring here. In this post, we outline the correct procedures that should be followed in contractual relations when these implications are concerned.

Adhere to correct procedures in contract relations

In exceptional circumstances and in cases of force majeure, the following procedures must be followed in accordance with the general conditions for building contracts YSE 1998:

  • notify immediately of force majeure and/or the threat thereof

  • identify the effects of force majeure on contract period and costs

  • set out the requirements for extending the contract period and reimbursing costs

  • obligation to minimise damages

In the general conditions for building contracts YSE 1998, the above procedural rules extend to a situation where force majeure only threatens to delay the execution of the contract. The contractor shall immediately notify the client if a force majeure threatens to delay the work on site. The contractor must also notify if the work is suspended or there is a reason that, in the opinion of the contractor, justifies an extension of the contract period in accordance with section 20 of the YSE 1998 or compensation for costs in accordance with section 50 of the YSE 1998.

In construction contracts, the contractor shall identify the actual impact of disruption caused by coronavirus and virus control measures on the schedule and costs of the building contract in question as soon as the effects of force majeure on the site schedule can be more accurately established.

The contractor shall make an individualised proposal of their financial requirements in accordance with section 50 of the YSE 1998 and their schedule requirements in accordance with section 23 of the YSE 1998. The basis for the requirements must be recorded weekly or, if necessary, even daily, together with the client’s representative, stating what challenges to the operation of the site have been caused by the factor causing the disruption. All additional costs must be identified in accordance with sections 23 and 50 of the YSE 1998.

However, the additional costs must be directly related to the force majeure and must be agreed in advance between the contracting parties before the costs are incurred. Acceptable additional costs may include, for example, the use of alternative materials due to challenges in material availability or additional costs associated with higher labour costs. Additional billable costs do not, however, include costs directly related to the contractor’s employer obligations, such as costs related to site hygiene and site organisation (e.g., face masks, hand sanitiser).

On the other hand, the contractor must seek to limit the damage and find out whether some work can be carried out despite the disruption, for example, though alternative arrangements. The contractor must identify to the client what steps it has taken to minimise the inconvenience and make the necessary entries in the site log.

It is important for the contractor to ensure that the individualised proposal of the requirements is submitted in a timely manner so that there are no more surprises during the acceptance phase or the final financial statement. If either party wishes to validly establish a fact relating to the execution of the work or the circumstances, a review of the execution of the work may also be carried out in accordance with section 65 of the YSE 1998. Uncontested compensation pursuant to section 50 of the YSE 1998 shall be paid as separately agreed with the contractor.

Active measures to minimise delay

Even if an extension of the contract period is justified, the contractor must take all measures in his power to limit the delay for those parts of the contract affected by the delay, regardless of the reason for the delay. The client also has the right to indicate measures that the contractor must take to catch up with the site schedule or to minimise delays (the so-called rush requirement). Such measures may include adding workers to the site or working overtime.

If such measures under section 22 of the YSE 1998 are agreed, the measures must not, of course, be in breach of labour law, employment protection or the applicable collective agreement. If the agreed actions result in additional costs, the parties shall agree on the reimbursement of these costs before taking any action.

What about the procedures for consulting contracts?

The general conditions for consulting 2013 (KSE 2013) also contain procedural provisions (sections 7.5-7.8). If the consultant considers that they are entitled to a reasonable extension to the work due to an external action that materially impedes their performance, or to reasonable compensation in a changed situation where the work has been suspended for reasons independent of the parties to the consultancy agreement, the consultant shall make an individual proposal for the extension and financial requirements. Either party shall without delay notify the other party of a delay, regardless of which party first finds out about the delay.

In consulting contracts, the consultant is also always obliged to try to minimise the cost and schedule effects of disruptions and to negotiate with the customer on how to minimise the damages.

Client contribution

Exceptional circumstances in contracts also require the client to be active. The client should examine the contractor’s or consultant’s proposal without delay and comment in writing on the extent to which the claims are accepted or rejected.

It should be remembered that the client may also be entitled, on the basis of general principles of contract law, to invoke force majeure. For example, the continued self-isolation at home of people over the age of 70 – a recommendation based on the Emergency Powers Act – even after May, as stated in the government’s recent guidelines, may in practice mean that repairs to apartments will be considerably more difficult or impossible to make. In these situations, the client must act in the same way as the contractor, i.e., immediately inform the other contracting party of any obstacle, delay and related requirements.

Active communication and clear documentation

It is a good idea to think of the procedural and recording provisions in the YSE 1998 as tools for carrying out and completing a contract. In addition, an individual agreement may include some specifically tailored forms of communication and, of course, all normal forms of communication between people can also be used.

For the client, this means focusing on the procedures for monitoring the implementation of the contract. For the contractor, this means monitoring the fulfilment of the client’s obligations and ensuring the acceptability of its own performance. However, both parties have a common interest in managing the implementation and realisation of the contract in changed situations.

An open, negotiating dialogue and accurate documentation can help us to avoid ambiguities, slowly return to a normal situation, and complete contracts in a way that is successful for all parties.