Construction

Coronavirus: Actions construction businesses can take to lessen the effect of the pandemic

Nesreen Osman, partner, construction and infrastructure, Pinsent Masons offers some key advice on measures you should be taking

Over the past month, several measures like temporarily suspending the issuance of labour permits, suspending entry of people and mandatory curfew were put in place by the UAE government to ensure the safety of the community and curb the spread of COVID-19.

However, these measures have wide-ranging ramifications for the construction sector and companies at the time where they are already grappling with a sudden and unexpected oil price war. There are a few actions construction businesses can take to lessen the effect of the pandemic and address the challenges that impact on their contract and  supply chains.

The Impact

The UAE construction industry has been facing short to medium term challenges in respect of recruiting labour and moving or transferring employees for both on and off-site roles with the temporary suspension of the issuance of new labor permits, together with the imposition of restriction of flights and cross-border travel. In light of the impact of the virus on individual mobility, the allocation of labor resources, and potential shortage in staffing, the industry may also be faced with delays and disruption on supervision and signing off on works.

Whilst borders all around the world are closed for passenger travel; they are largely open for the shipment of goods. With the recent news of the Chinese government’s containment and quarantine measures being slowly lifted and the Chinese economy beginning to resume operations, the production and supply of construction materials is likely to resume soon. However, as the COVID-19 epicenter has shifted from China to mainland Europe and the US, the construction industry in the Emirates is now more likely to face shortages or even stoppages in materials being sourced from those jurisdictions. This may lead to companies having to rely on sourcing materials elsewhere, which will likely lead to higher material costs and ultimately slower progression of works.

Mitigation Measures

Though the consequences of the pandemic are wide ranging, there are several measures businesses in the industry can implement to mitigate some of the impact on their personnel, contracts and supply chain.

As a first step, a key measure that businesses can take is to closely monitor  guidance and measures that may be introduced by the Government so the overall impact of these can be factored into business planning and response.

In terms of personnel, construction businesses should conduct a risk assessments on the health and safety measures they have in place and put in place relevant procedures to ensure the health and safety of employees in line with UAE Government guidance. They can also consider whether working arrangements on construction sites can be altered in order to implement patterns which reduce the risk of infection (such as staggered working shifts to ensure round the clock progression of the works with more limited human-to-human contact).

Clear record keeping and audit trails of all actions and decisions will be key in due course when they will constitute evidence not only of compliance with the relevant UAE Government requirements, but also for the measures adopted by construction companies seeking companensation for those measures.

Companies should carefully review the terms in all their current construction and supply contracts, identifying key matters such as the governing laws of the contracts as well as whether they contain provisions relating to force majeure and change of law. Companies should also  prepare templates for contractual notices  for change of law or force majeure which can be rapidly deployed if required. Construction companies should also seek to identify risks and exposure in their contracts and put in place processes to manage those as best as possible (such as diarising backstop termination righst identified in contracts).

Given that force majeure and change of law provisions will only  protect where the event is unknown at the time of entering into contract, companies should consider whether any specific provisions dealing with COVID-19 (a Coronavirus clause) may be required in new agreements that are being entered into by the business. In additional, legal teams for construction companies should also consider whether there will be any issues caused with signatory availability (e.g. if workforce are remote working) and whether any workarounds need to be put in place to address this. Putting in place processes for electronic signatures and identify where the business has contracts that will not be capable of being executed by an electronic signature should also be considered.

Finally, in terms of supply chains, businesses can consider steps that can be taken to mitigate exposure, such as dual sourcing, stock piling, or obtaining goods from another source. Putting in place processes to spot any early warning signs of challenges within the supply chain is advisable so that action can be taken proactively. Additionally, mapping out supply chains through to customers is also beneficial in order to plan and implement a supply chain to guard against disruption to the business and ensure that, as far as possible, the business can operate seamlessly.

 

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