Coronavirus: the UAE, oil prices and construction sector

People, supply chains and financing arrangements are all impacted, but there are actions businesses can take to address the challenges they are facing.

Relevant government measures

At the time of writing, the UAE government has, amongst other steps, issued the following precautionary measures to limit the transmission of the virus:

• temporarily suspended the issuance of all types of labour permits from 19 March 2020, save for intra-corporate transfer permits and employment permits for Expo 2020;
• suspended entry, for a limited period of time, to all residents who are currently outside the country;
• suspended the entry of all valid visa holders, who are currently out of the country for a renewable period;
• directed that anyone entering the UAE must self-isolate for 14 days;
• directed that 70% of the workforce of the private sector are to work from home, for a renewable period of time, with the exception of certain sectors including construction, contracting and building materials; and
• imposed a mandatory curfew, save for urgent/emergency travel, the details of which will vary from Emirate to Emirate. In Dubai, a 24 hour curfew has been announced for a renewable period of two weeks from 4 April 2020, to allow for an Emirate-wide street and transportation sterilisation programme. The construction sector is exempt from the curfew, subject to companies in the sector first obtaining a permit from Dubai Municipality and the Permanent Committee for Labour Affairs.

Potential implications for the UAE construction sector

The people factor

With the temporary suspension of the issuance of new labour permits – save for intra-corporate transfers and employment permits for Expo 2020, together with the recent imposition of restrictions on flights and cross board travel, it is very likely that the UAE construction industry will face short to medium term issues in respect of recruiting labour and moving or transferring employees for both on- and off-site roles.

The shutdown of schools across the nation coupled with working from home guidelines will also have an impact, at least in the short term, on companies' off-site employees, and may lead to reductions in productivity whilst companies quickly look to improve off-site software capabilities to enable remote working.

In light of the impact that the virus is having on individual mobility, the allocation and shifting of labour resources and potential staffing shortages, the supply chain and in particular contractors, subcontractors and contract administrators may also be faced with disruption and delays on supervision and signing off of works.

The supply chain

Whilst many borders around the world have been closed to passenger travel, they largely remain open to goods. Over the last week or so, we have also had an increasing amount of positive news coming out of China, indicating that the Chinese economy is cautiously beginning to resume operations. Chinese government containment and quarantine measures are slowly being lifted, and production of construction materials is likely to resume sooner rather than later.

Furthermore, and as the Covid-19 epicentre shifts from China to mainland Europe and the US, the UAE construction industry will likely face shortages – or indeed stoppages – in materials being sourced from those jurisdictions. This may lead to companies having to source materials elsewhere, leading to potentially higher material costs and a slower progression of works.

Project financing

In the current period of uncertainty, it is likely that the sector will also face uneasiness from lenders. They may not be willing to finance large scale construction projects, and projects which are tied to the oil and gas sector will be under particularly intense scrutiny in light of the recent fall in oil prices. Disruptions to the supply chain and the labour market will increase the risk of delay and default, and financers are likely to take more-cautious risk assessments before agreeing to finance projects.

Managing the business impact of Covid-19

The implications of the virus are wide-ranging, however, there are numerous measures that businesses in the construction industry can implement to mitigate some of those implications, and more effectively manage the impact on their businesses.

As a general remark, and whilst the situation continues to develop, a close eye should be kept on further UAE government guidance and measures that may be introduced in order to contain or reduce the spread of the virus. Businesses will need to monitor these carefully so that the overall impact can be factored into the business planning and response.

There are other  actions businesses within the UAE construction sector may want to consider in order to formulate a robust response to the situation.

Contracts and supply chain

• Businesses should be reviewing the terms in all of their existing construction and supply contracts:
  • What is the governing law of the contracts entered into by the business, and which contracts have force majeure provisions that may be relied on?
  • Where is the exposure and risk? Diarise any backstop termination rights identified in contracts to ensure the risk can be managed.

   

• Prepare template force majeure notices which can be populated quickly if there is a need to respond to a changing situation rapidly.
• Map supply chains through to customers and use this to plan and implement a supply chain strategy in order to guard against disruption to the business and stop early warning signs of challenges.
• Take steps to mitigate exposure, such as dual sourcing, stock piling or obtaining goods from another source.
• Consider whether any specific provisions dealing with Covid-19 – a coronavirus clause – may be required in new agreements that are being entered into by the business.
• Provide training to accounts and contract management teams to ensure that they do not inadvertently waive contractual rights or create binding variations through actions to respond.
• Legal teams should also consider whether there will be any issues caused with signatory availability, for example if the workforce is remote working, and whether any workarounds need to be put in place to address this.
• Consider putting in place processes for electronic signatures and identify where the business has contracts that will not be capable of being executed by an electronic signature.

   

  Personnel

• Stay up to date with the UAE government's most recent announcements in respect of the issuance of new work permits, and travel restrictions.
• Conduct a risk assessment on health and safety and put in place relevant measures to ensure the health and safety of employees in line with UAE government guidance.
• Communicate clearly with the workforce on any updated absence procedures, including notifying absence by email or telephone call and consider a requirement to notify coronavirus related absences to a central inbox in order to track centrally potential workforce impact, and in order to comply with UAE infection reporting obligations.
• Consider if any steps are required in order to facilitate home working, such as issuing laptops and enhancing network capacity for increased home working.
• Consider working arrangements on construction sites and whether the company can implement patterns which reduce the risk of infection. Such patterns may include staggered working shifts to ensure round the clock progression of the works with more limited human-to-human contact.
• Ensure accurate records are kept in respect of any employees on visas that may need an extension due to travel restrictions.
• Keep clear records and audit trails of all actions and decisions that can later be used as evidence of compliance with the relevant UAE government requirements.

   

  Facilities – health and safety obligation

• Provide additional buses to transport workers from their accommodation to construction sites, noting that the UAE government has stated that buses must not exceed 25% capacity in an effort to maintain a safe distance between workers.
• Carry out a risk assessment to ensure that people working in or visiting the building/site are not exposed to risks to their health.
• Put in place practical measures to support those on site such as:
  • ensuring hand washing facilities are available, regularly stocked with anti-bacterial soap and checked regularly;
  • provide additional hand sanitiser stations as appropriate;
  • include signage advising of hand washing protocols and reminding those on site to wash hands in line with UAE government guidance; and
  • add signage advice on coughing and the use of tissues – 'catch it, kill it, bin it' – and provide closed bins for disposal of tissues.
  • ensure gloves and helmets are personal to employees so are used by one individual only and cleaned between uses.
  • ensure that, where possible, social distancing can be maintained.

   

• Consider whether any additional screening or protocols are required for visitors to site.
• Where appropriate, consider restricting access to premises to essential personnel only.

   

  Insurance obligations

• Monitor the classification of the virus by the UAE government and international agencies such as the World Health Organisation.
• Liaise closely with insurers and brokers to understand the cover that the business has in place and where this might be applicable to broader business decision making around activity cancellation or staff movements.
• Bear in mind claims relating to Covid-19 are likely to be complex and businesses should seek advice promptly.

Mark Raymont and Nesreen Osman are supported by the construction advisory and disputes (CAD) team in Dubai, including Ahmed Bobat, Melissa McLaren and Tiffany Paday. Please contact any member of the CAD team for further assistance.