Construction contract answers during the COVID-19 pandemic
Many of our commercial real estate, ICI and P3 infrastructure clients have been coming to our Contract Solutions team with questions related to how their construction contracts and schedules are being impacted due to the COVID-19 outbreak. We will continue to update this page as the situation evolves.
Please feel free to submit your questions below.
What kind of language do I need to look out for in my construction contract?
The most important note for all parties to a contract is each contract will have specific conditions and supplementary conditions which will dictate the parties’ actions and highlight the necessary next steps. You have likely seen the term ‘Force Majeure’ on numerous occasions recently. Most contracts have an ‘any cause’ clause beyond control of the parties. It is unusual for general contracts to reference the term ‘pandemics or epidemics’. In each instance it will be a matter of interpretation that depends on the contract language and the facts of the claim. If pandemic or other similar events are not specifically covered in the contract, a party may still claim force majeure under another type of event, specifically the ‘any cause’ clause.
In all cases, it is important to establish causation between the event and a party’s obligations under the contract. The circumstances must be beyond a party’s control and cannot have been foreseeable to have been avoidable with reasonable steps.
What if the government issues a 'stop work order' for the construction industry?
If a stop work order is issued – establishing a delay event in the contract – parties should issue the notices required in accordance with the contract. Courts will enforce these notice requirements and the notice needs to be specific, otherwise it may not be effective.
Contractors will need to revise the construction schedule as a result of the delay, in accordance with the contract. ‘As Planned versus As Built’ or ‘Impacted As Planned’ schedules should be kept up-to-date, while also updating and recording against the ‘Baseline’ schedule. Carefully review the contract to establish entitlements (i.e. Time and Compensation or Time Only). The following is an example of contract entitlement for delay; ” … a reasonable amount for direct costs directly flowing from the delay, but excluding any consequential, indirect or special damages (including, without limitation, loss of profits, loss of opportunity or loss of productivity).“
Keeping records is of utmost importance for everyone and needs to be maintained for the duration of the delay; the following is a non-exhaustive list;
- Establish progress completed to date as of the date of the issued Notice. Take photographs, notes and do a progress update and distribute to all parties as a record
- Record materials on site
- Record materials on long deliveries that may be affected
- Record direct and indirect costs for the duration of the delay
- Update Construction Schedule in line with progress and maintain Schedule for the duration of delay. Issue regular updates to all parties
- Issue respective to Notices to Subcontractors/Suppliers
- Notices from relevant authorities, relevant sources, agencies (Municipalities, Unions, WHO, CDC, OHSA etc.) to substantiate reasoning
- Site diaries/memos
- Records of mitigation procedures implemented, etc.
It may only be a matter of time before a ‘stop work order’ is issued with regards to the construction industry and thus the above would not be applicable. If issued, we potentially see this leading to claims for Loss of Productivity, Disruption, Out of Sequence working etc. For a Loss of Productivity claim, it is essential to identify a cause and effect while also proving the damages and liability. This highlights why record-keeping is so important.
What if certain construction materials or shipments are banned or delayed? How do we make arrangements going forward?
Many contracts require a duty to mitigate any loss or expense which may occur, resulting from such a series of events. While hard to appreciate in these uncertain times, such cost mitigation will undoubtedly need to be demonstrated in order to have a successful claim.
Are there alternative local materials that can be used instead of the specified materials? This could present other obstacles. For instance, the issuance and acceptance of change orders for the alternative material by the consultant or owner – irrespective of whether an option is readily available – will assist the project in the long run.
We understand from the Independent Contractors and Businesses Association (ICBA) there appears to be a shortage of materials coming from China. The resulting impacts on construction projects include delays and shortages of materials, and could also lead to increased prices. While the outcome is uncertain, it is a major concern for construction projects going forward. Communication between suppliers and other parties to the contract is a necessity, as is the general case, more so now than ever.
Questions for our experts?
We are here to provide practical advice to our partners by answering frequently asked questions. We will continue to update this page as the situation evolves. Send us your questions.