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.
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.
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The Saudi Supreme Court has ruled that the pandemic is to be considered “force majeure” or an “emergency situation” should the performance of the contract become entirely impossible due to COVID-19
In December 2020, the General Assembly of the Saudi Supreme Court issued a decision setting out a series of legal principles in relation to COVID-19 and its effects on contractual commitments and obligations, granting courts the power to adapt contractual obligations, taking into account the circumstances resulting from the pandemic.
The Supreme Court issued its decision on December 23, 2020 following a request from the Royal Court and after consideration of, among other things, the relevant royal orders, ministerial decrees aiming at addressing the effects of the pandemic, related laws and Shari'a principles.
The court confirmed that the COVID-19 pandemic should be considered as an "emergency situation" when it is not possible to fulfill a commitment or implement a contractual obligation without incurring unusual losses. Alternatively, it can be considered as "force majeure" if the performance of the contract has become entirely impossible due to the pandemic.
Applying the effects of either an emergency situation or force majeure to contracts and obligations is subject to five conditions. Firstly, the contract must have been concluded before the start of the precautionary measures relating to the pandemic, and the contract must have been continued after the measures were put in place.
Secondly, parties need to be able to prove the pandemic has directly impacted the contract in an unavoidable manner.
Thirdly, the parties must show that the direct impact of the pandemic on the performance of the contract is the "sole and independent cause" of the relevant impact.
Fourthly, the aggrieved party must not have waived or compromised its rights; and finally, for a claim to be brought, the effects and damages of the pandemic cannot be dealt with by a special law or by a decision of the competent authority. The Supreme Court confirmed that, at the request of a party, Saudi courts have the power to amend contractual obligations that were impacted by the COVID-19 pandemic in order to achieve "justice". It set out specific principles that apply to construction, supply and other related contracts, and to lease agreements.
December 23, 2020
The Supreme Court issued its decision on the effects of COVID-19 on contractual arrangements.
The Supreme Court explained that if the pandemic has resulted in an increase in the value of materials, manual labor, operation and so on for the contractor, then the court has the power to increase the contract price up to what would be considered an appropriate increase, and the employer has the right to seek termination of the contract due to the price increase.
If the increase in the price of materials is only temporary, then the court has the power to suspend the contractual performance for the relevant duration of the price increase.
If the pandemic has caused a shortage of commodities or goods in the market, then the court has the power to decrease the quantity of supply proportionally and to the extent it thinks is sufficient to mitigate the unusual harm.
In the event of the temporary unavailability of materials in the market due to COVID-19, the court has the power to suspend the relevant obligation for the temporary period, provided that the vendor does not suffer severe or unusual damage from the suspension. However, if the vendor does suffer such damage, then it has the right to seek termination of the contract.
Where the unavailability of materials is "absolute", leading to the performance of all or some contractual obligations becoming impossible, then the court has the power to terminate the contract or annul the elements of the contract that cannot be performed, at the request of one of the parties.
If the contract imposes an obligation to perform works, such as in a construction contract, and the pandemic has caused a delay in these works, the court has the power to suspend temporarily the implementation of the employer's corresponding remedies. However, if the employer suffers severe and unusual damage in such a case, it can request termination of the contract.
There are also certain conditions applying specifically to lease contracts. If, due to the pandemic, the lessee becomes totally or partially unable to benefit from the lease, the court has the power to deduct from the rent an amount proportional to the decrease in the intended benefit of the lease.
The lessor may not have the right to terminate the lease contract if the tenant is delayed in paying rent during the period in which the lessee was unable to make use of the property, in whole or in part, due to the pandemic.
The extent of the impact of the pandemic on the contract at issue must be considered based on the relevant business activity, and assessment of damages should not exceed the period of the pandemic’s impact on the contract
The Supreme Court held that courts must consider the extent of the impact of the pandemic on the contract at issue based on the relevant business activity, and the extent and duration of the pandemic's effect. Courts should only consider the disputed contract, and assessment of damages should not exceed the period of the pandemic's impact on the contract. The assessment should be carried out by experts in the relevant field.
Courts should also consider dis-applying penalty or liquidated damages clauses or fines, in whole or in part, if there has been a delay due to the pandemic. Additionally, clauses limiting a party's liability in case of an emergency situation or the event of force majeure will have no effect.
The party who has breached the relevant obligation will have to prove that the breach was caused by the pandemic. The Supreme Court's decision has provided useful clarity and guidance to the Saudi courts when considering claims arising out of contractual breaches due to the pandemic. However, courts still have a significant amount of discretion when considering issues, such as how to determine what is an "unusual loss", how long a temporary effect may last for, and what the relevant business activity that needs to be taken into account is.
As a result, every situation will need to be considered on a case-by-case basis in order to determine the extent to which the principles laid out by the Supreme Court will apply.
Ghazi Kayal (Associate, Riyadh) contributed to the development of this publication.
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