The impacts of the coronavirus on the construction industry are serious and widespread. In recent days, work on some construction projects in South Florida has been suspended, and it is likely more suspensions will follow.
Even on projects where work continues, productivity and operations are adversely affected. So what can contractors do to avoid losses, mitigate the impacts and prepare for what’s to come?
Find the relevant contract terms. Review each contract carefully for contract clauses that address rights in the event of unforeseen conditions, excusable conditions or delays. Various terms may be used, and your contract may or may not use the phrase “force majeure.” If there is a force majeure clause, scrutinize it carefully to evaluate whether the current conditions fall within the terms of the clause. Many construction contracts contain a clause that affords relief in circumstances outside of the contractor’s control or arising from unforeseen conditions.
Provide clear and compliant notice. Identify your contract’s express notice provisions for claiming delays and additional costs, including the time limits for giving proper notice, who must be copied on the notice and the method of delivery. For each project, a written notice should be sent to the project’s owner that complies with the contract requirements, explains the cause, and reserves rights for time and money.
Pay special attention to suspension and termination clauses. Many contracts give the owner the right to suspend a project. Those clauses typically provide rights for time extensions and additional compensation if the project is re-started. They often also give a contractor the right to terminate the agreement and to receive defined compensation if the suspension lasts for a stated duration. Also, be on the lookout for actions by owners that could be fairly characterized as a suspension, even if they do not expressly call it one.
Document cost and schedule impacts. Document and segregate into separate buckets any impact that the coronavirus has on your construction project. In generating your record, be specific; record impacts in daily reports, schedule updates and timesheets with an express notation, such as “due to coronavirus impacts.”
Ensure that contractually required support is created. Contracts may require schedule support or analysis to back up a claim for additional time. Some notice provisions may require a contractor to submit a time impact analysis with a claim for delay. If the delay cannot be quantified at the time of notice, then the notice should identify that this event will result in a delay and additional costs, the extent of which is still being evaluated and will be detailed as soon as it can reasonably be determined.
For contracts that don’t address the issue. Under common law, circumstances that are sufficiently disruptive to performance may excuse the contractor’s non-performance. However, when a contracting party has the benefit of knowledge or information regarding the likelihood of a future occurrence, a concept known as foreseeability begins to operate. The contractor’s argument that performance is excused may be undermined where that party arguably should have foreseen the problematic circumstances.
Consider insurance. Contractors should evaluate whether existing insurance policies potentially provide coverage for coronavirus-related losses. It is important to review all insurance policies and request that the project owner provide copies of all applicable insurance policies. Although the wording of each policy must be individually scrutinized, certain specialized insurance products such as trade disruption or supply chain risk insurance may provide coverage for businesses impacted by the coronavirus.
Assess both prime and subcontracts. A careful analysis of prime and subcontracts should be conducted as well — one approach likely does not fit all, as agreements (particularly, negotiated agreements) often address relevant matters differently. Some subcontract agreements may have flow down of identical terms and conditions as exist in the prime contract, while other agreements have different terms and conditions that would operate in the same situation.
Attempt to identify challenges early. Generally, a contractor may have the responsibility to mitigate the consequences of a delay or disruption. Reach out to subcontractors and vendors to identify and assess potential issues impacting labor and the supply chain. If supply chain issues are likely, consider exploring alternative sourcing options or consider substitutions. Most construction contracts afford a right to notify the project owner in the event a contractor desires to propose substitutions. If shortages to project labor are expected, consider alternatives such as the retention of temporary labor companies.
Consider unique safety issues pertinent to the pandemic. Revisit office and job site safety protocols to address disease spreading and to implement healthy procedures. Many employers are already providing guidance to employees regarding hygiene, travel, etc. Such measures may become a factor with regard to the continued performance or the shutting down of a project.
Carefully consider language in contracts that are about to be executed. Contracts that may be signed now that the pandemic is underway present unique challenges as one may argue that the conditions were not unforeseen at the time the contract was signed. Contractors should carefully consider the risks of delay and add language that clearly provides for adjustments consistent with how those risks are being allocated.
Regardless of whether project participants have operations in areas directly affected by the coronavirus, the resulting impacts may be felt across the construction industry. During this time of uncertainty, construction project participants need to assess and evaluate their respective risks on an ongoing basis. When both precautionary and proactive measures are implemented, project participants stand a better chance of mitigating their risks.
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Warren E. Friedman ([email protected]) is a partner in the Miami office of Peckar & Abramson. The views expressed here are the author’s own.