Un-Mask Uncertainties: Ensure Your Construction Contracts Cover COVID-19
With the uncertainty of when the coronavirus pandemic and COVID-19 will cease to affect the day-to-day operations of businesses around the world, those especially in the construction industry can reduce their risks of breaching new contracts by addressing the novel coronavirus pandemic head on with specific provisions.
When the pandemic first began in the U.S., construction companies were left scrambling on how to handle employee safety, federal, state and local government guidance and mandates, supplier shortages, material price escalation, labor shortages and the like. Contracts in place when the first wave of the pandemic hit left construction companies wondering whether certain contract provisions protected them from the crippling work-flow effects of due to COVID-19. In particular, construction companies delved into contract provisions regarding delays, time extensions and force majeure events, i.e. acts of God, natural disasters, war, riots, or other unforeseeable events that neither party can control, to determine the allocation of risk and potential solutions to the inevitable delays due to COVID-19. While some contract clauses cast a wide enough net to encompass a contractor’s delay in services, even the most inclusive force majeure provisions that listed “epidemics”, “pandemics” and “other causes beyond the Contractor’s control” have the potential of leaving contractors out in the cold.
First, even if the contractor’s force majeure clause arguably covered the start of coronavirus pandemic and allowed the contractor an extension of time, most force majeure clauses do not account for an adjustment of the contract price in addition to the extension of time. This risks leaving the contractor stuck with the same contract price even with supplier shortages, material price escalation and an increase in costs to cover PPE for employees and subcontractors. Second, with the coronavirus pandemic being around for the foreseeable future, contractors should think twice before using their standard construction contract in jobs moving forward. This is due to the weakening argument that the pandemic continues to be a force majeure event that the contractor could not reasonably foresee.
So what should contractors do to prevent this issue and fairly inform their customers of the issues that could foreseeably occur? Face the subject head on with a provision directly addressing COVID-19.
Provisions contractors should consider, include:
Take the Time and Define
Contractors should make sure to define terms carefully, and link everything back to the coronavirus pandemic and the disease it causes. This includes addressing known issues that could affect the project, including, without limitation, federal, state and local guidance and mandates that have already been issued as well as unknown complications of COVID-19 that may give rise to new and unanticipated issues.
Address Delay and Pay
Contractors should look to strike a balance between what they know about COVID-19 when they enter into the new contract and the still unknown issues that may occur after the deal is struck that could cause delays. In separating known and unknown conditions due to COVID-19, contractors ensure their ability to request an extension of time and related contract price changes due to unknown conditions related to COVID-19, while customers can protect themselves from unfounded time extensions and contract price changes based on known conditions of COVID-19 that existed when the contract was executed. This benefits the customer, in that the contractor does not have to try and build in protection in the initial bid to compensate for potential COVID-19 issues, and gives comfort to the contractor that, if something does drastically change with COVID-19, they can be compensated accordingly.
Compliance with Guidance
Consider what occurs when the contractor is required to comply with COVID-19 related federal, state and local guidance that affect the worksite and the potential equitable adjustment needed to remain on the worksite once the contract is executed. Furthermore, look to tackle what occurs and remedies a contractor has if the customer chooses to suspend the project due to their comfort level or health, even if there is not governmental guidance that halts the contractor’s ability to perform the work.
Overall, it is for the benefit of both contractors and customers to unmask the uncertainties that COVID-19 has created. By contractors engaging with counsel and adding specific language to their construction contract to address each parties’ duties and responsibilities, contractors and customers gain transparency of what to expect allowing for new projects to prosper during these unprecedented times.