COVID-19 and Force Majeure: The impact on public procurement contracts in Liberia
By J Garsuah Junius, MBA, MPPMSD, SPSM, BBA (Culled from LinkedIn)
The COVID-19 pandemic has brought the world to a halt and has not spared any sector or aspect of the world. The pandemic comes with a myriad of challenges affecting the livelihood of individuals, businesses, and governments. Procurement has been at the forefront of this fight procuring masks, ventilators, personal protective equipment, hygienic and cleaning products as well as hotels and some specific locations used as quarantine sites for governments. Despite being at the forefront, the successful execution of procurement contracts during this pandemic has been disrupted. To aid the process, other jurisdictions have issued guidelines, ordinances, or regulations. For example, the Public Procurement Agency of Ghana has provided guidelines to aid in the conduct of public procurement during this shutdown period as a result of the COVID-19 pandemic. The guidelines covered the extension of receipt and opening of tenders/bids/proposals, suspension of pre-tender/proposal conferences/meetings, tenders/bids/proposals evaluation, etc. The Public Procurement Regulatory Authority of Kenya has also issued Circular No. 02/2020 providing preventive measures for the handling of procurement activities for procuring entities due to COVID-19. Section 12 (Contract Implementation and Management) of this circular provides guidance on the suspension of contracts affected by COVID-19. Liberia is yet to issue a regulation to guide Procuring Entities and Vendors/suppliers/contractors affected by the novel coronavirus.
The focus of this paper is on those contracts whose successful execution and discharge are affected by the COVID-19 pandemic- a force majeure event.
The Virus hits Liberia
Liberia recorded its first case of COVID-19 on March 15, 2020, prior to that, the President of Liberia set-up the Presidential Advisory Committee on Coronavirus (COVID-19) PACOC on March 9, 2020. The committee includes the World Health Organization, the World Bank, the International Organization for Migration, UNICEF, and relevant government ministries and agencies. The committee serves as the overarching national steering body which among other things supervises the Ministry of Health and the National Public Health Institute of Liberia to ensure adequate measures to prevent the disease are strengthened. The virus was declared a ‘pandemic’ by the World Health Organization (WHO) on March 11, 2020. To contain the spread, the government of Liberia on April 10, 2020, imposed restrictive measures on travels, large-gathering, mandatory closure of businesses termed ‘non-essential’ for 21 days. This was extended by an additional 14 days without assurance of when the economy will return to normal.
Definition of ‘Force Majeure’
As referred to in the Black’s Law Dictionary as “superior or irresistible force” is an event or effect that can be neither anticipated nor controlled. The term is used in traditional contracts as ‘Act of God’. This encompasses unavoidable situation/s beyond the control of the parties. The General Conditions of Contract (GCC) clause 25.1 of the Standard Bidding Document (SBD) for Goods for Liberia defines ‘Force Majeure’ as an event beyond the control of the parties to the Contract and not involving either party’s fault or negligence and not foreseeable. GCC clause 25.2 further listed some events that can trigger the ‘Force Majeure’ clause including but not limited to acts of God, acts of Government in its sovereign capacity, war, revolutions, hostility, civil commotions, strikes, fires, floods, epidemics, quarantine restrictions, freight embargoes, and explosions. Once any of these situations occur which impedes one or both parties’ ability to meet their obligation, the party/ies can trigger the ‘Force Majeure’ clause. The SBDs for other types of procurement in Liberia do not explicitly define the term ‘Force Majeure’ the term itself is not mentioned in any of the text, however, the SBD for Works GCC 69.1 (d) mentioned unforeseen economic reasons as a ground for the contractor to terminate his employment under the contract. The term ‘unforeseen economic reasons’ may have its own legal definition. It is important to note that ‘Force Majeure’ does not constitute the termination of a contract but rather the postponement during the period when such circumstances are operative.
The Black’s Law Dictionary further explains that a force majeure clause “is meant to protect the parties in the event that a contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by the exercise of due care”. Force majeure clauses allocate risk between the parties when an unanticipated event makes performance impossible or impracticable.
Public Procurement Contracts in Liberia
Public procurement processes are conducted within the fiscal year (FY). The FY runs from July 1 to June 30 the following year. Within this period, procuring entities are obliged to conduct procurement planning in keeping with Section 40 of the Public Procurement & Concessions Act, 2010 (PPCA, 2010), submit procurement plans to the Public Procurement & Concessions Commission (PPCC) for review and approval and subsequently conduct procurement processes leading to the award of contracts and implementation.
The FY is divided into four quarters, hence, the 1st quarter which runs from July – September is often used in principle to prepare specifications, seek procurement committee/procurement review board approval, issue invitations for bid, bids submission, and opening, bids evaluation and contract award. Procuring entities (PEs) have awarded contracts for goods, works, and services required for PEs to meet their fiscal demands. PEs were in the last month of the third quarter when the virus hit the country, hence, resulting in the President issuing some restrictive measures thus having an adverse effect on meeting contracts terms and conditions. April is the first month in the last quarter for the FY2019/2020 and PEs are eager to understand how contracts will be concluded without legal ramifications. It is not clear whether public procurement contracts affected by the state of emergency will be extended or executed in the next FY. Contracts awarded during this FY2019/2020 and were in force until the virus hit Liberia will be affected depending on the types of contracts employed.
Types of public procurement contracts for goods, works, and services other than concessions in Liberia
Ø Lump-sum contract – a lump-sum contract, the contractor/consultant agrees to perform the scope of services for a fixed contract amount. Payment percentages or amounts may be linked to the completion of contractual milestones or determined as a percentage of the value of the work to be done. PEs who signed lump-sum contracts are obliged to fulfill the terms and conditions of the contracts. Force majeure under this type of contract does not constitute termination and said contract is to be postponed by means of amendment and all terms and conditions must be considered. It is important to mention that said amendment does not change the contract amount.
Ø Framework agreement – A framework agreement is an ‘umbrella agreement’ that sets out the terms (particularly relating to price, quality and quantity) under which individual contracts (call-offs) can be made throughout the period of the agreement. Most framework agreements do not place any obligation on the purchaser to buy anything. The PPCC framework agreement document further defines framework agreement as an instrument by which a procuring entity commits to procuring goods and services from a vendor or service provider at the agreed unit price and quality through the issuance of purchase orders depending on the entity’s needs and funding availability. It further explains that the vendor or service provider, for its part, commits to supply the goods or provide the services in the quantity requested on the purchase orders. These commitments are made and upheld by the parties throughout the life of the framework agreement. Therefore, in a framework agreement, no financial commitment is made until the purchase order is issued by the procuring entity and honored by the vendor or service provider.
In summary, under a framework agreement, there is a contract if and only if a purchase order is issued by the PE and accepted by the vendor or service provider. It’s worth noting that there are various types of a framework agreement that can be treated on a case by case basis.
The COVID-19 pandemic has a grave impact on public procurement contracts not only in Liberia but the world at large. Some countries have issued ordinances/regulations to mitigate future challenges public contracts will face after this pandemic while other countries have adopted to use the ‘wait and see’ approach. While it is visible that there will be challenges with public procurement contracts after this pandemic, PEs are advised to focus on effective contract management including supplier relationship management to adequately address any misunderstanding that may arise. Padrés and Cowley couldn’t have said it any better when they mentioned that open and honest communication with counterparties and their subcontractors will be key to handling the consequences of the pandemic, particularly in complex transactions or supply chains. They further recommend that alternative and creative solutions will be necessary.
The issuance of regulation will reduce the adverse effects of the pandemic on public procurement contracts; therefore, this paper recommends the publication of a regulation to cover among other things the following:
1. Suspend all contracts which cannot be executed due to the COVID-19 pandemic effect and request PEs to extend the period of validated of the contracts.
2. For bids already received, extend the period of validated of bids provided that it has been requested and bidders have agreed to such extension. However, in the event that it is impossible to continue the process, PEs may still declare the process null and void in keeping with Section 36 subsection 1 – 8 of PPCA, 2010. The PE may initiate a new procurement process once the COVID-19 is over.
3. Declare the COVID-19 as a case of ‘Force Majeure’ for all procurements. This will mitigate the risk of wrongful termination of existing procurement contracts that could result in litigation.
4. For recurring items under lump-sum contracts, PEs to initiate a new procurement process less of the uncompleted items. For example, if a procuring entity signed a contract for 100 cartons of paper and the supplier delivered 70 prior to the pandemic and the demand for the balance 30 ceased due to the pandemic and the new FY kicks in, the new procurement process shall be for 70 cartons and the previous supplier shall be allowed to deliver the balance 30 cartons as an impetus to provide relief for vendors who have contracts with the Government of Liberia (GoL) for supply, delivery or provision of goods, works, and services.
 Standard Bidding Document for Good; National Competitive Bidding GCC 25.2
 Annex VIII: Contract Types section 3.2 Lump-sum contracts: The World Bank Public Procurement Regulations for IPF Borrowers – July 2016