Construction Contract Clauses for Pandemic

Bill Shaughnessy is a partner in the Litigation practice group. He focuses on construction and infrastructure projects, contract review and negotiation, construction disputes, alternative dispute resolution and government contracts. First, identify the compensation criteria. For example, the cost must: (i) be solely due to an unknown COVID-19 disease; (ii) be appropriate in the circumstances; (iii) not be the result of the Contractor`s failure to comply with the Contract Documents or a COVID-19 proclamation; and (iv) not be the result of non-compliance with a COVID-19 proclamation by subcontractors or suppliers on-site (and, as we have seen above, possibly off-site). You can call costs that meet these criteria unknown COVID-19 costs. Second, indicate that the owner will reimburse the contractor for costs due to COVID-19 that are not included in the value list only if the costs are unknown COVID-19 costs. As with an extension of the delay period, this strikes the right balance and depends on what the contractor knew and ought reasonably to have known at the time the contract was signed or the GMP amendment was amended. Third, if your contract is based on a GMP that includes a construction eventuality, you can determine if that eventuality will be the primary source of funding for unknown COVID-19 costs, with a change order that will only follow if there is a deficit. The extent to which the contractor should be responsible for the compliance of its subcontractors and off-site suppliers with COVID-19 proclamations is an issue that the owner and contractor may view very differently. Apart from these differences, and even if it is agreed in principle that the contractor should be responsible for this compliance, the impracticability of the external behavior of its subcontractors and suppliers by the contractor may lead to a significant increase in its price for this effort and risk. Therefore, the owner must perform a risk-return analysis.

The result could be that the price premium is not worth it. However, this problem can be solved, address it in the contract. Struggling with a problem in advance before the ink dries is better than facing it first after the pages have curled up with age. Is the COVID-19 disruption a case of force majeure under your contract? Does the law governing your contract (federal, state or international) strengthen or restrict the use of force majeure clauses? The COVID-19 pandemic is expected to have a long-term impact on most businesses, including construction companies. Therefore, you must continually anticipate how the ongoing crisis will affect the language of your contractual arrangements. Hire a qualified lawyer to review your contracts or create new ones, and work with your CPA to assess the impact of changes on costs. Section 6.3 of the ConsensusDocs contract form deals with force majeure in the sense of excusable delays. While the standard AEOI, ConsensusDocs or other industry forms for extending the contract term and/or force majeure are likely to provide some relief in terms of time extensions in appropriate situations, the parties can better serve to recognize the uncertainties facing our industry by developing specific language for delays and increased costs due to the COVID-19 pandemic. Chris advises clients in all facets and at every stage of construction-related disputes, including early dispute resolution, pre-litigation advice, resolution, mediation, arbitration, pre-litigation strategy development and litigation.

He understands that disputes about a project can result in costly delays or compromise overall positive outcomes, and works closely with clients to manage risks and determine the most effective outcomes. The global COVID-19 pandemic has changed the world forever, disrupting many industries and creating unprecedented challenges that threaten many businesses. The construction industry is no different. Projects across the country have been affected by unplanned work stoppages, delays, supply chain disruptions, price escalations and other unforeseen events. A force majeure clause is a contractual provision that exempts non-performance or extends deadlines if a natural or unavoidable disaster beyond the contractor`s control (a «force majeure event») delays a project. If possible, include a force majeure clause in contracts that explicitly mentions COVID-19 and other keywords such as «infectious disease outbreak,» «quarantine,» «outbreak,» and «pandemic.» In addition to strengthening your contracts, make sure you and your subcontractors, suppliers, and consultants are covered for lawsuits and potential claims related to COVID-19. Carefully review current insurance policies (including business interruption coverage), bonds, warranties, and security arrangements to confirm liability coverage for outbreaks and infectious diseases. Note that the «other causes» must justify the delay and that the final decision is made by the architect. Therefore, it is important for the contractor to fully document how events arising from the pandemic (p.B. Travel restrictions, business closures and illness) were the cause of the delay. While most of this warning focuses on domestic force majeure issues, international contract documents also deal with force majeure.

For example, the FIDIC model contracts of the 1999 edition contain provisions that expressly identify and define force majeure as an extraordinary event beyond the control of the parties that was not reasonably foreseeable, could not reasonably have been avoided and was not attributable to either party. The clause then contains a non-exhaustive list of events that can be classified as cases of force majeure. Interestingly, the clause does not refer to «epidemic» or «pandemic». However, it seems likely that an international tribunal would conclude that the COVID-19 pandemic is a case of force majeure. The FIDIC contracts of the 2017 edition remove the specific reference to the term «force majeure» and replace it with «extraordinary event». While the provision itself remains similar (but not identical) to the 1999 edition, its repetition emphasizes that a case of force majeure must be «extraordinary,» not just unusual. In addition, causality is an important aspect of the FIDIC framework: did the event really affect performance? If so, how? And as with U.S. laws that govern cases of force majeure, the parties are still required to mitigate the effects caused by these events. Also note that the contractor is only entitled to an additional period.

The clause does not provide for any adjustment to account for additional costs or price schedules caused by the delay. Subsection (5) would likely address the disruption caused by COVID-19. The wording in question determines what a contractor must do to make a viable case for an excusable delay. An unknown COVID-19 disease adds a temporal component. Define it as a COVID-19 condition that the contractor did not know at any given time and should not reasonably have known, para. B example, when the contract or a change in the guaranteed maximum price is signed. Consider that COVID-19 proclamations issued at least X days before the signing of a contract or GMP amendment are not an unknown condition of COVID-19. In other words, it is assumed that the entrepreneur is aware of these COVID-19 proclamations. As mentioned above, it`s important to understand your company`s contracts as the impact of COVID-19 continues to grow.

We recommend several important steps that you should take immediately to properly assess and plan a case of force majeure: In principle, the contractor is responsible for the acts and omissions of its subcontractors and suppliers with regard to their execution of the work. Faulty work is an example of this. Let`s take the example of the van above. However, instead of violating social distancing guidelines, the driver was stopped and arrested for speeding, resulting in a delay in the project as workers never showed up at the site that day. Would the contractor be liable for this delay resulting from the conduct of an external subcontractor? A final example to consider is the supplier of a contractor whose plant is closed because the factory workers did not follow social distancing guidelines and became ill. The supplier delivers the equipment ordered by the contractor too late, which delays the project. Should the contractor be responsible for this delay because their supplier did not comply with the COVID-19 proclamations? When proposing and negotiating a contract, add a backup plan of two or more alternative sources of supply and information about acceptable replacement items. Since border restrictions related to the pandemic could affect supply chains, you should also determine alternative shipping and delivery routes (and any additional costs associated with them) and indicate which party would be responsible for covering these costs. Consider asking for a down payment to purchase and store equipment before the project begins. Depending on the extent of the impact of COVID-19 closures in their city or region, project owners and developers may have difficulty being eligible for funding. Most standard contracts require owners to provide documentation showing that they have sufficient funds to complete the project.

Most contracts also include a provision that allows contractors to request financing documents. Be sure to exercise this right if you suspect that a project owner`s financing is at risk. Another issue that needs to be addressed in this section is whether and to what extent the contractor should be responsible for its subcontractors and suppliers who comply with COVID-19 proclamations. At the very least, it is right that the contractor be responsible for its subcontractors and suppliers who comply with COVID-19 proclamations while they are on the project site. However, should it also be responsible for ensuring that they comply with covid-19 proclamations when they are off-site? Let`s take the example of a group of contractors teaming up and bringing a van to work, which violates current social distancing policies. .

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