Published March 23, 2020 by Lane Kelman and Robert Turchick of Cohen Seglias Pallas Greenhall & Furman PC
The coronavirus pandemic is causing ongoing instability and uncertainty to the global economy. Already, there is a profound alteration of worldwide business operations, including the U.S. construction industry.
Government restrictions are limiting whether, where, and how contractors operate. Workforce and material availability are jeopardized. Access to projects and work conditions has been altered. Whether you are a developer, general contractor, trade contractor, or supplier, there are widespread impacts that will continue to expand. Labor and materials shortages will likely lead to project delays and increased costs. The effect from the pandemic poses heightened challenges to the industry, with potentially significant economic consequences. To blunt this real and existential industry threat, the following provides suggested measures and guidelines.
Pay Attention to How Government-Imposed Business Restrictions Affect Construction Activities
To protect the general public’s safety, state and local governments nationwide have limited business activity, including Pennsylvania, which barred all non-life-sustaining business activities indefinitely (full list of businesses that do and do not fall under this restriction). Restrictions, however, vary from each jurisdiction and change in real-time. Construction is exempt in some areas, but not in others. Non-exempt businesses, however, may be able to continue operating under certain narrow exceptions provided they follow the appropriate processes for seeking exemptions. In Pennsylvania, construction companies and other businesses can initiate the process for seeking a waiver to remain operational by emailing RAfirstname.lastname@example.org. For general inquiries about the Governor’s order, email RAemail@example.com. In jurisdictions where the construction exemption remains, city and municipal government closings will delay services necessary to a project, like zoning, inspections, and permit approvals. Despite jurisdictional variations, coronavirus is undoubtedly leading to project delays everywhere.
Protect Yourself Against Coronavirus-Related Delays
Determine the Type of Claim: Most construction contracts define claims broadly enough to include coronavirus-associated costs and delays. For example, the widely-used form contract AIA A201-2017 defines a claim as a “demand or assertion by one of the parties seeking, as a matter of right, an adjustment or interpretation of Contract terms, payment of money, or extension of time.” Recovering on a claim requires careful attention to the contract’s claim process that contractors may inadvertently overlook.
Assess How a Coronavirus Impact Constitutes a Delay: Coronavirus impacts should result in excusable and compensable delays under most construction contracts. For example, Section 8.3.1 of the AIA A201-2017 contract permits a contractor an extension of time for “unusual delays in deliveries, unavoidable casualties, adverse weather, or other causes beyond the contractor’s control” or “[o]ther causes that . . . [a] contractor [asserts], and the architect determines, justify the delay.” Also, delay clauses, like Section 8.3.1, typically apply at any time during the commencement or progress of the work, which means they cover coronavirus-caused delays during both preconstruction, for example, permitting and mobilization, and actual construction. So, any process for documenting such delays should begin when the job is awarded. As many construction contracts contain “no damages for delay” clauses, recovery may consist of only an extension of time. Finally, the coronavirus pandemic may qualify as a force majeure, which could potentially excuse performance of contract obligations, so review your contract to determine what, if any, such language it contains and whether the outbreak qualifies.
Track Delay Costs: Proper tracking and documentation can help contractors preserve delay claims seeking extra time and money. Accordingly, contractors should record in real-time all costs associated with delays, including extended job supervision, overhead, equipment costs, wage escalation, inefficiencies, financing, and reduced job opportunities. Such records will substantiate a claim, help the contractor prevail, and enhance recovery.
Mitigate Your Damages: Contractors affected by the pandemic cannot sit idly by in the face of delays. The law generally imposes an obligation on injured parties to mitigate their damages. This means, for example, that contractors will need to try to find alternative material supplies and equipment. These alternatives may create added costs, so proper tracking and documentation are essential to recovery down the road.
Comply with Notice Provisions: Oftentimes, construction contracts contain both very short notice periods and formal requirements for effective claim notice, which require strict compliance. Contractors must know and follow these provisions exactly to preserve their claims. Remember: when in doubt, put everything in writing! If you need help formulating notices, consult this COVID-19 Resource Package for Construction Contractors drafted by Cohen Seglias attorneys in response to challenges presented by the coronavirus outbreak.
Ensure Workplace Compliance with Government Health and Safety Guidelines and Rules
Both the Center for Disease Control (CDC) and the Occupational Safety and Health Administration (OSHA) have issued guidelines regarding coronavirus and employee health and safety. Construction employers should be aware of these guidelines and frequently check for updates. Further, employers should not ask or require employees to do anything contrary to any guidelines or other government restrictions. Doing so will protect your workers from unnecessary risks and your business from potential liability. While agency guidance does not carry the same legal weight as regulations, they often provide the basis for the eventual enactment of formal rules and regulations. Do not be surprised if some of the guidance issued by the CDC, OSHA, and others are enacted as regulations in the near future.
Employers must also be cautious about collecting and sharing their employees’ private health information. The Department of Health and Human Services (HHS) has waived certain HIPAA sanctions in response to the pandemic. Covered entities may disclose protected health information to the CDC on an ongoing basis, but HHS has also stressed that disclosures without employee consent to any person or entity not related to the employee’s care, such as the media, are still prohibited.
Review Insurance Policies
It is a good time to consult your insurance broker to see if any of the disruptions resulting from coronavirus qualify for coverage under your insurance policies. Many policies will not cover losses that result from “Acts of God,” meaning any event that occurs outside of human control and cannot be predicted, or events that cause monetary loss outside of damage to the project itself. However, some policies may cover interruptions to your business and could provide a remedy.
For many Philadelphia area construction firms, the outbreak and resulting government restrictions on business have caused logistical problems resulting in labor shortages, material delays, and price increases. The above measures provide an overview of ways to handle this unprecedented confluence of problems. As the situation continues to unfold in unpredictable ways, remember that you do not have to navigate this crisis alone.
Lane Kelman is a Partner in the Philadelphia office of Cohen Seglias Pallas Greenhall & Furman PC. He has an active and diverse construction litigation practice, representing developers, general contractors and trades in complex construction matters throughout the United States and internationally. He has extensive experience with both private and public projects. He can be reached at firstname.lastname@example.org or 267.238.4728.
Robert Turchick is an Associate in the Philadelphia office of Cohen Seglias Pallas Greenhall & Furman PC. He focuses his practice on all aspects of construction litigation. He represents design professionals, contractors, subcontractors, owners, and other parties involved in public and private projects. He can be reached at email@example.com or 267.238.4770.