We are living through a period of events largely unknown to any living American. The disruption to our daily lives is drastic and constantly evolving. The latest example, in an action that was unthinkable just days ago, the Mayor of Boston shut down construction projects in Boston, Massachusetts.
As the world is faced with the growing threat of COVID-19, we can learn important lessons from other countries. One of those being the importance of social distancing. For people with office jobs, the easy solution is telecommuting. Construction poses an inherit challenge because it is unique on-sight manufacturing that cannot be done remotely. This presents both operational and legal challenges.
1. Read the contract
To be blunt, your construction project will be impacted by the coronavirus. Either through a laborer with a positive test, a delay in the supply chain, or by government edict. Within the last few days, a subcontractor on Google’s new headquarters in London tested positive for the coronavirus. The project was shut down for days to deep-clean the facilities. This will become increasingly common and its imperative stakeholders work together to combat this previously unknown project impact. The sooner all stakeholders accept the new reality, the quicker solutions can be implemented.
In the rush to find a solution to an unusual circumstance, the old lawyer adage of “read the contract” can be overlooked. Without question, it applies to the current situation. Many construction contracts contain a “force majeure” clause also known as an “act of God” clause. In short, the purpose of a force majeure clause is to relieve one or more parties of certain contractual obligations depending on identified events. One industry example is found in the AIA A201-2017: General Conditions of the Contract §8.3 Delays and Extensions of Time. The relevant subsections addressing delay include:
(3) by labor disputes, fire, unusual delay in delivery, unavoidable casualties, adverse weather conditions…or other causes beyond the Contractor’s control;
(5) or by other causes that Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.
Importantly, for claims concerning extensions of time under §8.3, the Contractor must comply with the relevant notice provisions in Article 15 including timely notice.
Another industry standard form, the ConcensusDocs 200: Standard Agreement and General Conditions Between Owner and Constructor contains a provision allowing for extensions of time for certain stated events. The applicable subsections identify delays caused by:
(e) transportation delays not reasonably foreseeable;
(k) adverse governmental actions;
(l) unavoidable accidents or circumstances.
Like the AIA version, the constructor is required to notify the owner of delays falling under §6.3.
Under either of the above unmodified industry forms, the party seeking protection under the provision must take the initial step in demonstrating how the specific event falls under the categories. More importantly, it must also describe how the event actually delayed the work. In the event of the Boston construction shut down, the cause of delay is pretty clear. However, simply pointing to the existence of the coronavirus is not enough without an accompanying explanation of how it delayed the project. Best practices require documentation of the impact. For example, if the coronavirus ravage a subcontractor’s labor force or results in unanticipated obstacles for specified material, it must be documented. Be proactive and do not wait until the project nears completion to notify the owner of the impacts.
Should your contract not contain a force majeure provision, there are legal avenues to explore. Is there an upstream contract that contains a force majeure provision? Other legal doctrines that may be available include impossibility of performance, impracticality, or frustration of purpose. One further consideration should include reviewing in-place insurance to determine if there is applicable business interruption policy.
With every passing day and every new restriction implemented by our political leaders, it is becoming clearer that the coronavirus will qualify under force majeure clauses. If stakeholders are not proactive in arriving at a consensus solution to address these coming delays, force majeure clauses will be litigated extensively in the coming months and years.
2. Propose and consider creative solutions
In these unpredictable times, stakeholders must be innovative in creating and considering solutions that normally may be overlooked or dismissed. Like our civic leaders, we must recognize the ordinary course of business will not be ordinary for long, either voluntarily through our actions or involuntarily through government mandate or pandemic imperative.
Options include the drastic step of proactively closing all jobsites. This would most certainly address the safety concerns of employees. In the alternative, one could hope your company is not impacted by COVID-19 and address any challenges once you face them. This complex issue at first glance appears to be a binary option of closing all jobsites or hoping for the best. There is a third option, one that recognizes the importance of social distancing, but also acknowledges the financial importance for keeping jobsites open for employees, the employer, and owners.
Anyone who has been on a jobsite knows it is a place full of activity. Some activities are more important than others while the most important activities are those residing on the critical path. With that being said, relevant parties should consider restricting those on the jobsite to those trades on the critical path. To further reduce jobsite congestion and potential exposure, all relationships on the critical path should be modified to a finish to start relationship. By doing these two things, one dramatically reduces the number of employees on the jobsite, fulfilling the spirit of social distancing, but also allowing the project to continue.
While offsite, it is incumbent on employees to remain at home and use good judgement in order to remain healthy and ready to return to work when needed. Obviously, this is not a guaranteed solution for every contractor or every situation, but rather an attempt to proactively manage a situation that has not been seen in over 100 years. In a time where there are no perfect options, this plan accounts for employee safety while also allowing the project to continue at a slow but steady pace.
Additionally, this does not consider issues related to supply chains or mandatory jobsite closures required by the government (State or Federal). To execute this plan, it will take collaboration by all stakeholders on the project (owner, construction manager, and subcontractors), and an acknowledgement that the situation is fluid and the plan will change.
For more information on these topics, consider attending one of the following webinars:
Contract Issues and the Coronavirus
Friday, March 20, 2020
3:00PM – 5:00PM
How to Manage Through Financial Challenges During COVID-19
(A Registration Link Will Be Supplied Later)
Wednesday, March 25, 2020
Force Mejeure and Supply Chain Issues in the Era of COVID-19 and Tariffs
Thursday, April 2, 2020
12:00PM – 1:00PM