Contract Management after the Pandemic : What should be the New Normal ?

The COVID-19 pandemic is wreaking havoc globally, with the impacts felt throughout the economy. This is particularly the case in construction for the petroleum sector, where the combined effect of depressed oil prices and the public health emergency are leading to layoffs and project cancellations. Contractors are particularly affected. Many of their expatriates or migrant workers have returned to their home countries - in some cases with no prospect of coming back. For the workers who remain in-country where the projects are located, new health and safety requirements for PPE and social distancing mean work is more expensive, more difficult and fewer workers are permitted on site. The knock-on effects will lead to project delays and cost escalation. In addition, supply chains for materials are disrupted, leading to shortages and price rises. If payments are linked to performance milestones, cash flow may also be very tight. In these circumstances how should contract owners respond to the plight of the contractors? Should they adopt a classical contract management approach? This would mean pointing to the fixed price in a lump sum agreement and reminding the contractor that the risk of cost escalation falls on him, not on the contract owner. Should they trigger any available contract clauses for default, such as an entitlement to liquidated damages or penalties for late performance, withhold payments where specifications have not been strictly followed or resist claims for price escalation? Should contract owners be adopting a more collaborative, partnership-focused, way of working? After all, this pandemic has touched everyone, although some have been more badly affected than others. What is the role of government in all of this? In many cases, governments will be contract holders through the majority ownership of national oil companies. Do governments have a role to play in sustaining the health of contractors – perhaps by accelerating new projects, making advance payments, accepting changes to materials specifications or other techniques to keep contractors afloat? What policy responses should governments adopt?