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 contract
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.
