Many contractors and installers are experiencing worker sick leave, foreign workers leaving en masse, and problems with supplies of materials as a result of the corona virus. As a result, it is almost inevitable that construction projects will be delayed and costs will rise.
As a result, schedules slip (and the agreed upon completion date may not be met) and projects become loss-making. In many cases, the agreement made with the client, subcontractor or supplier provides a solution on how to deal with these problems. However, this is not always the case.
In addition to the provisions of the contract, provisions of the law may also provide a solution. Obvious legal inputs are force majeure (Article 6:75 BW), unforeseen circumstances (Article 6:258 BW) and cost-increasing circumstances (Article 7:753 BW). This blog deals with the latter two.
Unforeseen circumstances (Article 6:258 BW)
At the request of a contracting party, the court may modify or dissolve the contract if there are unforeseen circumstances "which are of such a nature that the other party cannot expect the contract to be maintained unchanged by standards of reasonableness and fairness."
From the article of law and the case law published about it, a number of conditions to invoking contingencies follow.
- Circumstances are only "unforeseen" if they are circumstances that were still in the future when the agreement was concluded. This means that reliance on them is very unlikely to succeed for agreements concluded after the first infection became known in the Netherlands (late February 2020). Whether it will still succeed for agreements concluded from the time the epidemic broke out in China in December 2019 is uncertain.
- The regulation for unforeseen circumstances in Article 6:258 of the Civil Code is based on reasonableness and fairness and is intended for extreme cases. Courts are reluctant to honor a reliance on unforeseen circumstances. Only when it is unacceptable or extremely inconvenient for one of the contracting parties that a contract remains unchanged can a judge modify or dissolve a contract on the grounds of unforeseen circumstances.
- Problems that a contractor encounters such as unworkable weather, stalled supplies or unavailability of materials, illness of workers or failure of subcontractors to show up are normally part of a contractor's normal entrepreneurial risk. However, if these types of problems occur to an abnormal extent that makes it impossible for a contractor to fulfill its obligations under the contract, it may be an unforeseen circumstance that should not be entirely the contractor's responsibility, especially if the contractor has observed all precautionary measures, including guidelines from RIVM and the protocol Working Safely Together. The outbreak of the coronavirus thus appears to be a promising ground for invoking unforeseen circumstances.
- Several past court decisions make it clear that the introduction of new regulations by the government can create an unforeseen circumstance. What is essential then is that it concerns regulations that directly affect the performance of the contract and do not belong to the normal entrepreneurial risk. Based on the current government measures, work can simply be done. The contractor must observe the guidelines in the protocol Working Safely Together. Only when the government declares a lock-down can there be an unforeseen circumstance in the form of new regulations.
- Modification or dissolution based on unforeseen circumstances must be ordered by a judge. Proceedings take time, especially now that the courts have been closed due to the coronavirus as of March 17 last year and are likely to face the necessary backlog once reopened. So a quick decision is probably not in the cards.
Cost-increasing circumstances (Article 7:753 BW)
Under this article, a contractor can ask the court for a price adjustment, for example, because fewer people can be employed or material prices are rising sharply.
The following are the conditions for invoking cost-increasing circumstances.
- There must be cost-increasing circumstances that arose or came to light only after the contract was concluded and, to that extent, were "future" at the time the contract was concluded. As with Section 6:258 of the Civil Code, it is also true of Section 7:753 of the Civil Code that a reliance on it is very unlikely to succeed for contracts entered into after the first infection became known in the Netherlands and this is uncertain for the period after the outbreak in China.
- The cost-increasing circumstances must not be attributable to the contractor, nor did the contractor have to take them into account when setting his price. There is much case law on this condition. On this basis, it seems unlikely that the corona epidemic will be judged by a court as a risk that a contractor had to take into account when entering into a contract.
- A price adjustment under this article requires the court's intervention. The court has great discretion in evaluating the contractor's request.
- The contractor should always warn the client as soon as possible of the need for a price increase. The client can then decide whether he wants to (partially) terminate the contract or make a proposal to simplify the work. If there is no, no timely or insufficiently clear warning by the contractor then he cannot invoke article 7:753 BW.
Conclusion: stay or engage in conversation
All in all, the most important advice remains - if this has not already been done - to warn the client, explain what impossibilities you are up against, clarify price consequences as clearly as possible, and engage in conversation. In this way you can try to come to a reasonable solution for both parties. Is a conversation with the client not possible? Legal proceedings will not give you certainty in the short term, but an appeal to unforeseen or cost-increasing circumstances can ensure that you will still be able to talk. In addition, check the contract for other possibilities!
If you have any questions as a result of this blog, please contact team Construction.
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