The COVID-19 pandemic has impacted every nearly every industry, not just in our region but also worldwide. Several countries, including Malaysia, have experienced an ever-increasing number of virus infections, resulting in national lockdowns and other restrictions on movement and proximity. And because of this, a lot of businesses have suffered. Some establishments have been forced to pause their operations, and some had to close their businesses entirely. There is no exemption from the pandemic’s havoc to the business sectors, including the construction industry.

The impacts resulting from the COVID-19 pandemic have affected the various construction industry contractors, developers, owners, subcontractors and supply chain vendors. The implications and ramifications of those impacts depend on where the business and the underlying project are. Several reports have direct consequences, ranging from a slowdown in the availability of goods and labour to the cancellation or suspension of parties and whole projects. Depending on the construction classification of a significant business, construction activities may fluctuate in some states and cities.

In response to the COVID-19 crisis, industry members have needed to address both short-term and long-term business challenges and develop project-by-project solutions in the face of a new global and national environment. Until a vaccine or other curative measures are in place globally, it is impossible to gauge the full extent and scope of the changes required to address issues arising from the pandemic.

These new realities touch almost every aspect of the construction process and precisely such issues as Occupational Safety and Health Administration (OSHA) and workplace safety compliance; contract or project notices for default, scheduling and adjustments; project suspension, termination and reinstatement; workforce management; material, subcontractor and supply chain delays and impacts; risk management and insurance; claims avoidance or claims management; and the disputes process.

A significant effect of COVID-19 was cash flow problems, which affected most contractors and developers immediately. The basis for the payments for projects is the amount of work completed. During the Movement Control Order (MCO), the suspension of construction activity resulted in no work and no payments. However, contractors continued to incur their recurring costs, including rental charges, wages, and overheads.

Performing and completing construction work following the contract within the specified timeframe is a fundamental obligation of a contractor. Usually, no extension has been granted when an employer or client fails to meet the works within the prescribed time. The employer or client is entitled to impose liquidated damages and other related charges or terminate the contract in the worst-case scenario. The suspension of the project resulted in many contractors requesting an extension of the MCO period. The problem remains that contractors have difficulty getting more time for events after the MCO has expired in many cases.

Contractors faced typical challenges when their works were allowed to resume after the initial MCO period. With the New SOPs on health and safety, workers were in short supply. There are now restrictions on working hours and supply chains that caused delays, rework was necessary after a lengthy suspension, and disruption occurred from the limited number of workers by social distance requirements. These delays and disruptions have reduced productivity and pushed back completion dates, resulting in increased costs for contractors.

The Malaysia Government Movement Control Order is a series of national quarantine and cordon sanitaire measures implemented by the Federal Government of Malaysia in response to the COVID-19 pandemic in the country. Since 16 March 2020, Malaysia has been in the spotlight following Prime Minister Mahathir’s announcement of a movement control order. MCOs restrict movement within, to, and from infected areas.

According to the MCO, all premises, government and private facilities, need to close, except for those involved in providing essential services.

The MCO was extended and relaxed to different phases in 2020 and 2021, including the Conditional Movement Control Order. Several stages were in place nationwide, but other local measures are in place in other states and federal territories or smaller areas.

Malaysia’s government took these initiatives to mitigate the economic, social and industrial impact of the Covid-19 pandemic.

On 23 October 2020, the Malaysian government gazetted a bill that will be in effect for two years. It is called the Temporary Measures for Reducing Coronavirus Diseases (COVID-19) Act of 2020 (“COVID-19 Act”).

The list of categories of contracts under the Covid-19 act includes:

1. Contracts involving construction work, construction consultancy services, or any other contract involving construction materials, equipment, or workers in connection with a construction contract.
2. Bonds of performance or equivalents that are granted in connection with construction or supply contracts.
3. Contract for professional services.
4. A lease or tenancy of the non-residential movable property.
5. Business meeting, incentive travel, conference, exhibition, sales event, concert, show, wedding, party, or other social gathering or sporting event, the provision of the venue, accommodation, amenities, transportation, entertainment, catering, or any other goods or services.
6. A contract between a tourism enterprise under the Tourism Industry Act 1992 [Act 482] and an organisation promoting tourism in Malaysia.
7. A pilgrimage-related contract.

It states, however, that Section 7 shall not invalidate any contract terminated, performance bond forfeited, damages received, legal proceedings, arbitration or mediation commenced, judgment or award granted, and any execution carried out between 18 March 2020 and 23 October 2020.

There is uncertainty about the method and amount of relief contractors will be able to secure under the acts in circumstances where they are not at fault but cannot perform due to events arising from the pandemic.

Suppose a contractor proves that the Prevention and Control of Infectious Diseases Act 1988 prevented them from performing their work between 18 March 2020 and 31 March 2021. In that case, the Employer or Client won’t invoke its contractual rights.

The COVID-19 Act also applies to prevent a contractor from being imposed liquidated damages or terminated if there are delays in the project. The contractor’s responsibility will be to prove that the delay resulted from events closely associated with infectious disease prevention. Furthermore, the contractor will have to show that the delays are due to COVID-19 related factors that have impacted their main project timeline and the deadline for completion, despite their attempts to mitigate or reduce the impact.

Moreover, the MCO, issues regarding delays, an extension of time (“EOT”), and payment of loss expenses may arise between the employer and the contractor. Construction extension clauses allow adjustments to completion dates (where necessary) while protecting clients.

The Extension of Time clause exists to ensure that a contractual structure is in place to deal with unforeseen delays. In a delay, a contractor can avail of Extension of Time, extending the scheduled completion date. Central to these issues is the question of whether the present MCO constitutes a force majeure event.

There are numerous obstacles that could delay the construction of a project, including:

Generally, this extension should be made prospectively, that is, in advance of the due date and before the contractor has passed it.

However, in some cases, an Extension of Time clause will allow for a retrospective application (AFTER the date is passed), with liquidated damages then worked out after the completion of the contract.

Construction contracts do not have standard extensions of time clauses, and they can vary widely.

Because of this, the conditions and obligations around extensions and liquidated damages are strongly influenced by how well the contract is drafted.

The construction industry must develop project-specific solutions that minimise disruptions and protect commercial interests by developing project-specific solutions that minimise disruptions and safeguard commercial interests. Owners and developers should be aware of how COVID-19 may impact their projects and how to respond.

Having that in mind, the players in the construction industry should implement the following:

All those involved in construction projects have made it their top priority to minimise COVID-19’s spread. Hence, key participants (including the developer, general contractor, and subcontractors) will need to develop a COVID-19-related health and safety plan along with the party responsible for implementing the plan.

Owners are encouraged to ensure that their contractors comply with local best practices, including the following:

To handle COVID-19 effectively and systematically, project owners, including multijurisdictional construction programs, must create a unified approach.

Construction contractors have notified project owners of their plans to invoke the doctrine of force majeure as a justification for suspensions, shutdowns, and possible delays and cost increases. However, project owners may want to consider the following before responding to these notices:

-Analyse the contractual position, which would include analysis of whether force majeure exists as a contract remedy, and if not, whether there is another term such as “excused delay”, which may be triggered by the particular circumstances notified. Examine suspension (and termination) rights and remedies, including the consequences of each party exercising their rights in different cases. Analyse any entitlements to additional payments that may result from force majeure or excused delay (or change in law). In addition, determine whether there are any business interruption policies or other insurances available to address any costs and losses incurred during COVID-19.

COVID-19 guidelines and additional work requirements often impact the work schedules and productivity of contractors. To understand the allocation of risks between owner and contractor, it is essential for parties with contracts that predate the outbreak of COVID-19 to examine the distribution according to agreement terms, including time extension and additional cost provisions.

Owners should speak with their contractors if their construction site is closed because of a governmental order to determine how far their projects are and how much work is left. Owners should ask their contractors to submit detailed reports of impacts and real-time itemisations in the future. Construction contract parties should collect data regarding the circumstances affecting the work and their mitigation efforts regularly. It will enable the parties to understand the impacts accurately and anticipate delays and additional costs.

Some force majeure provisions cover pandemics. The typical outcome is that the contractor gets time extensions but no additional costs (though force majeure remedies are contractual and vary from one contract to another). Contracts sometimes protect contractors from some or all consequences of a change in law, so they may find themselves protected from specific regulatory responses to COVID-19, even if not from the direct effects of COVID-19.

In conjunction with COVID-19, circumstances that affect timeliness and cost, such as unforeseen circumstances, may well qualify for some extensions of time and additional cost. Although, each of these cases requires careful analysis of the specific contract language, and the contractor will need to mitigate the impacts to secure the full contract entitlements. Cases may involve obtaining materials from other sources at higher prices. Suppliers and subcontractors often cause delays.

Owners should review their pricing agreements. COVID-19 will typically result in owners bearing the entire increase in work cost caused by cost-plus contracts. Cost containment actions may include issuing a stop-work order or amending budgets and schedules to separate suspended on-site work from ongoing planning and design. Generally, contractors are liable for cost overruns under Guaranteed Maximum Price (GMP) contracts, as owners have price protection and can leave COVID-19-related issues to contractors. Still, the above-mentioned contractual provisions may provide for GMP adjustments. Contingencies are also an important consideration, such as their structure, availability, and control by which parties. Contracts that pay a fixed sum to protect owners to the same extent as GMP contracts.

The construction industry is adapting to its new normal. With its increased cost-base and productivity, and scheduling challenges, many parties are looking to address the impacts of COVID-19 upfront in their contracts to the extent possible.

In this approach, standard forms and custom contracts must be modified, often in a COVID-19 clause. Parties should consider the various issues and provisions in future construction contract negotiations, which includes the following:

A change in the applicable law: whether governmental orders would impose restrictions on the global supply chain and the project’s actual construction.