Measures put in place by the French government to control the spread of the coronavirus are causing considerable disruption to French people and businesses, including those in the construction sector.
The next few months will be particularly challenging for construction firms as they seek to adapt to these measures.
Suspension of activities on construction sites
On 16 March, the French government enacted Decree no. 2020-260 implementing national 'lockdown' measures, including confining all movement of individuals to certain exceptional circumstances such as travelling to the workplace in cases where it is impossible to work from home or to postpone professional trips. These restrictions are designed to apply until 31 March.
This decree was followed on 17 March by Decree no. 2020-264, which introduced a €135 fine for the infringement of any of these restrictions.
These measures have obviously created severe operational issues for businesses including those in the construction sector, which have had to temporarily suspend all activities on sites.
Delay penalties
On 22 March, the French parliament passed emergency legislation allowing the government to take exceptional measures in order to fight the worsening coronavirus outbreak. Among other things, the bill empowers the government to further restrict individual freedom of movement, as well as to take special measures in support of French companies which have been hit by the virus outbreak.
Most of the insurance policies available on the French market only cover losses resulting from physical damage, and so would not normally cover losses caused by a pandemic.
The bill lists a number of emergency economic and adaptation measures on which the government will be able to rule by decree for a period of three months after the publication of the bill. Of particular relevance to ongoing construction projects which have been put on hold due to the pandemic is a provision allowing the government to adopt any provisional measures "[a]dapting the provisions relating to procurement, milestones, performance and termination provided for in public contracts and the Public Procurement Code, in particular those relating to contractual penalties".
These measures are aimed at "limiting business closures, irrespective of their status, and dismissals", and therefore apply to all companies irrespective of their status and their size. Other measures are aimed in particular at small businesses and microenterprises, such as measures allowing companies to postpone or obtain payment facilities for rents and utility bills. The measures therefore foreshadow the adoption by the government of very broad measures in the coming days or weeks, which will have a direct impact on the rules regarding delays and penalties.
Anticipated guidelines on continuation of activities at building and civil engineering sites
Many construction projects have had to be temporarily put on hold due to the inability to carry out activities on site in light of the growing restrictions imposed by the French government. However, the French economy is highly dependent on companies in the building and civil engineering (BCE) sector, which play a vital role in helping the French population meet basic needs around accommodation, water, energy, waste management, transport and telecommunications. The government has therefore been in discussions with representatives of BCE companies and has agreed on several guidelines with the industry to support continued operation in these sectors and on sites.
These guidelines, which have been jointly developed by BCE professionals and experts from the French Professional Agency for Risk Prevention in Building and Civil Engineering (OPPBTP), will be released in the coming days. They are aimed at implementing a number of health and safety recommendations on site in order to enable the continuation of activities while guaranteeing employees' safety, and will require various adjustments and revisions to work methods in many cases.
A press release announcing the guidance, issued jointly by the French government and three BCE professional organisations (FNTP, Capeb and FFB), also urged employers not to bring contractual claims against contractors, their subcontractors or suppliers who have had to suspend performance in order to guarantee the health and safety of their employees.
Potential contractual remedies
To date, the French government has put a number of measures in place to support French companies experiencing severe distress on account of the coronavirus pandemic. These measures are wide-ranging and include, for example, the extension of payment deadlines for social security or tax payments and direct tax rebates.
One measure of particular relevance to companies involved in the construction sector, especially public works, is the announcement of 28 February by France's minister of economy and finance, Bruno Lemaire, that the coronavirus will be considered as a case of force majeure in the context of public procurement contracts and that liquidated damages will not be levied for late delivery.
Arguably, this declaration has no bearing on private contracts. However, even in the absence of any force majeure clauses in their contracts, parties to private works contracts may rely on article 1218 of the French civil code. This defines force majeure as an event which:
- is beyond the control of a party;
- could not have been reasonably foreseen at the time of entering into the contract;
- the effects of which cannot be avoided through adequate measures; and
- prevents a party from performing its obligations under the contract.
However, contractors undertaking private works should bear in mind that coronavirus will not automatically qualify as a force majeure event. As such, they will need to prove that each of these four conditions have been met. This may become harder once the BCE guidelines are released, as they will arguably define adequate measures in order to enable the continuation of activities on site while guaranteeing employees' safety.
Provided that the four conditions are fulfilled, article 1218 of the French civil code allows the contract to be either suspended if the impediment is temporary or terminated if the impediment is permanent. In addition, under article 1231-1, if it is effectively shown that the outbreak constitutes force majeure then the party which was prevented from performing its contractual obligation will be exempted from liability for damages in respect of the default or delay.
Alternatively, contractors may seek to rely on the concept of hardship ('imprévision') under article 1195 of the French civil code. This allows contracting parties to obtain the renegotiation of their contracts provided the following two conditions are fulfilled:
- the claiming party must prove that there has been a change of circumstances – in this case, the coronavirus outbreak - which was unforeseeable at the time of entering into the contract; and
- as a result of the unforeseeable change of circumstance, performance of the contract must have been rendered exceedingly onerous for the claiming party who had not accepted the risk of such a change.
However, before relying on this provision, parties must check whether their contracts expressly exclude or amend the provisions of article 1195, which are not mandatory.
Insurance for operating losses
The coronavirus outbreak has already inflicted severe operating losses on businesses, and many contractors might be wondering whether these losses will be covered by their insurance policies.
Unfortunately, most of the insurance policies available on the French market only cover losses resulting from physical damage - for example, due to fire or natural disaster - and so would not normally cover losses caused by a pandemic. Even if companies are insured more widely against losses not necessarily resulting from physical damage, the insurance policy might specifically exclude losses resulting from epidemics or pandemics such as the coronavirus.
In consideration of this, on 17 March Bruno Lemaire told the president of the French Insurance Federation that he expected insurers to participate in efforts of national solidarity. In response, the French Insurance Federation indicated on 19 March that insurers will undertake not to terminate insurance contracts due to late payments as a result of the coronavirus outbreak for the duration of the lockdown. Insurers have not yet further extended this measure, which would seem unlikely.
What seems to be likely is that the coronavirus pandemic will cause many casualties among French contractors, while others will need special measures in order to recover.
Frédéric Gillion, Hollis Dufour and Toshima Issur are construction disputes experts at Pinsent Masons, the law firm behind Out-Law.
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