COVID-19: Construction Projects – What You Need To Know And What You Can Do Now

The Malaysian Government has, in its effort to contain the COVID-19 outbreak, implemented a Movement Control Order ("MCO") throughout Malaysia from 18 to 31 March 2020, which is now extended to 14 April 2020 ("Relevant Period"). The MCO has affected the performance of non-essential works - including works at project/ construction sites where they are required to stop work during the Relevant Period. Whether COVID-19 outbreak or the consequential MCO constitutes a force majeure event is a matter of interpretation of the provisions of contract. Similarly, how the outbreak or the MCO affects the rights and obligations of the parties in terms of timing and costs is much dependant on the provisions of the contract.

In this Article, we will focus on the following standard forms of construction contracts commonly adopted in Malaysia:

Malaysian Public Works Department's standard form of contract with quantities (P.W.D. Form 203A (Rev. 2007) ("PWD Form"); Malaysian Institute of Architects' standard agreement and conditions of PAM Contract 2018 ("PAM Form"); FIDIC's conditions of contract for construction (2nd Edition, 2017) ("FIDIC Red Book"); and Asian International Arbitration Centre (Malaysia)'s standard form of building contract (2019 Edition) ("AIAC Form"). Force majeure is a creature of contract

Subject to the wordings of the relevant clause, force majeure is commonly referred to in most of the standard form of construction contracts as the occurrence of an event beyond the control of the parties which prevents one or all of them from fulfilling their contractual obligations. There is no general rule as to what constitutes force majeure but whether such a force majeure situation arises, and, where it does arise, the rights and obligations that follow, would all depend on what the parties have agreed in their contract1.

In other words, a force majeure clause is a creature of contract. It will not ordinarily be implied into contracts governed by Malaysian law. Nonetheless, section 57(2) of the Contracts Act 1950 recognises the doctrine of frustration rendering a contract void if performance of the contractual obligations becomes impossible or by reason of some event, performance is impossible or unlawful. The test is whether the supervening event resulted in changed circumstances which in turn renders a fundamental or radical change in the obligation originally undertaken to make the performance of the contract impossible2 or unlawful.

Force majeure clause in the standard form of construction contracts

The PWD Form has a force majeure clause that sets out a list of events which trigger the application of the clause. It appears that the COVID-19 outbreak and the MCO do not fall within the list of events expressly provided under clause 57.2 and the said clause appears to be an exhaustive list.

Notwithstanding this, the Malaysian Ministry of Finance in its series of frequently asked questions ("FAQs") has expressed that the COVID-19 outbreak falls within the force majeure clause under the PWD Form and further provided that for those contracts without a force majeure clause, the Malaysian government would still be able to use the "principle and procedure of force majeure" to deal with the issue of delay to the programme/ project.3 For the contracts with a force majeure clause, the Government of Malaysia may be interpreting the same to be a non-exhaustive list of events and therefore, either party is able to rely on it.

At present, there are no reported decisions in Malaysia that determines whether the force majeure events listed in the PWD Form are exhaustive or not. Some...