Myanmar unrest is testing project contracts

Bernard Ang of Pinsent Masons, the law firm behind Out-Law, whose work includes projects in Myanmar, said employers and contractors operating in the country should review their contracts and undergo alternative scenario planning given of the volatile situation in Myanmar, to determine the best options for them.

“It is rare that a single event, or two as is the case here, leads to the simultaneous application of so many clauses in a project contract, often considered as ‘academic’ in contract negotiations”, said Ang. “Events in Myanmar have certainly put these clauses and their application in the spotlight. “

Contractual provisions dealing with force majeure, employer risks, epidemics, strikes and civil unrest are the ones that have all grown in importance, due to current events, according to Ang. Many other provisions add to the complexity of the risk analysis – including the allocation of risk for unpredictable shortages of goods and labor, changes in law, government actions, suspension and termination .

Contractors and suppliers unable to perform work under the contract may have a number of alternative contractual arrangements on which to base their defense. However, Ang warned that the consequences of each arrangement and how they would work in the long run must be carefully mapped and compared. He said the volatile situation in Myanmar makes future events, such as sanctions or even a civil war, plausible, and that such events could trigger even more contractual options and / or require an update to plans for mitigation and exit strategies.

As events continue to unfold, new remedies are also appearing. For example, denial of funding by lenders could trigger termination rights for contractors under FIDIC forms, if the employer is thus unable to provide assurance that the financial arrangements are in place to allow the realization of the project.

Employers of struggling projects also have their own options, including putting their project on hold via a partial or total suspension, or opting for termination, whether for an extended suspension, a case of force majeure or even for reasons of convenience, Ang observed. He said the consequences of each method of sleeping in the project should be carefully weighed against a number of factors, including the likelihood of a quick return to normal, the relative costs of each option in terms of work. protection and reclamation upon recovery; and the likelihood of the market condition when it can safely resume, including the availability of construction expertise and resources in Myanmar.

Ang said it is unlikely that all of these factors were sufficiently factored into existing contracts, as no one anticipated the combination of these two events. He concluded: “It is likely that sane parties will undoubtedly define a mutually agreed course of action outside of existing contracts, including settlement agreements resulting in a win-win situation, or at least seeking to bring about the less loss for both. “

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