By Brent Carpenter, AttorneyThis article originally appeared in the May 22, 2020 edition of the Daily Journal of Commerce Oregon.
Most construction contracts contain a liquidated damages provision, which provides that if the contractor does not finish the project on time, the owner will assess a certain monetary amount per day as damages. A contractor can potentially avoid the assessment of liquidated damages if the cause of the delay is outside of its control, what is known as “excusable delay.”
It seems fairly straightforward that the coronavirus pandemic is outside of the control of any contractor, but it does not necessarily follow that contractors will not be assessed liquidated damages for pandemic-related delays.
Like so many questions in the law of construction contracting, the question of whether a contractor may avoid liquidated damages for delays caused by the pandemic is answered with a question: what does the contract say? Most contracts contain what is known as a force majeure provision, which defines what events can constitute excusable delay. The typical force majeure provision will state that a contractor will not be charged contract time or assessed liquidated damages when a delay is caused by “an act, event or occurrence caused by fire, riot, war, acts of God, nature, sovereign, or public enemy, strikes, freight embargoes or any other act, event or occurrence that is beyond the control of the party to this Contract who is asserting Force Majeure.” State of Oregon General Conditions for Public Improvement Contracts, Sec. A1 (2012). As you can see, the list of events in this particular contract constituting excusable delay does not include “pandemic” or “epidemic.”
However, some contracts do include those events in their force majeure provisions.
For example, on federal government construction projects, the typical force majeure provision states that a contractor will not be charged contract time for “(1) acts of God or of the public enemy, (2) acts of the Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather.” Federal Acquisition Regulations, 52.249–14 (2019). If the force majeure provision specifically lists “epidemic” or “pandemic” then a contractor has a stronger base from which to make an argument for excusable delay than if the provision does not mention those events.
However, even when the force majeure provision does mention “epidemic,” the happening of an epidemic does not, in an of itself, result in excusable delay. Instead, courts have held that a contractor will need to prove that its delay in performance was actually caused by the epidemic. For example, a contractor alleged that a flu epidemic had spread among its staff, resulting in delay, which the contractor argued was excusable. The court denied the contractor’s claim, citing the contractor’s failure to provide evidence of when the epidemic occurred, how long it lasted, the names of the affected personnel, the dates of absence of the personnel, proof that their absences caused the delay, or any efforts by the contractor to carry on with the work in spite of the absences. Ace Electronics Associates, Inc., ASBCA No. 11496, 67-2 BCA 6456 (July 18, 1967).
Thus, while it is beneficial to the contractor if the force majeure provision lists “epidemic” or “pandemic” as a cause of excusable delay, the mere occurrence of a pandemic will not be enough for the contractor to avoid liquidated damages. Instead, the contractor must rigorously document all pandemic-related delays and be able to show precisely how a delay was caused by the pandemic.
In the case of a force majeure provision similar to the first provision quoted above, which does not mention epidemics as a cause of excusable delay, the contractor faces even more of a challenge. That is, the contractor must rely on the force majeure provision’s “catch all” phrase, “any other act, event or occurrence that is beyond the control” of the contractor. Thus, the contractor will first need to prove that the pandemic was an unforeseeable event beyond its control and not a result of its own fault or negligence, and then prove with specificity that the event actually caused the delay.
In summary, any contractor who is experiencing pandemic-related delays should review their contract’s force majeure provision to determine whether “epidemic” or “pandemic” is one of the listed excusable delay events. If it is not, then the contractor must rely on the “catch all” provision and be prepared to show that the pandemic was an unforeseeable event beyond its control and not a result of its own fault or negligence. In either case, a contractor should rigorously document the causes of any delay which is caused by the pandemic, as a court will likely require very specific proof that the pandemic caused the delay in order for a contractor to avoid liquidated damages. In this way, even though the coronavirus pandemic is an unprecedented event, the guidance is similar to claims related to other causes of delay—review your contract carefully and thoroughly document your claim.
Brent Carpenter is a shareholder at Jordan Ramis PC and focuses his practice on construction law. Contact him at 503-598-7070 or email@example.com.
Thank you for your interest in this article. The information contained in this article is for the general interest of our readers and should not be regarded as legal advice. If you have questions, or to obtain more information on this topic, please contact an attorney in our construction practice group.