COVID-19 and Contracts

As COVID-19 disrupts work and life as we know it, the question many contractors have is what protections are available against the inevitable project impacts and delays?  Generally, construction contracts require a contractor to timely perform work until project completion or potentially face damages (liquidated or actual) and possible termination.  When events occur, however, that are beyond our control (such as a national pandemic), it is important to review and understand what contract provisions or avenues are available for potential relief.  

  1. Review Your Contract For A Force Majeure Provision. 

A “force majeure” contract provision is commonly included in construction contracts, service agreements, purchase orders, etc.  It typically covers events or conditions that can be neither anticipated nor controlled.  These provisions, however, will vary greatly from contract to contract and may not include the language “force majeure” but rather may be included in general delay or impact clauses.  

  • Ultimately, because the scope of a force majeure clause depends on its express terms, there is no uniform rule as to when a force majeure clause excuses performance and/or whether a party will be entitled to compensation for such an event.   

Here, with respect to COVID-19, the declaration of a National Emergency, specific bans on certain business activities, quarantine directives will likely trigger most Force Majeure clauses.  Further, even if this is not the case (or a contract does not contain such a provision), there are additional legal doctrines that may be available, including the “frustration” doctrine and doctrine of impossibility.  Thus, the first step for contractors is to review each project contract and identify if there is a provision that covers the COVID-19 event (e.g., an act beyond Contractor’s control).

  • Review Your Contract Notice Requirements:

As each contract may treat force majeure events differently, this will also impact whether a party is entitled to only a time extension for the delay (i.e., an “excusable” delay) or compensation for the associated costs (i.e., a “compensable” delay).  Thus, if you are incurring delays and additional costs or see the potential for delays and additional costs, once you have identified what your contract provides for acts beyond your control, it is also critical that contractors review contractual notice and claim requirements set forth for delays, changes, or impacts.  

  •  Conclusion

In this uncertain time, contractors of all tiers will be facing project delays and impacts, which may result in potential delay damages (liquidated or actual loses) and increasing general condition costs.  Not only do contractors have an obligation to mitigate costs incurred during these periods of impact, but this must also be balanced against protecting the health and safety of its employees.  Regardless, contractors should closely review their contract obligations and rights and seek counsel if there are any questions.