Construction Projects and COVID-19

In the business magazine econova (http://econova.at) attorney Stefan Kofler explains the effects of COVID-19 on construction projects.

Bauprojekte econova April 2020

The COVID-19 Measures Act and the regulations issued in connection with it have imposed restrictive measures that may have a significant impact on construction projects. The resulting economic consequences and the uncertainty of future economic development also cause customers to consider postponing or abandoning the construction project altogether. A number of legal issues may therefore arise in connection with construction projects.

Is the execution of construction projects still permissible?

Although the COVID-19 Measures Act stipulates that a distance of at least one metre must be maintained between persons at their place of work, this is only required if the risk of infection cannot be minimised by appropriate protective measures. In principle, such protective measures can be taken at construction sites, as laid down in an agreement between the buildging trade, the construction industry and the trade union  in cooperation with the Central Labour Inspectorate of 26.03.2020 in order to clarify the situation for the construction industry. Therefore the  COVID-19 measures did not impose a ban on construction. Construction work is still permitted, subject to compliance with appropriate protective measures.

Can the customer withdraw from the construction contract without paying the agreed price?

Whether the customer can withdraw from a concluded construction contract due to financial losses that he has incurred or expects to incur, thus cancelling his payment obligations, depends on the content of the contract. If the contract provides for a right of rescission in such a case, the customer can make use of this right. In the absence of such contractual provisions, a deterioration in the financial circumstances of the customer – even if through no fault of his own – does not grant the customer the right to release himself from his contractual obligations.

Can the customer “cancel” the whole construction project?

In principle, unless agreed otherwise, the customer can withdraw from a bindingly concluded construction contract at any time without giving any reason. According to the legal regulation, he must then pay the contractor the contractually agreed amount. However, expenditure and costs saved by the contractor due to the possibility of using the  materials or labour elsewhere must be taken into account.

Can the customer order a temporary halt to construction?

Just as the customer can completely abandon the construction project at any time, he can also order a temporary halt to construction. In such a case, the contractor may – depending on the contractual provision – be entitled to payment, again taking into account the costs saved. If the construction project is continued at a later date by mutual agreement, the building contractor may also be entitled to compensation for the additional costs caused by the delay.

Who has to bear the additional construction costs caused by COVID-19?

Although construction projects can still be carried out, compliance with the protective measures is likely to lead to additional costs for the building contractor. The question of who has to bear these additional costs, i.e. whether they can be passed on to the customer, cannot be answered in general terms. Again, the decisive factor here is which agreements the contract provides for. It depends, for example, whether a flat rate, billing according to unit prices or billing according to the contractors actual services was agreed. It is also important whether the validity of ÖNORM B 2110 framework, which is frequently applied in construction projects, was contractually agreed. According to legal regulations at present, the risk of extraordinary events would in principle be in the domain of the building contractor, so that the latter would not be able to demand an increase of the fee for delays caused by force majeure. ÖNORM B 2110, on the other hand, provides for a different regulation. According to this ÖNORM, extraordinary events fall within the cusomer’s risk if they cannot reasonable be prevented by the contractor.  Which reasonable preventative measures can be requested from the contractor can only be decided on a case-by-case basis.