Since Tuesday, March 17 at midnight, Peru has entered a national state of emergency, establishing restrictions on people's freedom of assembly and transit. This means that construction, technical and professional personnel are prevented from getting to their place of work. As a result, the completion of public works on the agreed terms may be impossible. Below we analyze the measures that need to be adopted:
1. Write down in the Construction Logbook (Cuaderno de Obra) the force majeure circumstance that prevents the completion of the work (make reference to Supreme Decree No. 44-2020-PCM).
If you are not able to take note on that date, we recommend you send a communication to the entity (usually agreements have official email addresses authorized by the parties) and, if possible, to the supervisor, by email, with that wording. Once the state of emergency is over, you should include everything that has occurred in the Construction Logbook.
2. Put on record that the construction foreman and, when applicable, the project manager, will be at the disposal of the supervisor/inspector and the contracting entity, remotely (email, telephone) for any coordination that may be needed.
3. Record, in the Construction Logbook or minute, the current state of the work sites, the number and quality of the materials and equipment available at the construction site, and the conservation and safety measures that the contractor will adopt to maintain the integrity of the work.
We recommend allocating security personnel and keeping the foreman –who is in charge– at the construction site, given that the tasks of all the other personnel will be suspended. We recommend communicating their names and the activities they will perform.
4. Request for term extension
Adopt the measures outlined above and, when applicable, submit a request for term extension for a cause not attributable to the contractor.
This request must be submitted after the circumstance preventing the completion of the work ceases to exist, that is, when the state of emergency is over on March 31, 2020 pursuant to the emergency decree.
The request for term extension gives the contractor the right to be paid general variable expenses and direct costs. Regarding direct costs, we suggest you verify the specific provisions applicable to each agreement.
As there are no work sites, a (total) work shutdown occurs. Thus, the general expenses and direct costs to be claimed must be duly justified: It is important that the payment receipt for the costs incurred mention the construction to which they relate. It is also important to put on record (in a Construction Logbook, letter or email) the future costs of the demobilization of personneland any other expenses that may be incurred during the shutdown process and that will be paid by the contracting entity.
In our view, as this is an agreement, the term suspension for administrative procedures established by the Decree does not apply.
5. Suspension of the term for performance of the agreement
Alternatively, the provisions allow the parties to agree on the suspension of the completion term of the agreement due to a force majeure event. This means that the calculation of the term will be interrupted at the moment of the suspension agreed upon by the parties and that the liabilities of both parties will be suspended for the term they may establish.
The suspension agreement must establish the conservation and safety measures that will be adopted during the suspension period, the party that will bear its cost and how the parties will proceed to resume work after the suspension term is over.
We recommend you consider the possibility of extending the suspension term by mutual agreement if this is necessary under the circumstances.
Put on record the costs of the demobilization and other expenses that may be necessary to make the suspension possible and that will be paid by the contracting entity.
One issue to consider is that the contractor will be allowed to replace the technical or professional personnel when the suspension period is over, without being subject to any penalty. The replacement personnel will have to prove the expertise and qualifications that were examined and/or scored during the selection process.
It is important to consider that the suspension is an option the parties can resort to by mutual agreement. If they cannot reach such agreement, the term extension will be enforced due to work shutdown.
6. If there is no authorized email address in the agreement, send an electronic communication to the entity indicating that, during the period of the state of emergency, the proposed method to communicate is sending an email (include the names and email addresses of the recipients) and ask the entity to provide the same information. It is usually established in the terms of these types of agreements that all communications must be sent to the domicile of the parties, and, as public procurement regulations do not establish a way to proceed in an atypical situation like this, it is important that contractors put on record the means chosen for communication.
7. During the state of emergency, performance bond and advanced payment warranties remain in force.
If any of these expire before March 30, 2020, we suggest you request that banks and insurance companies, in a timely manner, to renew such warranties to avoid their enforcement. You should take into account that these companies keep functioning normally and that the warranties renewal must be sent through email to the contracting entity.
8. The contractor is authorized by law to allow his workers to go on holidays under certain conditions.
We are available to provide any further advice on this topic.