Three pillars are at the heart of global efforts to boost sustainability and make our built environment cleaner, greener and more socially responsible: construction, energy and technology. These three industries have come to be intricately connected in an era of transformation on a scale never seen before.
By Ellis Baker and Richard Hill
Across the world, leading construction industry players are developing innovative projects and deploying new technology to transform the way we live and work.
Meanwhile, energy and mining & metals companies in rural Africa are increasingly installing generating assets and distribution facilities to ensure continuity of energy supply for their operations.
The predicted increase in flexible working may well result in a more widespread move to the development of "smart cities," with technology built into the heart of daily life.
All this is happening amid the fallout from the COVID-19 pandemic, which has shifted perceptions of how the world may look in the future.
But the pandemic has also forced project owners, developers and contractors to look at their contractual terms more closely, as budgets are cut and works are interrupted due to government restrictions.
This compendium of articles, written by colleagues from offices across the world covers a wide range of issues, examines some of the key topics relating to the shifting relationship between the construction, energy and technology sectors in our rapidly changing world.
It looks at the role the construction industry is playing in the development of distributed energy projects in the US and battery storage in the UK.
In the Middle East, the boom in the construction of smart cities has led to the use of new project structures to embed energy -saving measures within the developments. In Africa, renewable energy projects driven by public procurement programs have attracted investors and developers from around the world, drawn by the vast opportunities on the continent.
Increasing work in a volatile environment, however, means that risk allocation and mitigation are more important than ever. Courts in regions as diverse as Russia, India, Latin America, the Middle East and the UK have all been examining force majeure and risk clauses within contracts. Industry players would be wise to take note of these decisions and trends as markets are beginning to return to post-coronavirus normality.
Insolvency can also be another resultant risk, with recent reforms in the UK, Australia and Singapore affecting the construction sector if contracts are not carefully reviewed and, potentially, redrafted to reflect the new rules.
Although the current environment may have raised awareness of risk in construction projects, there is no doubt that the recent disruption and focus on innovation, new technology and sustainability is bringing immense opportunity to the industry around the world with a real chance of lasting impact.
By Aaron Potter and Jesse Hollingsworth
Microgrids are an increasingly attractive means to provide reliable electricity, generated on-site, customized for the needs of the individual location and sensitive to the environment.
By David Strickland, Michael Yates and Lane Ransom
The commissioning and startup phase of any energy project—liquefied natural gas, power, renewables, petrochemical—represents an important, and potentially perilous, transitional period during the construction process.
The coronavirus pandemic has had, and will continue to have, profound effects on the global construction industry. There have been and will continue to be substantial delays and cost impacts as a result of labor shortages, disruption to supply chains and financial pressure.
Delays in construction projects are common and even more so at the moment, and so the question of ensuring that there is a mechanism for the prompt payment of damages in the event of a contractual breach is arguably now more important than ever.
With the threat of increased insolvencies as an effect of the COVID-19 pandemic remaining very real, the construction sector needs to be aware of the impact of changes to insolvency laws.
In 2020, the UK courts heard two significant cases with an impact on the way construction contracts and subcontracts are drawn up and carried out, affecting employers, contractors and subcontractors to major projects.
By Richard Hill, Sofia Lambert and Kit Goodfellow
Increased battery storage capacity can and is being encouraged in order to facilitate the move towards the decarbonisation of electricity generation and can contribute to greater resilience and efficiency of integrated grids.
By Matthew Richards and Rhulani Matsimbi
Investment in infrastructure in Africa has soared in recent years, and construction activity has risen with it.
By Paddy Mohen
With its huge mineral potential, Africa is likely to see a number of mining projects move from exploration and feasibility to construction.
By Chris Duncan and Daria Plotnikova
The past few years have seen a shift in the way contracts for construction projects in Russia have been drawn up and scrutinized in response to growing awareness of risk.
By Ibaad Hakim and Frederic Akiki
Urban environments are in the middle of a revolution. The powers of technology and data are being harnessed to make cities safer, more efficient and more sustainable.
By Luka Kristovic-Blazevic, Michael Turrini and Ghazi Kayal
COVID-19 has had a significant effect on construction projects around the world, delaying work and forcing many parties to go back to their contracts and examine whether there is scope for a claim, and Saudi Arabia was no exception.
By Matthew Secomb and Aditya Singh
Where large projects exist, disputes will often arise. The Indian construction sector is no exception, but the lack of a standard form contract and the option of several forms of dispute resolution means that resolving disputes can be complex.
Stay current on your favorite topics
The pandemic will continue to have profound effects on the construction industry: substantial delays and cost impacts as a result of labor shortages, disruption to supply chains and financial pressure
The coronavirus pandemic has had, and will continue to have, profound effects on the global construction industry. There have been and will continue to be substantial delays and cost impacts as a result of labor shortages, disruption to supply chains and financial pressure.
That impact has been felt in several ways in Mexico. On March 31, 2020, the Mexican Health Ministry published a decree enabling extraordinary actions to address the pandemic. The decree suspended all non-essential activities from March 30, 2020 to April 30, 2020.
With the exception of activities related to the conservation, maintenance, and repair of the critical infrastructure that ensures the production and distribution of essential services, the construction industry was included within the scope of the suspension.
The suspension period was later extended until May 30, 2020, and Mexican state governments were able to implement any prevention measures they deemed appropriate in accordance with the general criteria issued by the Health Ministry. As a result, several states tightened the federal restrictions.
On May 14, 2020, the Health Ministry published a further decree that designated the construction, mining and manufacture of transportation equipment industries as essential activities, allowing these industries to resume activities as of June 1, 2020.
In the energy sector, the Mexican Energy Regulatory Commission (CRE) issued several resolutions suspending all pending CRE proceedings including applications, issuance of permits and requests for modifications of permits from March 24, 2020 until August 17, 2020. Another resolution was issued on January 18, 2021, once again suspending all CRE proceedings until federal or local authorities in Mexico City have determined there is no epidemiological risk for the federal public administration to resume its activities.
While the CRE proceedings are suspended, delays in the issuance and modification of permits and to backlogs in processing applications for permits are inevitable. Although CRE is formally closed and proceedings have been suspended, CRE commissioners still meet occasionally to issue resolutions, which in practice has exacerbated legal uncertainty in Mexico.
June 1, 2020
Construction, mining and manufacture of transportation equipment industries were allowed to resume activities as of June 1, 2020 following a two-month suspension due to the pandemic.
The various decrees and suspensions have had a major impact on the construction and development of projects in Mexico.
For example, a generator was prevented from commencing construction of a photovoltaic project in Puebla as originally scheduled due to delays caused by COVID-19. The generator submitted a force majeure claim to CRE, but CRE has not yet responded to the claim because its activities are suspended. The uncertainty over when CRE will resume activities has had a significant financial impact on the project.
Construction of another photovoltaic project in Sonora was suspended for several weeks due to supply chain delays arising from COVID-19. As a result of these delays, the owner was not able to achieve commercial operation on the guaranteed date under the power purchase agreement (PPA) and the generation permit. The sponsors are currently negotiating with the lenders whether this delay can be considered a force majeure event under the financing documents.
The suspension period prevented a generator in a simple-cycle project in Nuevo León from conducting performance tests and other work required under the PPA, thereby delaying achievement of commercial operation on the guaranteed date. The generator presented a force majeure claim to the Mexican National Center for Energy Control (CENACE). CENACE rejected the claim based on the generator's failure to provide evidence of the impact of the suspension period on the performance of its obligations. The generator requested that CENACE reconsider the merits of the request, but CENACE's resolution is still pending.
The outstanding question in the construction industry in Mexico is whether COVID-19 will be uniformly found to constitute a force majeure event across different construction projects
The outstanding question in the construction industry in Mexico is whether COVID-19 will be uniformly found to constitute a force majeure event across different construction projects.
Most construction contracts related to complex energy projects contain provisions under which the performance of a legal obligation, and the related contractual liability, are exempted or subject to adjustment as a result of force majeure events. However, it is advisable to review such contractual provisions to determine whether the measures related to COVID-19 could provide elements to invoke force majeure.
Finally, it is worth noting that even in the absence of force majeure or similar provisions, Mexican law exempts liability for failure to perform legal and contractual obligations as a result of force majeure events.
Mexican courts have interpreted that force majeure constitutes an event beyond a party's control, foreseeability or ability to prevent the event. The main legal consequence of a force majeure event is that it exempts a party from performing a legal obligation and, in particular, in the event of failure, excludes the application of liquidated damages. In addition, according to case law, force majeure can be caused by acts of nature, human action or acts of governmental authorities.
Subject to these provisions, and contract regulations, measures related to COVID-19 potentially could provide elements to claim force majeure, as the pandemic and the measures imposed by the federal and local governments are beyond the control of the parties.
As these measures constitute legal obligations that cannot be avoided and were unforeseeable prior to the pandemic, and as it is also reasonable to assume scenarios where these measures, such as quarantines and closure of ports, could make performance of contractual obligations impossible, there are elements that could justify the failure to comply with an obligation due to a force majeure event caused by COVID-19.
In practice, the impact of COVID-19 will have to be analyzed on a case-by-case basis, and it may be some time before the construction of projects in Mexico returns to normal.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2021 White & Case LLP
