Is there a claim for construction delays due to the pandemic?

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Is there a claim for construction delays due to the pandemic? Due to the requirements for preventing and controlling the novel coronavirus, all cities in Hubei have declared lockdowns, and various provinces have activated Level 1 responses to major public health emergencies. To effectively prevent the spread of the pandemic in various construction sites, housing and construction departments in many places have taken measures such as restricting the movement of migrant workers and delaying the start of construction projects Under such circumstances, the construction of some building projects will undoubtedly be affected, and resulting delays in schedule and increased costs are inevitable. 1. The legal nature of the novel coronavirus pandemic is that of force majeure. According to China’s General Provisions of the Civil Law and the Contract Law, force majeure refers to objective circumstances that cannot be predicted, avoided, or overcome. Meanwhile, the \"Model Text for Construction Project Contracts\" issued by the Ministry of Housing and Urban-Rural Development also classifies natural disasters and social emergencies such as earthquakes, tsunamis, plagues, riots, martial law, uprisings, and wars as force majeure – events that were unforeseeable at the time of contract signing, yet are inevitable and unavoidable during the execution of the contract. Theoretically, an abnormal event such as the novel coronavirus pandemic should be regarded as an objective reality that is unforeseeable, inevitable, and insurmountable, and its nature falls under the category of force majeure as defined by law. At the same time, it is important to consider whether the pandemic can serve as a grounds for exemption: (1) the epidemic prevention and control notices and regulations issued in different regions, especially those issued by the housing and construction department in the location where the project is situated ； (2) The specific provisions in the Construction Project Contract regarding force majeure, extension of construction period, claims, and **related matters, taking into account the actual impact of the pandemic on the performance of the contract. 2 It is recommended that the contractor actively apply for a delay in the construction period or seek such a delay, and also manage claims effectively. In accordance with Article 118 of the Contract Law and Article 6 of the Supreme People’s Court’s Interpretation (II) on Issues Concerning the Application of Law in Cases Involving Disputes over Construction Contracts, in most cases, it is the construction party that bears the burden of proof for claiming a delay in the construction period. As the novel pneumonia outbreak continues to develop, it is recommended that contractors for each project, in accordance with the epidemic prevention and control requirements of the location where the project is situated as well as the relevant provisions outlined in the construction contract signed for that project, promptly collect, together with the supervisor, evidence demonstrating the occurrence of force majeure and the resulting losses. They should explain in detail the obstacles caused by force majeure, carefully calculate the extent of the losses incurred, and submit notices of intent to file a claim along with claim reports in accordance with the procedures specified in the contract. Special attention must be paid to the time limits and requirements for each step, such as deadlines, procedural requirements, necessary documents, and the recipients of these documents, in order to ensure the validity of the claims. 3 Typical claim process for contractors: http://img.civilcn.com/d/file/zhishi/gcgl/2020-03-04/c13ed3972fa015adda5795beb21e0684.jpg 4 Points to note regarding claims: 1. Claims must be submitted in accordance with the time frames, procedures, and recipients specified in the Construction Contract; special attention should be paid to the provisions regarding the responsibilities of the employer and the contractor in case of force majeure as outlined in the contract. The diagram above shows only clause 19.1 of the 2017 version of the Model Text for Construction Contracts, which relates to the contractor’s claim process. 2. For one-time claim incidents that occur and end immediately, the contractor shall follow the steps indicated in ① and ② above. For claim incidents that occur repeatedly, the contractor shall follow the steps indicated in ①③④ of the diagram above. 3. For the claim intention letter in Step ① of the above diagram, no evidence is required; it is only necessary to explain the reasons for the occurrence of the claim incident. The intention letter for a claim, the claim report, and the final claim report submitted by the contractor do not necessarily have to use the word “claim”; they can be titled things such as “Report on Losses Caused by the Coronavirus Outbreak”, “Letter Regarding Discussions on Losses Due to the Coronavirus Outbreak”, or “Letter Explaining the Losses Occurred as a Result of the Coronavirus Outbreak”. However, the content must clearly describe the reasons for the claim, the amount of costs involved, the number of personnel, the number of pieces of equipment, and a list of materials. 4. Claim reports and final claim reports require evidence to support them. By combining the rules regarding force majeure in the general provisions of the 2013 and 2017 versions of the \"Construction Contract\", the contractor must collect and retain evidence in various forms that are favorable to itself. Evidence for claims can be categorized as follows: (1) Evidence such as notices issued by the employer regarding work suspension and resumption. (2) Keep evidence of the financial expenditures incurred as a result of complying with the prevention and control measures related to the coronavirus pandemic in various regions, particularly those implemented by the housing and construction departments in the locations where the projects are situated. (3) Keep all project meeting records, minutes of meetings, and correspondence related to the project. (4) Various construction schedules, including those prepared by the owner’s representative and the contracting party. (5) Construction memorandum (diary): Any matters that affect the project schedule or are related to claims during construction must be recorded promptly and filed in chronological order by date, to facilitate retrieval. (6) Keep records of oral instructions from Party A’s on-site representative, supervision engineer, etc., and promptly report them in written form to Party A for confirmation. (7) The costs incurred by the contractor for taking care of, cleaning, and repairing the project as required by the employer during the suspension period shall be borne by the employer. The contractor shall keep the notices and letters from the employer requiring the contractor to take care of and clean up the project, as well as the proof of expenses incurred. This includes keeping records of the salaries paid to the personnel remaining on site for project management, invoices for the purchase of materials and supplies (such as invoices for disinfectants, masks, and other epidemic prevention items), as well as photos showing that there is someone in charge of the project (all photos should indicate the date they were taken, and they should be organized according to the progress of the project). (8) After the force majeure situation is resolved, if the employer requests accelerated work, the additional costs arising from such acceleration shall be borne by the employer. The contractor must keep evidence of the additional funds invested as a result of accelerating the work. If the contractor needs to make additional financial investments such as adjusting the construction procedures, adding more construction teams, expanding the work area, organizing mechanical equipment, or hiring temporary workers. (9) If force majeure affects the contractor’s ability to fulfill the obligations stipulated in the contract, resulting in or likely to result in a delay in the project timeline, the deadline shall be extended. The cost losses incurred by the contractor due to suspension of work shall be shared reasonably between the employer and the contractor, while the wages that need to be paid to the workers during the suspension period shall be borne by the employer. The contractor must collect records of salary payments during the suspension period, evidence of lost earnings (if any), proof of losses related to the rental cost of temporary materials during that period, evidence of losses resulting from the idling of those temporary materials, evidence of losses due to the idling of machinery during the suspension, as well as evidence of other direct costs incurred during the suspension of work, and evidence of indirect costs during that period (including management fees, expenses for on-site managers, and fees associated with guarantees). (10) If price fluctuations occur due to suspension of work, the contractor shall actively seek compensation from the employer. (11) In the event that the contract is terminated due to force majeure, the amounts payable by the employer include: 11.1 The price for the work completed by the contractor prior to the termination of the contract ； 11.2 The price of materials, construction equipment, and other items ordered by the contractor for the project and delivered to the contractor, or which the contractor is responsible for receiving ； 11.3 Costs incurred as a result of the employer’s request for the contractor to return goods or terminate the order contract, or losses resulting from the inability to return the goods or terminate the contract ； 11.4 Costs for the contractor to evacuate the construction site and dismiss its personnel ； 11.5 Other amounts that shall be paid to the contractor prior to contract termination in accordance with the contract provisions ； 11.6 Other amounts agreed upon or determined by both parties. In such cases, the contractor shall collect the contracts and payment procedures for ordering materials, equipment, and other items for the project ； Evidence of costs incurred due to returns or cancellation of orders (including penalty fees, damages, etc.) ； Evidence to prove the direct costs incurred for evacuating the construction site (including transportation expenses and meal costs for workers leaving the site, costs associated with transferring materials used at the site, and costs related to moving construction machinery, etc.) ； Evidence of indirect costs incurred in the evacuation of the project site (including wages for site management personnel and administrative expenses at the time of project evacuation) ； Evidence of engineering insurance premium losses ； Evidence that the employer should cover the costs of temporary facilities ； Evidence of interest on project payments, evidence of expected profits, etc. Special note: If the aforementioned contract template is used in the Construction Contract, and no other provisions are made in contract documents such as the Special Conditions, the contractor may collect and retain evidence in accordance with the above provisions, and request the employer to cover the losses resulting from force majeure as agreed. Even if the special terms are unfavorable, it is recommended that the contractor actively collect and preserve evidence in order to seek, from a fair perspective, to have the employer bear some of the losses. 5. Conduct categorized statistics on the on-site completion status, number of workers on site, wage payment lists, quantity of materials, equipment lists, etc., related to the claim report; these statistics shall be signed off by the employer or supervising personnel, with the original copies to be retained. The letter of intent for claim submission and the claim report must be copied to the supervision unit at the construction site for signature and confirmation. 6. After the occurrence of a force majeure event, the contractor shall also take reasonable measures to address it in order to prevent further loss and avoid claims being filed by the employer against the contractor as a result.