CORONA VIRUS – THE BUILDING AND CONSTRUCTION SECTOR – AB 92 AND AB 18

The private sector labour market is not included in the lay-offs and closures, but the Government encourages all private sector employers to ask as many employees as possible to work from home.
The Danish Parliament is expected to adopt an amendment to the Danish Epidemic Act today, 12 March 2020, that will make it possible to implement bans and orders against individuals and public events etc.

Obviously, this is a serious situation for Denmark, including for the building and construction sector. Therefore, we would like to provide information about how to handle the situation when it comes to construction law according to AB 92 and AB 18.
As the situation now stands, building and construction work can be performed, and in general there are consequently no entitlements to an extension of time or to compensation. This situation may change very quickly, and there will be specific situations that prevent performance of the work.

If circumstances should occur that prevent or delay performance of the work, it will be relevant to distinguish between whether on the one hand the contractor/project owner is entitled to extension of time, and on the other hand who is to pay if the building and construction work is delayed. As it is, the rules vary according to the cause of the delay.

The rules in AB 92 and AB 18 on extension of time

The question whether the contractor is entitled to an extension of time is governed by AB 92, section 24(1) and AB 18, section 39(1). The rules are practically identical in AB 92 and AB 18, and the differences will not be described here.

In accordance with AB 92, section 24(1), no. 3/ AB 18, section 39(1), para c, the contractor will be entitled to an extension of time if the work is delayed as a consequence of force majeure, provided that it is beyond the contractor’s control. This means that the delay must have occurred without it being the contractor’s responsibility and as a result of circumstances beyond the contractor’s control.

In accordance with AB 92, section 24(1), no. 5/ AB 18, section 39(1), para e, the contractor is entitled to an extension of time as a result of public orders or bans that are not owing to circumstances on the contractor’s part.
If the contractor is entitled to an extension of time, the contractor is not in actionable delay for the period where the contractor is entitled to an extension of time. It should be emphasised again that even if the contractor is entitled to an extension of time, the contractor does not necessarily have a right to payment for the extended construction period (construction site etc.).

The rules in AB 92 and AB 18 on payment for extended construction time

Before it can be determined whether the contractor is entitled to payment for the extended construction time, the cause of the extension of the construction time must be established. A long description of the rules on payment for extended construction time is not relevant here; we just wish to emphasise that if the cause of the extended construction time is force majeure, the contractor is not entitled to any payment for the extended construction time, see AB 92, section 27(3), and AB 18, section 43(3), para a.
If the cause of the delay can be attributed to an order (AB 92, section 24(1), no. 5/AB 18, section 39(1), para e), the contractor is entitled to payment, see AB 92, section 27(2)/ AB 18, section 43(2), para d.

The payment, to which the contractor is entitled, if an order has been issued, is an amount, according to AB 92 as well as AB 18, corresponding to the loss suffered by the contractor, except for the contractor’s loss of profit for not being able to perform other work during the period of delay, and other similar further loss.

In other words, it varies greatly whether the cause is force majeure or an order.

Is corona force majeure?

In general, the occurrence of a virus is not force majeure. However, the corona virus has spread so much that there is hardly any doubt that it is a force majeure situation.
Even though we are therefore now in a force majeure situation, this does not mean that the contractor is entitled to an extension of time. This will require that the force majeure results in an actual delay, e.g. because materials cannot be delivered from Italy or China.
However, if the contractor himself chooses to stop his employees from working, this is hardly a matter of force majeure. This also applies if the Government has encouraged everybody to work from home if possible. This means that according to the rules, it is actionable delay if the contractor sends home his people and they are not covered by a quarantine.

Has an order been issued?

It is expected that the possibility of the authorities issuing orders in connection with the occurrence of corona virus infections will be extended considerably.
If the authorities have issued an actual order against working at the construction site, the contractor will be entitled to an extension of time according to AB 92, section 24(1), no. 5, and AB 18, section 39(1), para e. This will also be the case if the authorities have issued so many orders against the contractor’s employees at the relevant construction site that it does not make sense to continue the work.

In addition to the contractor being entitled to an extension of time, the contractor is also entitled to extra payment for the extended construction time; but without, however, receiving compensation for loss of profit during this period.

Other circumstances of potential importance

We have briefly described the rules on extension of time and payment for the extended construction time. However, there may be other circumstances that can affect your case, and we recommend that you contact us for an assessment of the actual case. We wish to give some general advice though.

What should you do as project owner?

We recommend that you have your construction site secured immediately if the work is stopped. All building materials at the construction site belong to the project owner according to AB 92, section 10(3) and AB 18, section 12(4). The building materials may sometimes not be there after a critical situation, such as e.g. after the bankruptcy of a contractor or a sub-contractor, or the bankruptcy of their sub-contractors. The materials may have disappeared or been stolen.

Firstly, we recommend that the project owner and the contractor communicate with each other as quickly as possible in order to determine how to handle the situation. It is important for all, including your project, that the parties together succeed in riding out the crisis. It is absolutely certain that it is no use being in the right in these situations: It will be difficult for the contractor to document his loss due to a delay, and the project owner will typically incur greater costs than can be covered by daily penalties.

Finally, it may be to the advantage of all if you are able to agree, on an ongoing basis, on the current stage of the work. This may prevent too many discussions if disagreement should later occur, also if you have a good dialogue with your contractual partners right away.

By Christian Molt Wengel, Lawyer

If you have any questions on how to handle corona virus or questions on an actual problem, please contact us. You can contact us at info@mowe.dk or by telephone +45 7022 4999.