In our previous blog post, we considered how extreme weather events could give rise to an increase in the number of disputes on major projects by testing the resilience of assets as never before.
The increased frequency and intensity of extreme weather events also increases the risk of delay and disruption to construction works themselves. For example, extreme temperatures may reduce working hours, strong winds might disrupt power supplies, or flooding could result in delays in the transportation of materials in the supply chain.
Risk allocation for extreme weather events
Who bears the risk of extreme weather events should be set out in the contract. In practice, it is normally the position that the allocation of risk is negotiated between the parties.
In the FIDIC Red and Yellow Books 2017, the Contractor is entitled to an extension of time where completion is delayed due to “exceptionally adverse climatic conditions” (clause 8.5(c)). However, no such entitlement exists under the FIDIC Silver Book 2017.
The NEC4 Engineering and Construction Contract is more generous to the Contractor in that it entitles it to both an extension of time, and reimbursement of additional cost, for extreme weather events (clause 60.1(13)).
However, as considered below, what actually constitutes an extreme weather event, under a standard form contract or otherwise, is often less straightforward and a fertile ground for disputes.
Meaning of extreme weather event
In practice, while parties may negotiate the risk allocation for extreme weather events, often little consideration is given to exactly what an extreme weather event is, or how it is to be measured.
Many contracts include some criterion around foreseeability – ie the weather event must have been unforeseeable. For example, the FIDIC Red and Yellow Books state that the adverse climatic conditions must have been unforeseeable having regard to climatic data made available by the Employer and/or published climatic data. NEC4 requires that the weather measurement occur on average less frequently than once every 10 years.
Historic approaches in assessing whether an event is foreseeable, such as those described above, assume that weather patterns are constant, and that is not the case. Climate change may necessitate a fresh approach.
Furthermore, as extreme weather events across the world become more common, the threshold of what is unforeseeable may shift. For example, a recent IPCC report found that extreme sea level events that occurred once per century in the recent past are projected to occur at least annually at more than half of all tide gauge locations by 2100.
As more extreme weather events become foreseeable, this may result in the risk of a particular weather event being unexpectedly shifted onto the contractor.
Location of weather event
Supply chains, both global and local, are particularly vulnerable to being disrupted by weather events. For example, in summer 2021 steel supplies were disrupted as a result of damage to German rail infrastructure caused by flooding. Can a contractor claim relief where a weather event occurs at a location other than the site, but which nonetheless delays the works?
As always, this will depend on the wording of the contract, but it is likely to be problematic under FIDIC and NEC. The FIDIC 2017 contracts require exceptionally adverse climatic conditions to occur at the “Site”, which is defined as the place at which the Permanent Works are executed and to which Plant and Materials are delivered (plus anywhere else specified as such in the contract). The NEC4 contract requires the weather event to have been recorded at the place stated in the Contract Data (which will likely be at or close to the site).
Note also that some weather events may fall under the list of force majeure events set out in the contract. For example, the FIDIC 2017 contracts include natural catastrophes, such as a hurricane or typhoon, as an example of an “Exceptional Event” under clause 18.1, in respect of which the Contractor is entitled to an extension of time.
However, where a weather event is less extreme than these enumerated examples, it may be increasingly difficult to persuade a tribunal that it amounts to a force majeure event under the terms of the contract – for example, that it could not have reasonably been “provided against before entering into the contract” (e.g. under FIDIC), or may not have been reasonably foreseeable or otherwise mitigated against. Further, an extreme weather event is unlikely to amount to a force majeure event if it doesn’t make the work impossible to perform, but rather just more difficult or expensive.
Although extreme and unpredictable weather is becoming more commonplace, it does not necessarily follow that contractors engaged on construction projects will be entitled to greater relief. The same questions remain when assessing, or making, a claim for time or money resulting from extreme weather: (i) has the contractor complied with the notice provisions in the contract? (ii) was the weather event the actual cause of delay to the works or increased cost? (iii) were there any mitigation measures that the contractor could have taken?
What is likely to change are the parameters of foreseeability and, with it, the contractual allocation of risk. A trap for the unwary? Perhaps, particularly if the consequences of weather events are considered to be boilerplate and historic standards continue to be applied.
This is part of a series of blog posts exploring the potential impacts of energy transition and climate change on global projects. Click here to see other posts in the series.