The Role of Incentivization to Mitigate the Negative Impact of COVID-Related Disputes

Abstract

Project delays caused by the COVID outbreak are unprecedented. The associated loss and expenses are supposed to be equitably shared between the client and the contractor. Nonetheless, Standard Forms of Building Contracts in many countries do not consider delay caused by COVID-19 lockdown as a qualifying event for any time and monetary claim. Disagreements and disputes have arisen as a result. In this aspect, incentivization has been advocated as an effective measure to fill the equity gap. But how incentivization can be introduced into construction contracts, and how this may help reduce disputes arising from the COVID-19-associated delay has not yet been explored in prior studies. This chapter presents a study investigating how the claims for COVID-related project delays were managed. Sixteen semi-structured interviews with the contract administration experts were conducted in Melbourne, Australia—a city that experienced the world’s most prolonged COVID lockdown in 2020–21. Measures taken to mitigate the consequences of the COVID-related delay were identified. The effect of incentivisation on rebalancing the risk between the client and the contractor was also investigated. The findings reveal that although the existing Standard Forms of Building Contracts cannot be applied flawlessly in managing COVID-related time and monetary claims, interviewees were hesitant to introduce any radical change to the contract provisions. While incentivisation can instigate more active actions towards resolving COVID-related disputes, interviewees preferred the incentive schemes to be developed outside the construction contract regime. Views regarding how incentivisation can be implemented to avoid COVID-related disputes in future projects were sought. The study reported in this chapter illustrates how incentivisation may foster equitable risk sharing between the contracting parties in future contracts.