In light of the COVID-19 pandemic, construction and design companies need to review their current contracts, as well as consider modifications to their future contracts, in order to best protect them in these uncertain times. COVID-19 has, and will likely continue to result in disruptions to construction and design companies’ labor forces, material shortages, delivery delays, closure of local governmental offices and/or delays by local building/inspection officials, delays caused by governmental-imposed restrictions and closures on private businesses, problems with availability or stability of subcontractors and subconsultants, and owners attempting to suspend and/or terminate contracts. A firm understanding of the language within your contracts, as well as general contract law, can often be the best offense and defense in regard to COVID-19 delays and other effects.
Checklist of action items for construction and design companies regarding contract issues and COVID-19
Review and Understand Your Contracts for Ongoing Projects
You should review and understand the applicable excusable delay and/or force majeure provisions in your contacts. In particular, you should fully understand:
The scope of these provisions
Your remedies, including whether it is merely an extension of time, or also monetary damages
Any notice requirements
Any documentation requirements
Alternatively, if your contract does not contain any excusable delay or force majeure provision, a party may still be excused from performance based upon legal defenses relating to “impossibility/impracticability” or “frustration of purpose.” More information on the concepts of force majeure and frustration of purpose can be found in this prior COVID-19 Force Majeure Blog.
Finally, you should review and understand the suspension and terminations provisions in your contracts that either party may be able to invoke for COVID-19 related reasons.
Review and Modify as Appropriate the Language within Your Future Contracts
Now is the time to ensure your contracts going forward have a well-written excusable delay/force majeure provision addressing your rights and remedies in the event of delays outside of your control, including COVID-19 related delays.
In addition, now that we are all aware of the COVID-19 global pandemic, best practices dictate an explicit reference in your excusable delay/force majeure provisions to “epidemics and pandemics including but not limited to COVID-19.” Without such explicit reference, owners may be able to argue that COVID-19 delays no longer fall into the general category of force majeure delays or of unanticipated and unforeseeable delays outside of one’s control.
Finally, in future contracts, companies may want to incorporate specific language to account for possible increases in material costs and/or labor costs, so that you are not stuck with these extra costs stemming from COVID-19 effects.
If Applicable, Properly Invoke Your Contractual Remedies
Notice: If you desire to invoke a contractual remedy, you should immediately determine if notice is required, to whom the notice must be sent, and if documentation is required to be provided.
Create and Preserve Documentation and Evidence Substantiating the Delay: You should ensure you are creating and preserving all communications, records, timelines, and other documents evidencing the delay and additional costs stemming from such delay. Contemporarily created timelines, narratives, and records are often critical in later disputes regarding delays and delay-related damages.
Formulate a Plan for Mitigating COVID-19 Delays
All parties have a legal duty to mitigate COVID-19 delays, impacts, and damages, even when the delays were initially caused by events outside of your control. Thus, you should identify and implement actions to lessen those delays and damages.
As part of the planning process, good communication should be maintained among all players on the construction project. While formal notices are generally required in these situations, those formal notices should be accompanied by other written and verbal communications among the construction team players in an effort for all parties to work together through these unprecedented times.
Consider if and how Insurance or Bonds are Relevant
You should have a clear understanding as to if and how your insurance policies, as well as performance and other bonds, may be relevant to COVID-19 issues. Consult your insurance broker and legal counsel in this regard.
Our Coronavirus/COVID-19 Legal Resources page is updated daily with new information about how the pandemic is impacting businesses in a variety of industries.
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