The (re)allocation of costs in construction during COVID-19

Published: 23 October 2020 - 8:05 a.m.
By: CW Guest Columnist

Following the disruptive outbreak of COVID-19, the UAE entered into an emergency lockdown period to curtail the spread of the virus. In response to the movement restrictions, and in compliance with UAE authorities’ maximum employee capacity limits, most companies in the UAE transitioned to remote working arrangements for their employees.

While such arrangements are feasible for service-oriented businesses, they unfortunately are not applicable to the majority of work that construction companies need to carry out.

Navigating the uncharted territory of COVID-19 is a delicate balancing act which involves complying with the authorities’ evolving requirements, ensuring the safety of employees and ultimately keeping up, to the extent possible, with construction deadlines and milestones.

In recognition of this significant challenge, and in acknowledgment of the sector’s strategic and vital importance, the UAE authorities granted the construction sector exemptions from certain restrictions, even at the height of the lockdown measures, primarily in order to avoid the halting of fundamental projects in construction and infrastructure.

The UAE Ministry of Human Resources and Emiratization allowed construction companies to build accommodations for workers at the construction sites, since transportation to and from site was becoming increasingly difficult.

Nevertheless, construction companies still had and have to abide by anti-coronavirus requirements imposed by the authorities, such as daily sterilization, social distancing and temperature checks.

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The managing partner of BonelliErede in Dubai, Marco De Leo

While anti-coronavirus measures might not pose much difficulty for an office with a few dozen employees, it is easy to see how this has become a logistical challenge for construction companies.

With hundreds of employees going to work daily across a large construction site, the corresponding cost of compliance with anti-coronavirus measures has suddenly become substantial.

Accordingly, one of the most relevant and frequent issues that has arisen in a principal-contractor relationship is which party is responsible for bearing which costs related to anti-coronavirus measures.

Ultimately, a detailed analysis of the underlying contract is required to determine, on a case-by-case basis, which party is contractually responsible to bear the financial costs of such measures - an exercise that is often proving to be far from easy.

This is particularly true where a contract was signed before the outbreak of the pandemic and therefore does not contain express provisions on how to deal with the different situations that have arisen.

The trend we have witnessed so far is that the contractor can be asked to bear the cost of mandatory requests by the authorities to date, since the contractor will in any case have to carry out those measures for their own employees in compliance with the authorities’ guidelines.

However, any additional precautions among which, for example, periodical testing of employees (which are not mandatory as of today) that the principal may ask the contractor - or any other sub-contractor, where large projects are involved - would normally be perceived as a supplementary requirement under the contract, and therefore specific and additional or derogating terms will need to be agreed.

This comment piece was contributed by the managing partner of BonelliErede in Dubai, Marco De Leo; Dubai-based senior associate Riccardo Denaro; and Dubai-based paralegal Sami Moacdieh.

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