One of the most serious problems currently facing countries worldwide is the negative impact of COVID-19 on the execution and fulfillment of contracts signed by governments with public or private companies for the provision of goods or services, or commercial contracts signed between private companies.
The COVID-19 phenomenon, classified as a pandemic by the World Health Organization, is preventing contractors from properly fulfilling their contractual obligations and responsibilities. As a result, in many cases, the possibility of suspending or terminating contracts is being considered.
For this purpose, it is important for contracts to have a Force Majeure clause that clearly establishes the situations that can be considered as such, along with the mechanism and conditions for their application.
Force majeure is defined in the legislation of each country, and generally refers to natural phenomena that arise after a contract is signed, which are difficult to foresee and are entirely beyond the control of the contracting parties.
In most cases, such a situation normally affects one of the contracting parties. Therefore, once the event has occurred, it must be communicated to the other party within a maximum period from its occurrence. Sufficient evidence must be attached to demonstrate not only the existence of the phenomenon but also its direct impact on the execution of activities. Additionally, it is important to explain the appropriate measures that have been adopted to mitigate the situation, as doing so constitutes a contractual obligation.
In the specific case of COVID-19, the phenomenon simultaneously affects both contractors. Therefore, it is essential that they form a committee to analyze the situation and define actions to address it. As part of these actions, it is necessary to modify certain clauses of the contract to make obligations related to deadlines, payment conditions, execution, termination, etc., more flexible.
In this process of analysis and action definition, it is essential to take into consideration the resolutions adopted by different authorities, according to their area of competence, to confront and manage the emergency situation. For this reason, it is advisable to seek legal advice from specialized lawyers in these matters, or from a duly qualified and recognized Mediation Center.
The economic losses being generated in each country as a consequence of COVID-19 are enormous, precisely because of the difficulty in carrying out the activities established in public and private contracts due to the declaration of a health emergency and the state of exception that different governments have issued to control the expansion of the pandemic. In order to mitigate this situation somewhat, it is necessary to initiate a negotiation process between the contractors to agree on convenient contractual reforms.
One of the most complicated and delicate problems is the situation of the personnel working in the contracting companies or entities. Therefore, it is essential to be attentive to and comply with regulations and legal modifications that governments are implementing during the health emergency related to this labor issue.
Approximately a month and a half ago, the coronavirus originated in China and was classified as a pandemic by the World Health Organization. It began to spread to many countries. Uncertainty in the oil markets became very pronounced because the operation of industries and businesses worldwide was affected by a reduction in production and demand.
Faced with this pandemic, governments have had to take drastic measures, one of them being the closure of their borders to prevent contagion. This has meant a considerable reduction in air and sea traffic, which has significantly reduced fuel consumption.
These factors, added to the lack of agreements in the last OPEC meeting and between the major oil producers, Saudi Arabia and Russia, to try and increase oil production, have caused the international reference price of WTI oil to drop by around 25 dollars per barrel, which is the lowest price in the last 18 years.
Until the coronavirus situation is overcome, and until the global economy recovers from the recession caused by this pandemic, it will be difficult for oil prices to reach a sustainable balance. Therefore, this industry will face difficulties in attracting new investments.