beyond the legal opinion
This article was originally published in the February 19, 2021 edition of the Daily Journal of Commerce Oregon.
Early in the pandemic last year Jordan Ramis PC authored two articles for the Daily Journal of Commerce—“Excusable Delay on Construction Projects Due to the Coronavirus Pandemic” and “Excusable Delay on Construction Projects in the Absence of a Force Majeure Provision”—regarding how contractors may protect themselves from liquidated damages due to COVID-related delays. Those articles discussed protection through contractual force majeure clauses or—in the event the contract does not contain such a clause—the common-law doctrines of impossibility, impracticality, and frustration of purpose.
Those articles recognized the novelty of the pandemic and addressed the issue of COVID-related delays from a defensive posture. That is, early in the pandemic, contractors, like the rest of the world, were dealing with an unprecedented situation, which clearly had not been contemplated by parties to the contracts being performed at the time, which had been negotiated pre-pandemic.
As those earlier articles discussed, some force majeure clauses specifically address pandemics and/or epidemics, but many do not, leaving it to the contractor to argue that the COVID-19 pandemic falls within the clause’s “catch all” provision (i.e., “any other act, event or occurrence that is beyond the control” of the contractor). However, as the pandemic has worn on, contractors have begun to specifically address COVID-related delays in their contracts and allocate that risk accordingly. In other words, instead of merely reacting to potential liability for COVID-related delays, parties can and should negotiate allocation of that risk up front, during contract negotiation. An example of such a clause follows:
Contractor shall be entitled to additional time caused by any delays outside of Contractor’s reasonable control. Contractor shall be entitled to an extension of time to the extent that the Work is delayed by COVID or by any other governmentally recognized epidemic or pandemic. Contractor shall use its best efforts to mitigate any delay. Contractor shall submit evidence showing that a recognized epidemic/pandemic has occurred, that the Work has been delayed, any mitigation efforts undertaken and a schedule analysis demonstrating the delay upon completion.
Obviously, owners, general contractors, and subcontractors will want to seek to avoid as much risk as possible as they contract down the chain. A contractor should generally seek to negotiate a provision regarding contract time which entitles it to additional contract time caused for any delays which are outside of its reasonable control. The contractor should also specifically seek to include a provision which provides that it is entitled to an extension of time to the extent that the work is delayed by any pandemic and/or epidemic, including but not limited to the COVID-19 pandemic.
Owners, general contractors negotiating with subcontractors, and other parties up the contracting chain will naturally be wary of including such a broad provision. However—assuming that case law regarding force majeure provisions is at least persuasive here—upstream parties can take comfort in the fact that, as discussed in the earlier articles, courts construe those provisions fairly strictly and require the contractor to show specifically how the pandemic or epidemic caused the delay. If the contractor is unable to carry this burden of proof, a court is unlikely to find excusable delay. For example, if the contractor merely alleges a delay and that it occurred during a pandemic, but does not “connect the dots” between the pandemic and the delay, a court will likely not find the delay excusable.
Owners and others up the contracting chain can also negotiate a provision which requires that the contractor or subcontractor use its best efforts to mitigate any delay. In other words, the contractor or subcontractor is not allowed to simply throw up its hands and wait until, for example, a stay-at-home order is lifted, but instead must take reasonable efforts to continue performing its work in accordance with the project schedule.
Finally, the parties should negotiate a provision that in order to receive an extension of time, the contractor must submit evidence showing that a governmentally recognized epidemic or pandemic has occurred, that its work has been delayed by the pandemic or epidemic, any mitigation efforts it has undertaken, and a schedule analysis demonstrating the delay upon completion. Such a provision lays out clearly the parties’ intention as to what level of proof the contractor must provide to obtain an extension of time.
This has advantages for both the owner and the contractor. For the owner, it provides a clear evidentiary threshold which the contractor must meet and which correlates to the case law regarding analogous force majeure clauses. For the contractor, it provides assurance that if it provides the back-up provided for in the contract, it will be granted an extension of time, and thereby avoid liquidated damages.
Including these provisions in the article of your contract or subcontract regarding contract time will theoretically protect all of the parties to the contract by granting the contractor entitlement to an extension of time for an event over which it has no control, yet balancing that grant with the obligation that the contractor mitigate any delay and meet its evidentiary burden in providing that the delay was indeed caused by the pandemic.
Given the broad range of impacts of the pandemic, it is important to review your contract and subcontract forms with your legal counsel to ensure that the risk allocation contained therein appropriately allocates the risk for COVID-related delays. Further, and more generally, in this (hopefully waning) time of COVID-19, it is a good idea to have your counsel review all of your agreements and policies (e.g., employment agreements and policies) which are or could be impacted by COVID-19 and the various relief efforts to address the pandemic.
Brent Carpenter is a shareholder at Jordan Ramis PC and focuses his practice on construction law. Contact him at 503-598-7070 or brent.carpenter@jordanramis.com.
David Bowser is a construction design professionals lawyer at Jordan Ramis PC. Contact him at 503-598-7070 or david.bowser@jordanramis.com.
Tags: Construction, Construction and Development
December 29, 2021
If the contract does not provide for, or prohibits, contractor claims for material cost escalations, the contractor may be liable for the escalation. Further, if material delivery delays in turn delay the project, a contractor could face the assessment of liquidated damages.
