COMMENTARY: COVID considerations for future construction contracts

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The next day saw the cancellation of March Madness and cancellations or delays for a slew of other sporting events. In a matter of 24 hours, the entire sports world was upended. Over the course of the past few months, we have seen big changes to the way we live, work and deal with each other.

At this point, it seems that nearly everyone is quite ready to get back to “normal,” in whatever form that takes. The question is not just when we will get back to “normal,” but what that will look like when we get there. According to an article published on April 14, 2020 by the journal Science (https://science.sciencemag.org/content/early/2020/04/14/science.abb5793), researchers from the Harvard School of Public Health project that the United States may have to endure social-distancing measures until 2022, “unless critical capacity is increased substantially or a treatment or vaccine becomes available.” Although we will have to make adjustments to our work and daily routines, business will continue to be transacted. This includes new construction projects with new contracts.

Much of the current priority has been on the interpretation of language in existing agreements, but there are numerous other considerations that should be taken into account for prospective work.  Part 1 of this series will discuss future contract considerations for force majeure and excusable delays, price escalation and scheduling considerations.

Force majeure and excusable delays

Merriam-Webster defines force majeure as a superior or irresistible force; an event or effect that cannot be reasonably anticipated or controlled. The basic idea here is situations in which performance becomes impossible or impracticable because of events that could not have been foreseen and are outside a contractor’s control. Right now, owners and contractors are pouring over their agreements to see whether or what language might pertain to the COVID-19 pandemic.

The AIA A201-2017 and ConsensusDocs 200-2019 have no specific force majeure clauses, although the DBIA 535 does. Yet, even in the AIA and ConsensusDocs, there are excusable-delay clauses that could most likely be applied to COVID-19 effects and delays. The relief afforded by each of the standard contracts is additional time, as opposed to extra costs. The variety of ways to deal with force majeure is not limited to construction, as seen by the existence of force majeure language in the NBA collective bargaining agreement and the absence of such language in the NFL’s agreement.

Will COVID-19 be a force majeure event in future? Absent some modified language to standard agreements, this is an open question. Given that contracting parties know about COVID-19 and many of the issues related to this pandemic, it is fair to ask whether it constitutes force majeure on a go-forward basis, given its foreseeability. It would be prudent for parties to consider a clear definition of force majeure as it relates to COVID-19 (or pandemics generally) and whether parties should be entitled to more than just a time extension. Separate and apart from force majeure, it makes sense to consider the excusable delay standard (such as in AIA A201-2017 at Section 8.3) to specifically deal with COVID-19 and other pandemics.

Scheduling

COVID-19 complicates project scheduling to an extent never seen before. Government orders in many states requiring most of the workforce to stay at home have nonetheless permitted construction operations to proceed, but require that social distancing be maintained on jobsites.  As we start transitioning from “stay at home” orders to return-to-work plans, many experts predict that social distancing will be part of our lives for an extended period of time. There’s also some concern there will be a COVID-19 resurgence in the fall that could require reinstating the “stay at home” orders.

This uncertainty presents difficulties for construction scheduling. As long as social distancing is required, typical employment projections cannot be relied on, making it difficult to provide the same level of confidence and certainty that contractors otherwise have in their scheduling. This uncertainty runs counter to the desire of project owners for a realistic schedule around which they can plan post-construction operations, as well as typical contract requirements that oblige contractors to deliver projects by a date certain.

There is no “one size fits all” solution for these issues in your construction contracts. Contracting parties should discuss how to handle scheduling uncertainty before contracting and memorializing their agreements in their contract. To avoid surprises, parties may also wish to more frequently share scheduling revisions, manpower logs and progress reports.

Price Escalation

In the spring of 2018, many owners and contractors went back to review their price-escalation clauses in light of new tariffs on steel and aluminum and other transactions that had been enacted or were being discussed. COVID-19 provides another reason to revisit language dealing with material-price escalation in order to determine how post-contract price escalation risk should be managed between parties.  Parties could share the risk, agree upon a cap for the owner or tie the materiality of price changes to termination for convenience rights.

As the old proverb states, necessity is the mother of invention. Owners, general contractors, subcontractors and suppliers have had to change and adapt their expectations and methods of delivering construction services.  The lessons learned should not just be applied on-site, but also in parties’ contracts.