Looking forward: your new normal, COVID-19 and bidding
You, as a member of the Canadian construction industry, are being inundated with information on steps you should be taking currently in respect of COVID-19 pandemic.
We do not wish to supplement that overflow of information currently underway.
Rather, if you intend on preserving your business interests by continuing to bid on work, we thought we would share some insight on the legal nuances involved with force majeure and frustration of contract.
What is force majeure? Force majeure refers to an express provision in a contract addressing certain events. A force majeure provision needs to be expressly provided for as we know of no court cases finding an implied contractual force majeure provision. However, the contract need not refer specifically to the words “force majeure” for it to have a force majeure provision. Other language can make the same principles apply. For example, see GC 6.5.3 of a CCDC2 contract which outlines events associated with the contractor being delayed in the recourse available to that contractor without using the words “force majeure”. You will need to review your particular contract or bid documents to see if a force majeure type of provision is provided.
A force majeure clause generally operates to discharge a contracting party when a supervening, sometimes extraordinary, event, beyond the control of either party, makes performance of the contract impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill. If a force majeure clause is part of your tender documents or current contract, it would typically mean that your contract does not come to an end because of the force majeure event but rather, that the impacted obligations are suspended or whatever is expressly provided for in the contract for those particular circumstances is ultimately to proceed.
Any tender or contract review should, especially under the current circumstances, include a review of whatever force majeure provision might be provided in the proposed contract forming part of the tender documents. If one is not provided, you may want to request of the owner or its representatives, via pretender question, whether consideration has been made for the current pandemic and whether an addendum should be issued to include a force majeure provision addressing pandemics. If there is no response to that question or the question is answered in the negative, you may want to consider including your own force majeure provision as part of your bid submission however acknowledging the fact that your bid submission may be deemed noncompliant as a result.
If there is a force majeure provision, you may want to consider the definition of events giving rise to force majeure. For example, if it refers to force majeure and then lists events following the word “including”. That would typically suggest that the list of events that could qualify as a force majeure event is not closed and that the list of examples provided are simply included as examples of force majeureevents. That notwithstanding, you may want to qualify your bid by including” pandemic” in that list of events. Again, you should be aware that you would run the risk of possibly having your bid submission deemed noncompliant by that qualification.
If your contract or bid documents do not include a force majeure provision, then you would likely need to rely on the legal notion of frustration of contract. Frustration of contract may be best described in the reasons for decision of the UK House of Lords, in Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3 at 13:
So perhaps it would be simpler to say at the outset that frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract…But, even so, it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.
In other words, frustration is a legal notion providing for termination of a contract because of unforeseen circumstances that:
- make the contract impossible to perform;
- make the performance of the contractual obligations illegal; or
- render the contract fundamentally different from its original intended character.
Please understand that the fact that a contract may become unprofitable will not trigger frustration of contract, and judges have historically set a very high bar for proving frustration of contract.
So if the COVID-19 pandemic simply impacts your productivity and makes your contract less profitable or even unprofitable, or more difficult to perform, you will likely not be able to rely on the legal principle of frustration of contract making a force majeure clause even more attractive.
This article was written by Dan Leduc (dan.leduc@nortonrosefulbright.com) with input from the Norton Rose Fulbright LLP Ottawa Construction Law team, including Mark Gallagher (mark.gallagher@nortonrosefulbright.com), Meghan Fougere (meghan.fougere@nortonrosefulbright.com), Erika Woolgar (erika.woolgar@nortonrosefulbright.com) and Crystal Li (crystal.li@nortonrosefulbright.com).