In view of the impact of the COVID-19 pandemic on the economy, companies involved in construction projects are increasingly concerned about the legal consequences of the current situation with regard to contract deadlines and milestones. What applies between parties to a construction contract if, for example, travel restrictions or cross-border traffic jams lead to the loss of workers who have been sent from abroad or supply bottlenecks for building materials result in a standstill on the construction site? Below you will find an overview of some important aspects.
1 Cut-off Date and Type of Construction Contract.
From a timing perspective 10 March 2020 should be kept in mind when contemplating a cut-off date for assessing whether COVID-19 infections could constitute a force majeure event under construction contracts („Cut-Off Date“). On 11 March 2020, the World Health Organization declared COVID-19 infections a pandemic. Depending on the individual circumstances, a sooner or later date might seem appropriate.
Furthermore, a distinction must be made according to whether part B of the German Construction Contract Procedures Act (Vergabe- und Vertragsordnung für Bauleistungen, Teil B – “VOB/B”) is included1 in the construction contract to be investigated or not.
1.1 Evaluation of VOB/B based construction contracts concluded up to the Cut-Off Date
There is a set of reasons likely to be raised for considering the corona pandemic a force majeure event within the meaning of Sec. 6 para. 2 no. 1(c) of the VOB/B as long as VOB/B based construction contracts concluded up to the cut-off date are concerned.2 According to the definition of the case law of the highest courts, an event is regarded as force majeure if it is an external event which has no operational connection and cannot be averted even by the utmost reasonably expected care, and which is neither to be imputed to nor has to be anticipated by the building contractor because of its frequency. This definition, which was developed for liability and travel law, is also to be taken as a basis for the notion as it is used in the VOB/B.
The legal consequences of the existence of an event of force majeure are in particular
- the postponement of contractual dates and deadlines
- the transfer of the advance performance risk with regard to the costs3 of the contractor to the principal in accordance with Sec. 6 para. 5 VOB/B,
- no claim by the principal for compensation for damage caused by delay and
- under certain circumstances, a claim by the contractor pursuant to Sec. 645 BGB (according to the legal concept), for example if a court comes to the conclusion that the consequences of the Corona pandemic lead to a special political situation at the place of performance.
Nonetheless, The burden of proof that delays in the construction process are due to the event of force majeure shall initially be borne by the contractor in accordance with general principles. This also includes the burden of proving that the event was the sole cause of the delay. If, in addition, a circumstance for which the contractor is responsible occurs, such as insufficient storage or capacity planning even without the event, the privilege granted to the contractor by Sec. 6 para. 2 no. 1(c) VOB/B is denied. Conversely, however, it is also conceivable that a specific assumption of risk by the principal, e.g. with regard to the granting of necessary building permits, which will not be granted in the foreseeable future in a specific individual case in connection with the corona pandemic, could influence the situation in favour of the contractor.
1.2 Evaluation of VOB/B based construction contracts concluded after the Cut-Off Date
However, in the case of VOB/B based construction contracts concluded after the Cut-Off Date (although, in our view, it will depend on when the contractor signed), it is much likelier that the corona pandemic will no longer be classified as a force majeure event, as the element of unpredictability is missing. The corona pandemic would need to be presumed to be known from that day on, and the insufficient predictability of its consequences alone is not a sufficient reason to deviate from the contractually agreed burden and risk distribution at the expense of the principal.
1.3 Construction contracts under the BGB: Temporary impossibility according to Sec. 275 para. 3 BGB?
For construction contracts under the BGB, Sec. 6 para. 2 no. 1(c) VOB/B does not apply. In this case, the right of the debtor's default and the proof of exoneration of temporary impossibility must be examined. Applying Sec. 286 para. 4 BGB, there is no default if the construction work is not carried out due to circumstances for which the building contractor is not responsible. The interruption of further construction work by the contractor due to the outbreak of an epidemic could be a case of temporary impossibility pursuant to Sec. 275 (3) BGB, according to which performance may be refused if the contractor is required to perform the work personally and the contractor cannot be reasonably expected to perform the work after weighing the obstacle to its performance against the interests of the principal.
As a result, the circle to the concept of force majeure closes at this point: in the “normal” influenza periods of the year, the situation does not lead to a disproportionate disadvantage for the contractor from the outset. However, something else applies if there is an unintentional, unforeseen, insurmountable and unavoidable obstacle through no fault of one's own, whereby external circumstances are changed by events of force majeure. Such an obstacle is affirmed by significant sources in literature and jurisprudence, especially in cases of acts of war, strikes, hurricanes, epidemics and terrorist attacks.
A recourse to the provision on the disruption of the commercial basis is not obvious: The requirements for presentation and proof as well as the requirements regarding the amplitude of market changes still appear too demanding at the present time, which might yet change over time depending on the development of the COVID-19 pandemic and its economic outfall. Apart from this, the use of Sections 313 and 314 BGB should also only be considered for contracts that were already concluded by the cut-off date.
This document is a general summary and intended for information/orientation purposes only. It is not intended to be a comprehensive presentation, nor does it constitute legal advice in individual cases. Such advice should always be obtained before any action is taken or rejected.
The attorneys (m/f/d) of Bryan Cave Leighton Paisner will be pleased to provide specific advice on any questions you may have regarding the present document and other matters related to the COVID-19 pandemic. The “COVID-19 / Coronavirus Thought Leadership” focus page of our law firm can be found here.