How to handle major projects during crisis
In recent months, the world has changed dramatically. An exceptional few are working remotely or in controlled working environments, while many are not working at all. Campaigns, events, construction, and all other manner of projects have been scaled down or otherwise put on hold.
In the immediate wake of the declaration of a pandemic by the WHO in relation to the COVID-19 virus, many business owners made swift decisions about how to protect their premises and staff, and how best to assist their employees to deal with the crisis. Businesses with ongoing infrastructure contracts also had to make a different type of decision – as to whether or not their projects could and should proceed, and whether or not to claim relief from the consequences of the pandemic. Overnight, project developers and contractors became experts on contractual and equitable relief, and all lawyers could talk about was ‘force majeure’ and ‘frustration’.
Now, some months down the track, these same parties are looking at their projects, whether suspended or otherwise, and wondering, what next? We speculate daily about when we may return to ‘business as usual’ and what it could look like – but the short answer is that nobody knows.
Instead of hypothesising about the unknown, project parties would be better placed planning for the return to work and making sure they are well prepared for issues that they are likely to face. Below are a few issues that construction, energy and infrastructure projects are likely to face, and guidance on how best to forward-manage these headaches.
The first is Authorisations. Key to any infrastructure project is the obligation to obtain the required authorisations and keep these current. Where a project runs smoothly, this is rarely a concern. However, a significant period of suspension followed by a remobilisation period could see a number of project authorisations lapsing if not renewed within time.
Project parties should review the validity of each of their authorisations and ensure they diarise the scheduled expiry. Keep in mind that authorisations which ‘automatically expire’ on a certain date should not be allowed to lapse – an extension should be sought well in advance. Equally, where authorisations have to be obtained in person (or from a rural authority), parties should allow adequate time to facilitate and complete this process.
The next issue is interdependencies. Beyond their immediate contractual relations, parties should consider whether completion of their project is dependent on other actions being taken by a third party. If this is the case, will those parties be able to meet those obligations once the project is back on track? If, for example, a power project requires connection to the grid or certification by a government entity, it would be prudent to check whether the transmission or distribution company has been adversely impacted. Does it have employees available to assist with or witness commissioning – and is there a guarantee that they will be available to assist with this process within the timelines scheduled?
Parties to a concession agreement should also take the time to understand when the offtaker will become obliged to pay. With most economies in a serious slow-down, the demand for certain types of infrastructure has slowed – in the case of power for example, there could be less uptake for electricity by consumers. In the case of roads, people are travelling less. It would not be unthinkable for an offtaker who has committed to making regular payments to project developers upon completion of such infrastructure, to want to avoid or delay this obligation. Parties to such projects should make sure they understand the payment obligations and have an open and honest dialogue about planned completion and the corresponding obligation to pay. Where projects are financed, developers should be aware of how a delay in payment could impact their obligations to repay the loan facility.
Third is change in law and tax. We have seen a spate of legislation introduced throughout the region which attempts to insulate the general population from the immediate impact of the pandemic. In some cases, these changes seem not to take into account the long term consequences for the business owners who carry the burden of compliance.
When projects resume, it will be critical to have mitigated the costs of compliance with these new laws, and to be clear on who ultimately pays for such compliance. Parties should therefore consider what costs will be incurred and how any new health and safety requirements will impact the bottom line, and timeline. Parties should review their contracts for ‘Change in Law’ or ‘Change in Tax’ provisions to ensure they understand their exposure and how much (if any) of this cost can be passed on.
Finally, the practical considerations – don’t rush back. Beyond legal and technical issues, it is important to make a complete assessment of what a project needs in order to get back on track. It is not just about when a curfew is lifted, or flights reopen – consider backlogs for key suppliers and the need for imported equipment to clear customs, as well as other basic issues such as whether workers can actually get to site (they may still be confined geographically, or the condition of the road could have deteriorated).
Many workers may have been displaced during the down time and may need some time to get back to work and reestablish themselves. Developers and other project parties should take the time now to establish communication channels with key subcontractors and contractors to ensure that they are up to date on the projected date for completion and have a realistic understanding of how quickly they will need to remobilise. This will allow for accurate planning and reduce unexpected hiccups along the way.
Above all parties should be prepared. They should be conservative with their timelines and costs so that their back to business plan is realistic and achievable. By implementing these (and a number of other) measures to proactively manage the remobilisation, project parties are sure to find themselves ahead of the curve when it comes to getting back on their feet.
The article was featured on the Business Daily on 16 July 2020 and can be accessed here.