The impact of the COVID-19 pandemic on construction projects largely depends on the terms of the contract in play. Now is the time to pull out your contract and consider how the contractallocates risk for delays between the parties. While standard contract forms are widely used in the industry, standard terms and conditions are frequently modified as a result of negotiations between the parties. Provisions that address project changes, force majeure, delays, and suspension of work should be carefully reviewed by you and your counsel to determine how your rights or responsibilities are impacted by COVID-19. Given the likely ongoing delays faced by the construction industry, it is important that parties understand the terms of their contracts to help curtail the economic impact of COVID-19.
Given the likely ongoing delays faced by the construction industry, it is important that parties understand the terms of their contracts to help curtail the economic impact of COVID-19.
An important provision to review, if one exists, is the force majeure provision.1 A force majeure event, commonly referred to as an “Act of God,” is one that is outside the control of a party and prevents the party from performing its contractual obligations. While many contracts include force majeure provisions, the specific language and the applicability to particular events or circumstances, such as a pandemic, can vary. Many force majeure provisions detail the timing and content of the required notice to invoke such provision and allow for varying degrees of relief. Some contracts that do not have a specific force majeure clause may contain an excusable delay clause that may limit relief for such delays to an extension of time.
There may be circumstances where the delays are intentional, and thus not excusable. An inexcusable delay occurs when a party is at fault for the delay due to a party’s own fault or neglect. For example, even though a contractor may be legally able to resume construction activities, he may refuse to resume operations for other reasons, such as health concerns related to COVID-19. Many construction contracts contain provisions that allow for damages in the event of such non-excusable delays. Conversely, some contracts may have a “no damages for delay” clause that shields a party from liability caused by delays. Liability for delays will depend on the specifics of the clause and the other terms in the parties’ contract.
Most contract provisions regarding delays provide for specific notice requirements. When a contractor puts an owner on notice of potential delays or other impacts, it is important to carefully assess what it is that the contractor is asserting and requesting. Some contractors are putting owners on notice of potential delays or other impacts without any evidence purely to reserve their rights under the contract. Others are requesting significant relief under the contract because they have already experienced unexpected costs and delays. Therefore, the owner must determine what the contractor or supplier is asserting before responding to any notice.
It is important that parties understand the terms of their contracts to help curtail the economic impact of COVID-19. Whether a court will excuse a party from meeting its obligations under a contract where performance becomes much more difficult or expensive as a result of the COVID-19 pandemic remains to be seen. Based upon existing law, judges and arbitrators will still most likely look to the terms of the contract for guidance in resolving COVID-19 related claims.
Originally posted May 27, 2020 on tlawmtm.com.