23 March 2020 – need2know
Many construction companies have – as a consequence of legal measures to contain COVID‑19 – suspended construction site operations until further notice. As a practical rule, Austrian Standard ÖNORM B 2110 is regularly agreed for construction contracts.
What must contractors and clients observe according to ÖNORM B 2110?
The Corona pandemic is considered a force majeure. Force majeure is understood to be an external, unforeseen and unavoidable event. Restrictions in the provision or acceptance of work caused by the COVID-19 pandemic (or related measures) are therefore basically a case of force majeure.
ÖNORM B2110 – Risk allocation to the customer
If ÖNORM B 2110 has been agreed upon – which is regularly the case – 7.2.1 of ÖNORM B 2110 applies. Pursuant to 7.2.1., the following events are allocated to the sphere of the customer,
- a contractual execution of the services becomes objectively impossible, or
- which were not foreseeable at the time of the conclusion of the contract and which cannot be reasonably avoided by the contractor.
It is undoubtedly the case that the concrete effects and also the scope of the legal restrictions were not foreseeable for the contractor and are usually also difficult to avoid in a reasonable manner. If a construction site operation is completely prohibited by the authorities, which is currently not (yet) the case nationwide, performance is objectively impossible.
According to ÖNORM B 2110, the risks of additional costs and/or time delays caused by COVID-19 effects and/or measures are therefore borne by the costumer. The contractor is entitled to claims resulting from extensions of the construction period and related additional costs.
In each individual case, it must be examined whether it is possible for the contractor to avert the consequences of the restrictions in a reasonable manner, for example by taking measures to maintain construction site activity (or parts thereof) to a practical and permissible extent.
In particular, it must also be assessed whether the construction site can continue to be operated at the minimum person-to-person distance of one meter as required by the authorities (which applies to “places of occupational activity”). Any additional costs and delays resulting therefrom shall in turn be borne by the costumer.
Proof by contractor
The contractor must provide evidence of COVID-19-related restrictions. This applies in particular even if the provision of services is not possible due to a prohibition or an obstacle on personnel or subcontractors entering the Federal territory. Appropriate documentation is recommended.
Agreement on “construction stop”
It is permissible to agree to a “construction stop” by mutual consent. Arrangements between client and contractor are the recommended way to deal with the consequences of the general crisis.
The halt to construction by mutual consent and the associated consequences for the construction work and the bearing of costs must be regulated and documented in order to prevent disputes after the crisis.
Many contracts for work and services provide for penalties as a legal consequence of a default by the contractor.
Penalties are flat-rate contractual penalties. As a rule, penalties are only imposed if the contractor is also at fault for the delay. This will not normally be the case with the COVID-19 pandemic and the associated measures.
If penalties are agreed to irrespective of fault, their enforcement will fail due to immorality or the general terms and conditions limits as a result of gross disadvantage.
Penalties are in any case subject to judicial reduction. The contracting parties cannot waive the right of judicial reduction in the contract. It is to be assumed that a delay due to the COVID-19 pandemic/measures would be taken into account in a judicial decision on reduction of the contractual penalty substantially in favour of the contractor.
Withdrawal from the building contract – hindrance longer than 3 months
According to ÖNORM, both the contractor and the client may immediately withdraw from the contract if it turns out that an obstruction of the performance of the service lasts or will last longer than three months. A withdrawal can therefore already take place at a point in time when it is foreseeable that the COVID-19 restrictions will last longer than three months. One should prepare for the consequences of withdrawals. Especially in the case of an agreement on the stop of construction, arrangements should be made with respect of this right of withdrawal.
The need2know article offers a general overview. An examination, evaluation and resolution of the individual case remains necessary.
If you have any questions regarding the need2know article or construction projects/contracts, please reach out to the authors or your regular contact person at bpv Huegel.
Your team at bpv Huegel is also available to answer any other legal questions you may have, especially in connection with COVID-19.
Authors: Paul Pfeifenberger, Dominik Geyer
If you want to receive need2know, follow us on LinkedIn or send an email to firstname.lastname@example.org.