Contracting in the Time of COVID-19: A Discussion About Revisiting Contract Provisions and Obligations

By Michael S. Litrenta, Attorney for Cotney Construction Law.

We are working in a time of uncertainty and changing conditions in the construction industry are evident throughout the country.

Laws and regulations are constantly being updated on both the federal and state level. In response to growing concerns surrounding the coronavirus, some states and cities have shut down altogether (Vermont, Washington, New York, City of Boston). While most states have taken prophylactic measures to prevent the spread of the virus, our industry must continue to adapt, overcome, and thrive. With that in mind, we should discuss some contractual considerations that should be closely evaluated when undertaking new projects.

Let’s face it, delays can spring up on a project at any time and for a variety of reasons. Now more than ever, it is important to analyze the “standard” language found in your contracts to understand your rights and obligations pertaining to your ongoing and upcoming projects. This article is designed to provide guidance for our industry on issues that may become more prevalent in our ever-changing economic climate.

1. Force Majeure: Pandemic / Epidemic

We begin our discussion with delays that can occur on a project. By now, we all have heard the term “force majeure.” Force majeure refers to an unforeseeable or unavoidable event or occurrence that excuses or extends a party’s obligation(s) to perform under a contract. Not all contracts specifically use the term force majeure; however, many contracts have language that defines each party’s respective obligations when dealing with unforeseeable circumstances. There are several questions that must be analyzed to assess whether a force majeure provision is applicable to your situation:

a. Was the event reasonably foreseeable?

b. Did the event affect your ability to perform under the contract?

c. Was the event outside of the reasonable control of a party to the contract?

d. What, if any, reasonable steps were taken to avoid or mitigate the outcome?

e. Is there any language that speaks to a pandemic or epidemic?

While a pandemic is often viewed as an unforeseeable condition, there is an argument that delays caused by COVID-19 are foreseeable for prospective contracts. This may jeopardize a contractor’s ability to rely on a traditional force majeure provision for delays caused by COVID-19. Accordingly, it will be important to closely review any proposed force majeure provisions in future contracts to assess whether additional language is needed to protect your company in the event of future work restrictions or shelter-in-place policies related to COVID-19.

2. Damages for Delays

When allocating risk on the project, consider negotiating for the removal of (or at least minimizing) any damages you would be liable for from any delay attributable to any pandemic, epidemic, or force majeure conditions. This would include liquidated damages included in your contract for project delays. You may also want to consider adding clauses or language that provides protects your company in the event of material shortages or delivery delays.

3. Suspension or Termination for Convenience

We have all seen these provisions before. Typically, if the project owner (or general contractor) decides that they no longer wish to proceed with the project, they can terminate the contract for convenience. These provisions provide for a wide latitude of flexibility for the owner (or general contractor). These provisions also limit the amount of money that can be recovered for work performed. Now is the time to re-visit these provisions, as well. Closely examine the notice requirements for termination and/or suspension, your ability to recover demobilization/remobilization costs, and your ability to recover lost profits and overhead in the event of a termination for convenience or indefinite suspension.

While this article highlights a few contractual provisions that will be important to review amid the ongoing pandemic, it is imperative that you review and familiarize yourself with your entire contract, as this could be a difference-maker in performing a successful project. At Cotney Construction Law, we have decades of experience in the construction industry and have licensed attorneys all across the country that would be happy to assist with reviewing or preparing your construction contracts for any ongoing or upcoming projects.

If you have any questions for the North Carolina or South Carolina market, please contact Mike Litrenta (mlitrenta@cotneycl.com) or Ashlee Poplin (apoplin@cotneycl.com) or call our office at (704) 275-5712. Otherwise, please check our website at www.trentcotney.com for a list of our attorneys and offices that will be able to provide the assistance you need.

Learn more about Cotney Construction Law, Carolinas, visit their RCS DIrectory.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.