Analyze Your Contracts
Advice from Merchants' Claims Experts
Many contractors are wondering if they still have to meet the project schedule in light of the COVID-19 pandemic. Generally, the answer is yes—unless you can demonstrate that the pandemic prevents you from doing so. If the pandemic does force a slowdown, you will need to turn to your contract to see what your options are. What you’re looking for is a force majeure clause.
Many contracts have a force majeure or “act of god” clause that may – or may not – address the current pandemic situation to provide additional time for a contractor to perform. If a contract does not have such a clause, the general rule in most jurisdictions is that a contractor will not be excused from performance by a force majeure or “act of god” situation. A force majeure clause allocates the risk of loss if performance becomes impossible or impractical as a result of an event that the parties could not have anticipated or controlled. The deciding factor in whether a force majeure clause applies is usually whether the parties should have anticipated the specific circumstances at the time that they negotiated the contract—if they should have anticipated the situation, the clause will not apply and vice versa (as the pandemic will likely have a foreseeable effect on future contracts, the contract should specifically address the issue). Additionally, parties should carefully read their contracts as, even if the pandemic triggers a force majeure clause, there may be contractual notice provisions that must be followed in order to invoke its benefits.
The applicable provisions of the AIA 201-2017 and ConsensusDocs 200 list certain events that may entitle a contractor to additional time but not compensation. The AIA 201-2017 does not specifically address epidemics/pandemics, but it does include “unusual delay[s] in deliveries”; “other causes beyond the Contractor’s control”; and “other causes that the Contractor asserts, and the Architect determines, justify delay.” The ConsensusDocs 200 on the other hand specifically includes “epidemics” and “unavoidable accidents or circumstances.” No Court has (yet) addressed whether the current pandemic falls into the buckets allowing for additional time in the AIA and ConsensusDocs. However, some commentators believe that, if there is a project delay caused by the virus, the correct outcome is that there should be a basis for adjusting the contract schedule. But the outcome is not guaranteed, and it will hinge on factors that include: the parties’ particular contract; the effect of Covid-19 on that particular contract; and the governing law of the applicable jurisdiction.
In addition to identifying and analyzing your particular force majeure clause, you must also be prepared to comply with your contractual notice requirements. For each project you should create a key clause summary to identify your force majeure clause (or suspension clause if the project is suspended) and important notice deadlines. This document should become a quick reference point for each job to ensure that you are protecting your rights in dealing with (and documenting) each COVID-19 related impact.