Construction Projects and COVID-19

Construction Projects and COVID-19

Stefan Kofler explains in the business magazine econova (http://econova.at) what effects COVID-19 has on construction projects.

Bauprojekte econova April 2020

The COVID-19 Measures Act and the regulations issued in connection therewith 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 principals 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 the 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 construction industry, the construction industry and the trade union Bau-Holz in cooperation with the Central Labour Inspectorate of 26.03.2020 in order to clarify the situation for the construction industry. The COVID-19 measures therefore did not impose a ban on construction. Construction work is therefore still permitted in principle, subject to compliance with appropriate protective measures.

Can the principal withdraw from the construction contract without paying the consideration?

Whether the principal can withdraw from an already concluded construction contract due to his financial losses that have already occurred or are expected to occur, and thus cancel his payment obligations, depends on the content of the concluded contract. If the contract provides for a right of rescission in such a case, the principal can make use of this right. In the absence of such contractual provisions, a deterioration in the financial circumstances of the principal – even if not culpable – does not grant the principal the right to release himself from his contractual obligations.

Can the principal “cancel” the whole construction project?

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

Can the principal order a temporary halt to construction?

Just as the principal 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 his consideration, taking into account his savings. 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 must bear the additional construction costs caused by COVID-19?

Even if construction projects can still be carried out in principle, it is foreseeable that compliance with the protective measures will lead to additional costs on the part of the building contractor. The question of who has to bear these additional costs, i.e. whether they can be passed on to the principal, cannot be answered in general terms. Again, the decisive factor here is which agreements the contract provides for. It makes a difference, 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 the legal situation, the risk of extraordinary events would in principle fall within the sphere of the building contractor, so that the latter would not be able to demand an increase of the fee for obstructions caused by force majeure. ÖNORM B 2110, on the other hand, provides for a deviating regulation. According to this ÖNORM, extraordinary events fall within the principal`s sphere of risk if they cannot be averted by the contractor in a reasonable manner.  Which reasonable defensive measures can be requested from the contractor can only be decided on a case-by-case basis.

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