Projects worth $291bn are likely to be affected by the government declaration.
The Iraqi government has declared that the ongoing Covid-19 crisis constitutes an event of force majeure for ‘all projects and contracts’.
In a statement, the Iraqi government’s Crisis Cell said that the period of force majeure would be effective from 20 February.
The total value of all major active projects currently under execution in Iraq stands at $291bn, according to regional projects tracker MEED Projects. These could all be impacted by the government declaration.
Force majeure is a standard clause in contracts that typically frees both parties from liability when an extraordinary event or circumstance beyond the control of the parties prevents them from fulfilling their obligations under the contract.
Usually, the parties to the contract, or ultimately the courts, will determine whether an issue is force majeure.
An announcement by a government declaring that an event constitutes force majeure for all contracts is highly unusual and has increased uncertainty within Iraq’s projects sector.
It is not yet known how the government declaration will be interpreted legally.
The announcement has the potential to cause chaos in relation to enforcing existing contracts, according to Andrew Mackenzie, a partner at law firm Baker McKenzie.
McKenzie said: “It partly depends on where you are in the supply chain, but certainly, employers and main contractors should be concerned by this.”
Prior to the government announcement, most contractors, employers and other developers were thought to be handling the Covid-19 crisis on a case-by-case basis based on existing conditions within contracts.
This meant that those claiming that their work had been impacted by the force majeure event had to provide evidence that their efforts to complete projects were being affected.
Mackenzie added: “The government announcement seems to have effectively bypassed that stage in relation to causation and will allow subcontractors and main contractors to basically submit applications for the delay, cost, time, up the chain to developers and employers.
“Whether a court or a tribunal will accept that causation can be bypassed remains to be seen.”
Iraq’s economy has been significantly disrupted due to the Covid-19 pandemic.
On 30 March, Iraq announced two more deaths due to Covid-19, bringing the total number of coronavirus-related deaths to 43.
Iraq has recorded more than 380 confirmed cases of Covid-19 but there are fears that the real number of cases is much bigger.
Earlier this month, Iraq’s crisis task force ordered schools and universities to be shut and to reduce the working hours of government institutions.
It also imposed a curfew from 17 March, which is expected to stay in place until 11 April.
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