Given the declared pandemic and ongoing developments involving the COVID-19 virus, contractors are facing substantial disruptions to their businesses and unprecedented challenges. Such challenges include threatened or actual shut-down of projects, travel bans, impacts to performance and associated employment issues, among others.
With respect to potential impacts to construction activities, contractors should be aware of their rights and obligations if and when confronted with performance and/or cost issues related to the pandemic. As to existing projects where the contract documents are already in place, due diligence should be initiated to determine available rights and defenses if the contractor’s performance may be materially limited or rendered impossible due to future developments. For example, will the force majeure clause in the contract documents provide an excuse for non-performance? Does the contract otherwise provide rights to the contractor to unilaterally suspend or terminate performance? Is the contractor entitled to pursue an adjustment in its contract amount and/or time due to late delivery of materials or equipment? What options are available if the contractor is unable to secure the necessary labor? Contractors should immediately consider these issues and others in advance of experiencing limitations in their ability to perform or an escalation in job costs.
Unlike problems arising on a single project, COVID-19 will likely create issues across most if not all projects in a contractor’s inventory. Accordingly, due diligence may require a focused review of a significant number of complex contract documents. As a preliminary step to timely preserve rights, contractors would be well served to create a form letter providing general notice of anticipated impacts related to the spread of COVID-19 for distribution in advance of any actual impacts. This should be supplemented with follow on notices of impacts when experienced with any additional information that may be required to properly assert a timely claim for additional compensation or time.
Although a reduction in new work is likely in the immediate future, at present it is unclear how long the present crisis will last. Where providing proposals or bids for future projects, contractors should take steps to reserve their rights to negotiate acceptable terms and conditions to address possible impacts arising from the current pandemic or future outbreaks. Below is some suggested language:
Due to the current pandemic, possible developments associated with the COVID-19 virus, and/or future outbreaks, this proposal is expressly conditioned upon the negotiation of agreed language in the contract documents to address the following discrete issues to the extent related to the pandemic and/or COVID-19 virus: 1) potential impacts to our performance; 2) delays in the delivery of equipment and materials; 3) rights to terminate or suspend performance as a result of adverse developments involving reduced availability or unavailability of labor, equipment and/or materials; 4) rights to terminate or suspend performance as a result of actions and/or orders of federal, state and/or local government and/or governmental agencies; 5) any other factors related to the pandemic which may materially impede the abilities of the Parties to timely and/or properly meet their contractual obligations; and, 6) adjustments to our contract amount and/or time, and termination rights, associated with any of the above issues.
Again, the unprecedented nature of the current pandemic and uncertainty of future developments require contractors to immediately initiate proactive measures to avoid and/or mitigate exposure to performance impacts and associated costs. Taking a reactive approach will place contractors at additional risk. For more specific information or to discuss other construction-related issues, please contact Lowell Woods or your Taft attorney.
Please visit our COVID-19 Toolkit for all of Taft’s updates on the coronavirus.