Construction projects have been shut down across the country to various degrees as a result of the growing concerns of the spread of Coronavirus (COVID-19). For now, in Louisiana, construction has been deemed an “essential” service, and as such, projects can continue with proper precautions and safeguards in place. However, there is no denying that the situation is highly fluid, and if the past two weeks are any indicator, we can anticipate that there will be some types of interruptions that affect most if not all projects over the coming weeks and/or months, whether due to potential government-ordered shutdowns, labor shortages at factories, manufacturing plants or fabrication facilities, supply chain delays, the absence of sick or quarantined employees, transportation embargoes, and/or numerous other potential business interruptions. These delays and/or suspensions will result in significant increases in overhead and cost on the project.
As with any construction project, the legal consequences and available remedies will be based on a fact specific inquiry which starts with the applicable contracts to the project. The pandemic could potentially trigger numerous clauses, including but not limited to delay clauses, force majeure clauses and suspension or termination for convenience clauses.
The following is a general overview of some of the issues that contractors should be considering while continuing to work, and relevant clauses which may come into play on projects affected by the COVID-19 pandemic.
1. SITE SAFETY & PRECAUTIONS
It is critical that contractors take proper precautions to protect employees and their families during ongoing construction. Realistically, most construction cannot be done remotely, or properly performed while social distancing, but steps can be taken to protect. The following are best practice tips for maintaining safety on site in response to the COVID-19 pandemic:
- Frequently wash your hands with soap and water for at least 20 second, avoid touching your eyes, nose or mouth with unwashed hands.
- Employers must have on-site sanitation areas available with hand-wash stations with soap and water, and should implement an increased cleaning schedule of surfaces or areas that are commonly and frequently touched (i.e., hoists, site trailers, door handles, common tools, buttons, locks, latches and similar equipment).
- Practice physical distance when possible - limit unnecessary on site contact between workers and outside service providers, stagger start times, breaks, lunches, total number of people on site to avoid unnecessary grouping of workers, and coordinate pinch points, including having additional on-site trailers to keep people safely apart.
- Communicate the safety policies & educate your employees on how to protect themselves, as outlined by CDC. Employers should ensure that that all employees have a clear understanding of their roles in making health and safety a priority. The employer should post sanitation practices and physical distance requirements on site.
- Report illness – if an employee experiences any symptoms (i.e., fever, cough or shortness of breath), he/she should notify the supervisor and stay home.
- Work remotely where possible – O/A/C and/or subcontractor meetings held by phone, video teleconference, or in substantially smaller groups held in a place where participants can be six feet apart.
The City of New Orleans released a FAQ which provides further guidance on the safety precautions to be taken on construction sites during this time.
2. DOCUMENT EVERYTHING – COSTS & SCHEDULE IMPACTS
All project participants should be prepared for claims arising from COVID-19 interruptions and/or delays.
Contractors should track carefully and daily the impact to every person, piece of equipment and/or delivery of materials. More often than not, Daily Reports provide vague descriptions of areas of work and number of workers on site. Be sure that your daily reports are detailed: (1) identify what workers were doing, (2) what equipment was on site, how long it is on site and why, (3) if workers call in sick or because they had to take care of dependents, you should make a record of the reason and track the length of absence, (4) identify what materials did or did not arrive on site, and include any information from downstream suppliers about any issues they anticipate, (5) identify what work was slowed or made less efficient due to social distance requirements or other changes being made in response to COVID-19, and (6) take photos and video of impacted work. If you experience delays and/or any impacts to your schedule, you should be documenting those delays, including updating schedules to reflect the same.
Additionally, the costs of securing construction sites at the beginning of the ban and of preparing sites for continuation of work at the end of the moratorium – as well as maintenance of skeleton crews – may also be substantial, and parties should consider how such costs should be allocated under the contract.
If possible, you may want to set up cost codes to separately track any and all cost impacts related to the pandemic. And, although we don’t recommend communications by text, if you are communicating by text and/or email, make sure those communications are saved in the project files for future reference.
The best practice when documenting projects, whether during the COVID-19 crisis or anytime, is to consider whether a person reading these documents a couple of years from now will be able to read them and understand why there were delays and what were the associated costs. Additionally, this type of documentation will be essential when applying for funding available under the recently enacted CARE Act.
3. REVIEW YOUR CONTRACT
While each project is different, there are some common contract clauses to consider when evaluating the potential remedies related to any delays and/or interruptions caused by COVID-19. It is important to review and evaluate your contract for any of these clauses to ensure that you meet all requirements to avail yourself to them.
a. Force Majeure and Delay Clauses
In construction contracts, a force majeure clause refers to “an event beyond the control of either the contractor or owner which adversely impacts a project’s critical path of performance, thereby entitling the contractor to an excusable delay.” See, Carina Y. Ohara, Cheri Turnage Gatlin, Fred D. Wilshusen, Fundamentals of Construction Law, Fall of 2006 (ABA Forum on Construction Law), Appendix B, p. 342. Although most contract forms used in the construction industry, including the AIA, ConsensusDocs and EJCDC forms include force majeure concepts in the delay clauses, the language in the standard forms can vary. Section 8.3 of the AIA Document A201™ - 2017, “General Conditions of the Contract for Construction” contains the force majeure clause language but does not specifically identify “epidemics” or “pandemics.” Specifically, Section 8.3 provides:
8.3 Delays and Extensions of Time
§ 8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by (1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor; (2) by changes ordered in the Work; (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 22.214.171.124, or other causes beyond the Contractor’s Control; (4) by delay authorized by the Owner pending mediation and binding dispute resolution; or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable times as the Architect may determine. (Emphasis added).
§ 8.3.2 Claims relating to time shall be made in accordance with applicable provisions of Article 15.
§ 8.3.3 This Section 8.3 does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents.
See, AIA Document A201™ - 2017, “General Conditions of the Contract for Construction” AIA Document A201™.
Contrary to the AIA form, the ConsensusDocs© describe various “force majeure” type events in its standard language and specifically identifies “epidemics” in the provision. See, ConsensusDocs© 200, “Standard Agreement and General Condition Between Owner and Constructor (© 2011, Revised May 2017).
§ 6.3.1 If Constructor is delayed at any time in the commencement or progress of the Work by any cause beyond the control of Constructor, Constructor shall be entitled to equitable extension of the Contract Time. Examples of causes beyond the control of Constructor, include, but are not limited to, the following… (j) epidemics; (k) adverse governmental actions… Constructor shall submit any requests for equitable extensions of Contract Time in accordance with Article 8. ConsensusDocs© 200, “Standard Agreement and General Condition Between Owner and Constructor (©2011, Revised May 2017) (emphasis added).
Although the term “epidemic” is not specifically used in the standard AIA A201 document, it is highly likely that the impacts caused by COVID-19 will be covered by the broad language of 8.3.1 (“or other causes beyond the Contractor’s Control”). That said, based on the standard language of both forms, the Contractor is entitled to a time extension only as a result of the event beyond the contractor’s control. Neither of the commonly used standard forms allow for an adjustment to the contract sum as a result of a Force Majeure event. Consequently, absent contractual changes by the parties to the contract language, a contractor would not be entitled to anything more than extended time under these provisions.
It is important to be aware that in order to preserve a claim under the applicable Delay provisions, you must give timely notice to the Owner. Specifically, Article 15.1.2 of AIA Document A201™ - 2017 includes a 21-day notice requirement running from the time of the event. And, Article 8.4 of the ConsensusDocs© 200 requires that the “Constructor give the Owner written notice of the claim within 14 days after the occurrence giving rise to the claim or within 14 days after the Constructor first recognizes the condition giving rise to the claim, whichever is later.” Failure to give timely notice may result in a waiver of any ability to obtain relief for non-performance or delayed performance. Additionally, Force Majeure is temporary and only applies for the period of time the force majeure event restrains a party’s performance under the contract. As discussed above, you should clearly document the costs related to any and all issues that resulted in the delay and the time period in which you were affected, i.e., government stay at home orders, supply chain disruption, lack of materials, shortage of labor, etc.
The above provisions are the standard provisions included in the form documents. In order to determine whether you have a claim for time extensions and/or cost adjustments due to delays as a result of COVID-19, it is critical that you carefully review the contract for each project and timely comply with the notice requirements. You should reach out for legal advice before invoking a Force Majeure clause.
b. Suspension & Termination for Convenience 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 restarted. For example, Article 14.3.1 of AIA Document A201 provides that the “Owner may, without cause, order the Contractor in writing to suspend, delay or interrupt the Work, in whole or in part for such period of time as the Owner may determine.” Article 14.3.2 provides that contract sum and contract time “shall be adjusted for increases in the cost and time caused by suspension, delay or interruption under Section 14.3.1.”
Similarly, pursuant to the AIA Document A201 Article 14.4.1, the Owner may terminate for convenience and without cause. Upon receipt of notice from the Owner, the Contractor must comply with certain tasks outlined in Article 14.4.2. The Contractor is entitled to costs for all “Work properly executed, costs incurred by reason of the termination, including costs attributable to termination of Subcontract; and the termination fee, if any, set forth in the Agreement.” See, Article 14.4.3.
c. Contractor’s Right to Terminate
Similarly, under the AIA A201 provides that the Contractor may terminate if the Work has been “stopped for a period of 30 consecutive days through no act or fault of the Contractor.” AIA Document A201, Article 14.1.1. Specifically, Article 14.1.1 provides the Contractor may terminate after 30 consecutive days for the following reasons: (1) issuance of an order of a court or other public authority having jurisdiction that requires all Work to be stopped; (2) an act of government, such as a declaration of national emergency, that requires all Work to be stopped, (3) Because the Architect has not issued a Certificate for Payment and has not notified the Contractor of the reason for withholding certification as provided in Section 9.4.1, or because the Owner has not made payment on a Certificate for Payment within the time stated in the Contract Documents, or (4) The Owner has failed to furnish the Contractor reasonable evidence as required by Section 2.2.” Additionally, under certain circumstances, the contractor can terminate for continued interruptions, delays or suspensions by the owner. AIA Document A201, Article 14.1.2.
d. Contractual Notice Requirements
Typical standard contracts, including but not limited to the AIA and ConsensusDocs, include notice provisions required to make a timely claim. You should refer to your specific contracts to be familiar with the specific notice requirements related to any claims that you may have on the project. The AIA Document A201-2017, Section 126.96.36.199 provides that a Contractor must give notice within 21 days from when the condition giving rise to the claim was first discovered or 21 days after the occurrence of the event giving rise to such claim, whichever is first. The notice must be in writing and cannot be oral. Furthermore, do not assume that electronic notice is acceptable without such a provision in the contract. You must provide the notice not only to the Owner but to the Architect, who is often the Initial Decision Maker on the project.
Additionally, be sure to be familiar with notice requirements in insurance policies and surety bonds in order not to waive any coverage.
e. Owner’s Duty to provide adequate assurances of financing
Pursuant to Article 2.2.2, under certain circumstances identified in the article, a contractor has the right to request in writing that the Owner furnish “reasonable evidence” that the Owner has the financial resources to fulfill its obligations under the contract. Given the financial impact that COVID-19 has had on all sectors of the economy, it would be prudent for a contractor to keep an open line of communication with the owner, and at some point, possibly request evidence of financial stability.
f. Insurance and Financing
If there are delays on the project, project-related insurance policies may need to be extended, resulting in higher costs. Likewise, for owners and developers, construction delays caused by COVID-19 may lead to additional financing and carrying costs.
g. Surety Bonds
Surety bonds typically require that notice of a change to a Project’s cost or duration be timely given to the obligated surety. Failure to comply could serve as a defense to payment or performance by the Surety at a later date.
4. COMMUNICATION IS KEY
What the world is going through has an impact on each and every person to varying degrees, and is causing major disruption in all areas of life. You should approach any discussion being mindful and compassionate of the impact that the recent events may have on the other person, and from a place of resolution rather than an adversarial manner. Educating yourself, staying informed and clear communication are important factors in managing fears and concerns surrounding the COVID-19 pandemic. As with any successful endeavor, you should keep the lines of communication open both upstream and downstream as we all navigate the uncertainties created by the devastating COVID-19 pandemic.
To prepare any potential claims and/or to evaluate what rights you may have arising from COVID-19, you should consult with your insurance broker/agent, accountants and legal counsel to review the relevant contracts and insurance policies to assist in identifying the available remedies to your company, and the best course of action.