COVID-19 and the Construction Industry

Eaton Peabody has received several questions from contractor clients, and we wanted to make sure you were thinking of issues that may come up in your contracts as they relate to the pandemic. A couple initial areas of concern that you may want to review in any pending projects:

  1. Force majeure and “Acts of God”. In many contracts you will have language that falls under one of these headings, usually in sections that deal with scheduling, or more specifically “delays.” For the most part, language we have reviewed recently in standard forms includes “epidemics” in the events that might lead to excusable delay. If not, there is broad language that says “any event beyond the control of the contractor” or words to that effect. It is important to note that most of these clauses give you relief in the form of extra contract time if a claim is made, but these types of events rarely entitle you to additional compensation for the delays, as they are also beyond the control of the Owner. You should make sure that you review and comply with the contract for language around the timing of providing notice of a claim, and be sure to notify the owner (or contractor if you are a sub) as soon as you identify a delay, and supplement the claim as delays change and continue to evolve or deepen. Reasons for delay that people have discussed include government shut down of projects and work sites; lack of inspectors for the work; delays in the delivery or availability of materials resulting from travel restrictions or lack of forces for suppliers; and shortages of your own labor forces resulting from quarantine or restrictions on travel, or the need of workers to care for family affected by the virus. Regardless of the specific requirements in the contract it is a good practice to communicate with the owner (or contractor if you are a sub) about the problems you are facing before they add up to a claim.
  2. Termination for convenience. As funding becomes an issue, people are looking at the possibility of Owners using “termination for convenience clauses.” Ordinarily, this would require that you stop all work within a time frame detailed in the notice. You would be paid for any work completed under the schedule of values or other terms of the contract. Frequently you can also request payment for the reasonable cost to demobilize if that was a cost included in the contract, though not all contracts include that language. In a very rare circumstance you might see language that allows you to recover overhead and profits for work not performed, but most contracts exclude those claims. Our impression is that if you have publicly funded projects those will be less impacted by this type of termination in the short term, as the public money would still be available, and necessary to keep the economy moving. There is greater risk on private projects as financing becomes more difficult and private companies begin to experience financial distress themselves, in particular if the work is in the entertainment, travel, lodging of food/beverage industries that are being hardest hit right now.
  3. Suspension of Work/Termination for extended delays. Some contracts allow the owner (or contractor) to suspend work on the project, and may allow both a claim for compensation and additional time caused by the delay. Generally there is a limited time that the Owner or GC can suspend the work, sometimes 30, but at times as much as 90 days. Based upon the language of the contract it may be possible for you to terminate the contract after extended delay, with appropriate and timely notice if the suspension of work exceeds this time frame. We recognize that with many clients or partners on projects you might wait out the storm to protect the relationship, and make sure you have work when the world returns to “normal.” In some projects, the ability to have a way to back out due to unreasonable delays might be something that you would consider.
  4. Record keeping. In situations such as this record keeping takes on added importance. If you have a claim accurate records are essential negotiating tools and are even more critical in arbitration or court.

This is a quick summary of a few areas that we’ve been asked to review in the past week, and that others in the industry are discussing. You may also see other issues that arise as this uncertain future unfolds. If you have questions on specific projects, please contact Michael Hodgins or David Pierson. Our office is trying as best we can to work remotely, while continuing to timely and effectively respond to, and anticipate, client concerns.

COVID-19 Resources:

CARES Act Summary

Loan Relief Programs

Paycheck Protection for Small Businesses

Dealing with Debt: COVID-19’s Effect on Foreclosures, Bankruptcy, and Collections

Maine Employer Update

Families First Corona Virus Response Act

Tax Advisory Credit

Municipal Response

Delays and the AIA Owner – Contractor Agreements

Essential Businesses – Construction Industry

These materials have been prepared for general informational purposes only and are not intended as legal advice.