Minimizing Liability of the COVID-19 Pandemic on Construction Contracts—A Structural Equation Model for Risk Mitigation of Force Majeure Impacts

Abstract

A pandemic is a force majeure event, and contracting parties can invoke conditions under force majeure to minimize liability for unforeseen, uncontrollable, and unavoidable circumstances. This study develops a conceptual model to assist in the management of delays and cost overruns due to force majeure events arising from the construction sector in Small Island Developing States (SIDS). A critical case study analysis of past epidemics and pandemics was conducted to develop a survey questionnaire for administration to construction professionals in Trinidad and Tobago. Based on the empirical data of 65 construction professionals, the structural equation model shows that there are strong causal effects from the implications of COVID-19 and force majeure events, which in turn have a dire impact on the construction industry. The leading implication of COVID-19 is the drastic increases in the cost of materials. Also, granting an extension of time to contractors was the main risk variable under the force majeure conditions. From the results, the measurement model verifies that events under force majeure and its perceived implications strongly influence the construction industry, and proposes that force majeure contractual clauses require explicit treatment of the periodic reoccurrence of pandemics to avoid conflicts among contracting parties. This research explores and builds on new avenues from the latest COVID-19 scholarship to better understand existing impacts on the construction industry, and consequently add to the novel body of knowledge on the implications of pandemics on construction contracts. Overall, this research provides a risk-guidance framework for construction professionals and academia to mitigate unforeseen, uncontrollable, and unavoidable risks on construction projects.