88% of Overseas Construction Companies Say "COVID-19 Seriously Affects Overseas Business Operations"

Survey Responses from 25 General Construction and Design & Engineering Companies Operating Overseas
Normal Project Site Operations Hindered by Entry Restrictions and Travel Bans
Only 24% Include 'Pandemic Force Majeure Clause' in Contract Terms

[Asia Economy Reporter Yuri Kim] It has been revealed that 88% of companies engaged in overseas construction projects are seriously affected by the spread of the novel coronavirus disease (COVID-19) in carrying out their overseas operations.

On the 28th, the Korea Research Institute for Construction Industry (KRICI) stated in its report titled "Issues and Responses in Overseas Construction Due to the Spread of COVID-19" that "the spread of COVID-19 is having a serious impact on projects currently being carried out by domestic construction companies overseas, projects scheduled to commence, and contract bidding activities," and emphasized that "it is urgent to establish response measures at both government and corporate levels."

In interviews and surveys conducted with construction companies and design and engineering firms currently engaged in overseas projects, respondents evaluated the impact of COVID-19 on overseas construction project execution as 'serious' or 'very serious.' KRICI explained that through this, negative effects of COVID-19 were confirmed at all stages of overseas construction projects, including ongoing projects, projects scheduled to start, and contract bidding. Companies currently carrying out construction projects identified major difficulties as 'difficulty dispatching Korean personnel due to entry restrictions (29%),' 'reduced site operations due to administrative measures by the client country (21%),' and 'site closures due to lockdown measures in the host country (21%).'

The surveyed companies also responded that the inclusion of force majeure clauses related to pandemic diseases in contract terms is a very sensitive issue requiring consultation with clients. Sixty percent of all surveyed companies answered that including force majeure clauses is a matter that "requires consultation with the client." Only 24% responded that pandemic outbreaks are included in the force majeure clauses in their contract terms.

Regarding contract modification negotiations with clients related to COVID-19, major issues identified were 'increased indirect costs due to project schedule extensions,' 'project schedule extensions caused by entry restrictions,' and 'project schedule extensions due to site closures and reduced operations.' The most urgent government support measure to overcome the COVID-19 situation was confirmed as 'continued efforts to ease and lift entry restrictions on Korean personnel (35% of surveyed companies).' Additionally, respondents indicated the need for 'legal advice in case of contract disputes arising from schedule extensions (27%),' 'sharing of COVID-19 case examples of domestic companies’ overseas projects (18%),' and 'government-level support for quarantine supplies to enhance national image (15%).'

KRICI emphasized that to minimize the impact of COVID-19 on overseas construction projects, the government must promptly establish a response system based on the support measures required by companies. Researcher Tae-Hong Son of KRICI stated, "Companies, as the entities executing projects, also need to establish and operate their own response systems," and added, "The government needs to establish a 'pandemic response guideline' that individual companies entering overseas markets can utilize, strengthen diplomatic efforts to ease entry restrictions, provide legal advice support for contract claims, share COVID-19 response cases of companies conducting overseas projects, and develop and implement market entry strategies after the end of COVID-19."