Newsletter
COVID-19-Related EOT in Public Construction Projects
In Taiwan, since the COVID-19 pandemic began, foreign workers have had to contend with stricter entry restrictions and local workers have become reluctant to work in different cities or regions. Manual laborers are also unwilling to work, citing the requirement to wear masks. These developments stymie local public construction projects. Labor shortages, output decline, protracted performance periods, and higher construction costs are common consequences of the pandemic in public construction.
In practice, where a contractor requests an extension of time (EOT) from the owner of the project under a government procurement contract, it must prove: (i) that the cause of its EOT request is not attributable to itself; and (ii) what impact the underlying event of the EOT request has on the critical path of the project. An EOT request will likely be approved if the contractor can prove that it is not responsible for the cause of its EOT request and the underlying event of the request has obstructed contract performance.
When an EOT request is submitted on the grounds of COVID-19, that the cause is not attributable to the contractor is usually not controversial. However, whether the underlying event has indeed impacted the project depends on the circumstances of the case. The contractual parties tend to view the extent of the impact differently. The Public Construction Commission (the "PCC") under the Executive Yuan has stated that for EOT requests submitted on the grounds of COVID-19, it may not be easy to specify the extent of the impact on the project's critical path. The PCC has issued Interpretation No. Kong-Cheng-Kuan-11003006531, dated June 18, 2021, titled "Responses to Delay or Suspension of Public Construction Projects Due to COVID-19," to offer some guidelines for government agencies that are public construction projects owners dealing with EOT requests and deciding the extension period for projects delayed by Covid-19. Such guidelines are summarized as follows:
(I) Where performance of a part of the project is still ongoing
1. EOT requests for the duration of level 3 pandemic alert: the length of EOT granted may be one-half (1/2) of such duration.
2. Where a contractor believes that the delay caused during level 3 pandemic alert exceeds one-half (1/2) of such duration, it can submit supporting materials to request more EOT days.
(II) Where performance of the entire project has been suspended
The EOT requests will be granted upon verification of the circumstances and facts by the supervising and project-management agencies in charge of the projects.
(III) The contractor and the project owner may agree on an alternative solution where they consider the guidelines not applicable owing to the type of the project in question (e.g., where there is in fact no labor shortage or decline in output, where a blanket purchase agreement underlies the project in question and the construction workers could maintain social distance, or where the continuing performance of the project would be essential to pandemic prevention efforts or policies).
As explained above, where a contractor believes that COVID-19 has substantially impeded the project, it is advised to submit evidence and actively negotiate with the project owner for its EOT request, and ask the project owner to follow the PCC guidelines on the grounds that it is difficult to calculate the exact extent of the pandemic’s impact on its performance.
In addition, in its Interpretation No. Tai-Tsai-Tsu-11025513690, dated May 28, 2021, the Department for the Promotion of Private Participation under the Ministry of Finance also stated that pandemic bailout measures may be discussed between private institutions and government agencies on the basis of the investment contracts at issue or civil laws and regulations, including suspension of project performance and determination of operational period, as well as appropriate extension of the construction and operational period based on the circumstances.
Therefore, for BOT (Built-Operate-Transfer) contracts that have not started construction since the COVID-19 pandemic, but are expected to be delayed by it in the future, it is recommended that information on the pandemic’s impact on contract performance be collected as early as possible, such as increased difficulties in hiring foreign workers owing to tightened border control, and the possible effects on the construction schedule (for instance, where a project has been subcontracted, the subcontractors are unable to perform their work as scheduled owing to the pandemic). Also, depending on the interactions and relationship a contractor has with the project owner, the contractor can keep correspondence document or minutes of performance management meetings to document the extent of the impact on contract performance. Once the level of the impact meets the threshold in the contract, such documents can be used as the basis for requesting suspension of performance, determination of the operational period, or extension of the construction period and/or contract period.