Published 03/19/2020 by Neil S. Lowenstein, Esq. of Vandeventer Black LLP
Construction project impacts from the COVID-19 pandemic are far-reaching and continuing to evolve. While every project must be considered individually, below are some issues for construction project team consideration.
⇒Performance impact issues vary depending on the nature of the project. Moreover, public bodies, at all levels, are developing guidance that need careful monitoring and, once finalized, compliance. For federal construction projects, there is already some established guidance in FAR §52.240-14, which expressly addresses epidemics and quarantine restrictions as being excusable events if they impact performance.
⇒Non-federal and commercial construction project impact guidance is, however, less clear. The first place to always look is the contract itself. Some contacts expressly address events that are beyond either party’s control, such as COVID-19 is likely to be considered. All parties need, however, to be taking appropriate actions to support contention that the performance impact was beyond their control. For example, leaving aside other potential liability concerns, was appropriate action taken to avoid a jobsite breakout of the virus or was the particular performance impact truly out of the party’s control?
⇒Various attorneys within Vandeventer Black LLP have been publishing articles regarding COVID-19 and related matters during the outbreak. For the website for those articles click here. Relating to construction project impacts, those include articles regarding the law of contracts, common sense approaches to the virus, OSHA guidance regarding the virus, and Virginia’s workers’ compensation implications of the virus. New developments are regularly occurring, including new regulatory guidelines, and we will continue to publish articles about them.
⇒One of those articles is Coronavirus and the Law of Contracts, prepared by Vandeventer Black attorney Edward J. Powers, Esq. It has a detailed discussion of the law of contracts, generally, and contract law applies to construction contracts. Among the things discussed in that article are “force majeure” clauses, which are often also referred to as “Acts of God” clauses. Such clauses are often included with construction project contracts and address specifically what acts or events are force majeure (or “superior force”) acts or events. However, even if not so titled, many construction contracts have wording within various sections or articles of the contract discussing acts or events beyond party control—often in the performance sections.
⇒Even when the construction contract does not include such language, there are some general legal principles that courts may apply to contracts impacted by COVID-19. Generally, those legal principles include excusing performance when performance becomes impossible or impracticable or the foundational basis for the contract has become frustrated because of unexpected events / circumstances. It is important to note, however, that specific contract language can override such general principles depending upon the language and the circumstances.
⇒So, overall, there is no simple or single answer for construction project parties respecting the performance impacts of COVID-19. But as contracting parties evaluate their projects there are various additional considerations beyond the legal principles discussed above, including such things as:
- Evaluating whether it is in your best interests to claim performance excuse or not. That is necessarily a contract specific analysis as, for example, it may be in your best interest to maintain performance even with the added impacts costs of COVID-19 to the project. Conversely, the COVID-19 impacts may be such that the added impact costs outweigh any performance advantages. Additionally, it is important to evaluate flow impacts from whatever decision you make since it could impact other related contracts of higher or lower tiers.
- If performance is impacted and you decide to treat it as a triggering event, it is important to evaluate, and follow, all notice requirements—which virtually every contract will require and include such things as the manner of giving notice, the timing for giving notice, and substance of the notice. Furthermore, many contracts have tiered notice requirements or follow up notice requirements that require evaluation and compliance.
- Parties have obligations to “mitigate” impacts (time and costs). Appropriate mitigation is project and fact specific. For example, can work still partially continue, can certain concerning materials be pre-ordered or substituted, are there other alternatives to a shutdown, etc.? Such mitigation efforts should be discussed with the other project team members, without unilateral actions unless required by emergent circumstances to avoid risk of waiver or similar defense or objection to such unilateral decision making. It is also import to document mitigation actions to evidence and explain the mitigation actions taken.
- Performance impacting events will typically trigger dispute resolution requirements, so such triggering events must be carefully evaluated and considered. Besides such things as applicable notice requirements discussed earlier, the circumstances of the impact, the decision to make an impact claim, or to refute an impact claim will likely be a triggering event for the contract’s dispute resolution procedures; such as party meeting requirements, claim submissions, mediation demands, arbitration demands, or the filing of litigation. Like notice requirements, non-compliance with the contract’s dispute requirements can result in losses of rights.
⇒So, what is one to do? With things so uncertain, there is no “one” or simple answer to that question. But some general guiding ideas include:
- Review your ongoing contracts to evaluate the above issues and develop action plans for each so that you are proactively prepared to address any performance issues that result from COVID-19, or address those that may already be impacting performance.
- Evaluate projects for those regarding which you might want to push for, or push back against, performance claims relating to COVID-19; depending on your position and from those of higher or lower tier, or both. Thereafter, take all required actions to follow contractual requirements or push back if others do not take requirement actions, like notice, dispute resolution, etc. addressed above.
- Regularly monitor available information, including governmental actions for new decisions and developments that will or might impact your project team; both home and field offices—and comply with those requirements that either have already been established or as they become established.[i] So many scenarios are unknown; and businesses will want to be able to demonstrate they acted as required and as was reasonably prudent under the circumstance.
- Evaluate and take “common sense” actions to protect your team; both home and field office. The news reports and many other sources are flooding us all with suggested best practices. Most seem to make sense and are not overly difficult to follow, like minimizing contact, maintaining distances from others, avoiding large groups, having people stay home if they are sick, etc. Some of those things are regularly changing, like group sizes. Regardless, make that information available within the company; and enforce those common sense actions by managers and employees at all levels.
- Crisis action planning is important for all construction projects, but with the uncertainty of COVID-19, we suggest evaluating not just project by project, but more globally the various scenarios from limited impacts to catastrophic impacts project and company-wide. If those impacts do not result or are not as bad as evaluated, all one has lost was the planning time for those scenarios. If they do result, though, you already have thought out plans in place to handle and respond to the scenario.
- Evaluate your insurance coverages and discuss them with your insurance agents. Your insurance agents are particularly good sources for understanding what coverages you have or do not have and how best to address your coverage. Note that insurance policies also typically have specific notice requirements similar to those discussed regarding project contracts, so those policies require review, evaluation, and compliance to avoid inadvertent losses of coverage.
- Contact your legal counsel to ask appropriate questions and obtain appropriate guidance on contractual matters, regulatory compliance, and the other myriad of COVID-19 issues as they continue to develop.
[i] In addition to contractual issues, it is possible that non-compliance and other actions or omissions that are inconsistent with reasonable prudency could subject companies to other third-party liability, such as claims of negligence.
Neil Lowenstein is a member of Vandeventer Black’s Construction and Government Contracts Law practice group. Neil has been an attorney with the firm since 1989, during which he has focused his practice on construction law, government contract laws, suretyship and fidelity law, and alternative dispute resolution. Neil also has experience with various administrative and regulatory matters and is an experienced litigator. He can be contacted at firstname.lastname@example.org or 757.446.8672.