By Jason A. Copley and Zachary D. Sanders
The coronavirus outbreak (COVID-19) has wreaked havoc on everyday life for people across the globe. The World Health Organization has declared coronavirus a pandemic, and the President and Governors alike have declared states of emergency. Under their broad emergent powers, our leaders have ordered aggressive mitigation and “social distancing” measures to reduce the spread of the virus. The President has issued significant travel restrictions, and many governors have closed schools and ordered that all “nonessential” businesses close.
The construction industry is not immune to this pandemic. Supply chains will be interrupted, slowing the delivery of essential construction materials. Crews may become sick or quarantined by order of the government, and inevitably, projects will be impacted and delayed. Unfortunately, some disputes will predictably arise regarding the interpretation of applicable contract provisions—such as force majeure—and who bears the ultimate risk and responsibility for project delays and additional costs. As a result, it is crucial for contractors to be proactive, not reactive. To assist contractors in navigating this unprecedented and unchartered territory for the construction industry, consider the following.
Begin pre-contract. Analyze potential risks upfront to ensure you are well-prepared to ride out the storm. Before submitting your bid, consider the potential impacts and delays that may result from coronavirus, including government-imposed travel and work restrictions, labor shortages, and delivery disruptions. Factor any possible delays and impacts into your schedule. Adequately budget for any increased costs that you may incur. Negotiate revisions into standard construction documents, such as the AIA and the ConsensusDocs, to unambiguously address pandemics, such as coronavirus.
Notice, notice, notice. Review your contracts and, in particular, the notice procedures and time requirements for the same. If you think coronavirus may impact your performance, notify the proper parties now. It is never too early to provide notice of a potential impact or delay. In your notice, clearly identify the potential cause of the impact and reserve your rights to supplement, amend, and/or submit further claims as a result of these uncertain times and circumstances. Reassure all parties that you intend to complete your scope of work in accordance with your contract and compliant with any and all governmental directives.
Document, document, document. Create a paper trail that documents your attempts to complete your work on time and any impacts that you encounter. Take photographs depicting that the project is not ready for your work because a predecessor trade is behind. Send notices of impact and maintain daily logs detailing any and all impacts and delays. Properly file and save all project notices and correspondence. Maintain a record of all delayed deliveries and put any suppliers or subcontractors on notice of their delays or impacts to your work.
Plan ahead and protect your schedule. Prepare for delivery interruptions and labor shortages. Think about how to overcome delayed deliveries or backordered materials. Can you financially and feasibly create a surplus? Do you need a long lead item from overseas or materials from a highly infected area, such as China or Europe? If so, can you utilize a substitute, alternate, or equivalent material to stay on schedule? Plan now for how you will proceed if your permanent workforce becomes ill or quarantined. Consider whether certain activities can be performed offsite or our-of-sequence to address temporary labor shortages.
Your existing contracts—the good, the bad, and the ugly. While most construction contracts address delays, most do not specifically address pandemic events. It is more than reasonable and obvious to argue that the coronavirus pandemic is a force majeure event (e.g., an uncontrollable and unpredictable “Act of God”) that may relieve parties from their contractual obligations. Review your contract to determine whether a force majeure clause exists. If it does, construe it strictly and consult counsel before invoking its provisions. Even if your contract does not contain a force majeure clause, you should be entitled to an extension of time for any resulting delays.
Carefully review any notice provisions and provide any required notice in accordance with your contract. However, just because you are entitled to an extension of time to perform does not mean you are automatically entitled to additional compensation. Many contracts contain a no damage for delay clause that would likely be enforceable in the event of an excusable delay, which is not caused by either of the parties, but rather by an Act of God. Nonetheless, if the owner suspends the project or if the owner cannot, or will not, extend the schedule, you may be entitled to acceleration and other related impact costs. Given this uncertainty, however, it is important to mitigate any avoidable delay costs.
Update your safety policies. Under the OSHA general duty clause, contractors must maintain a safe and healthy workplace for your employees. In a pandemic situation, an employer may be cited for a general duty violation where, for example, OSHA provides that:
While liability is unlikely, it nevertheless is a possibility. You should act now to provide for workers’ safety on jobsites to the extent possible. Update your safety policies to address pandemics. Use guidance from the CDC, OSHA, and the WHO to educate your employees and develop procedures in the event that a worker tests positive for coronavirus. Enact detailed hygiene protocols, including:
When in doubt, seek counsel. Details surrounding coronavirus continue to unfold day-by-day and even minute-by-minute. Indeed, the full extent and impact of this pandemic likely will not be known for weeks, if not months. As you navigate these uncertain waters, it is imperative that you act now to protect yourself, your employees, and your business. Consulting your legal counsel now rather than after your project has been infected can save you significantly in the long-run.
Jason is the Chair of Cohen Seglias’ Construction Group and can be reached at 267-238-4707 or jcopley@cohenseglias.com. Zach is an associate in Cohen Seglias’ Construction Group and can be reached at 267-238-4732 or zsanders@cohenseglias.com.