With the many projects impacted by COVID-19, now is the time to pull out your contract (contractors and project owners alike) and consider how the contract’s delay, time extension, or force majeure clauses and other legal theories allocate this unusual risk. An extended and more detailed version of this Alert can be found by clicking here.
Force majeure clauses allocate risk of natural and unavoidable catastrophes that affect contract performance. Most standard US construction contracts (e.g., American Institute of Architects and ConsensusDocs) and federal and most state and local public construction contracts do not use the term force majeure, and instead provide relief for force majeure events in delay and time extension remedial clauses. Here we use the term force majeure to cover all such remedial clauses.
What Is a Force Majeure Event?
Generally speaking, a force majeure event is unforeseeable and outside the contractor’s control. COVID-19 certainly seems to be that. But the details of the specific contract language and how a project is impacted will ultimately determine the extent of force majeure relief as a result of COVID-19.
If your force majeure clause contains epidemic, pandemic, outbreak of disease, or other similar terms, COVID-19 almost certainly fits. However, some clauses limit relief to specific events involving nature (e.g., severe floods or earthquakes), and a court may strictly construe such precise clauses to exclude events not named, in which case COVID-19 is less likely to be covered. Even interpretations of acts of God vary. Some states limit interpretation of “acts of God” to wars, riots, hurricanes, floods, epidemics, and natural disasters, and COVID-19 is more likely to be covered here. Other states look at an act of God as something caused by nature. Most force majeure clauses list specific events, but also include catchall language to generally cover unforeseeable delays that are not the fault of the contractor.
Many states demand strict compliance with notice requirements, and failing to comply with that technicality can render otherwise valid force majeure relief void. Communicate force majeure impacts as soon as possible, even if on a preliminary basis. Such communications can also help mitigate impacts and limit miscommunications.
Nature of Relief
Most force majeure clauses allow only for an extension of time, and not a corresponding price adjustment. But COVID-19 will almost certainly increase costs, so contractors should consider other potential avenues of relief before conceding to a limited time extension.
Excusable Delays Under Standard Form Construction Contracts
The AIA A201-2017 General Conditions form (AIA form) does not use the term force majeure, but Section 8.3.1 (“Delays and Extensions of Time”) includes specific types of events as well as catchall terminology that provides the basis for relief for COVID-19 impacts, including unusual delay in deliveries; unavoidable casualties; other causes beyond the contractor’s control; and other causes that the contractor asserts, and the architect determines, justify delay. ConsensusDocs 200-2017 provides similar relief, but Article 6.3 also specifically identifies epidemics as an excusable delay, as well as “adverse governmental actions” and “unavoidable…circumstances.”
Termination and Suspension of Work Under Standard Form Construction Contracts
Article 18.104.22.168 (“Termination or Suspension of the Contract”) of the AIA form gives the contractor the right to terminate if the work is stopped for a period of 30 consecutive days through no fault of the contractor for “[a]n act of government, such as declaration of national emergency, that requires all work to be stopped.” This allows the contractor to recover payment for work performed, costs incurred as a result of the termination, and overhead and profit on work not yet performed. An owner also has suspension or termination rights (Article 14.3, “Suspension by the Owner for Convenience,” and Article 14.4, “Termination by the Owner for Convenience”). ConsensusDocs provide contractors and owners similar suspension or termination rights and remedies as the AIA documents for a national emergency or other governmental act (Articles 11.4 and 11.5).
Federal, State, and Local Public Construction Contracts
Construction contracts with the federal government rely on time extension clauses for force majeure delays outside the contractor’s control. The standard federal excusable delays clause required by FAR 52.249-14 does not use the term force majeure but allows for excusable delay for epidemics and quarantine restrictions, which should cover COVID-19 impacts. Similarly, most state and local contracts do not use the term force majeure. As a result, your best bet is to analyze your excusable delay provisions for potential relief from COVID-19 impacts, which should allow for time extensions only.
Relief Outside or Without a Force Majeure Clause
If a contract does not contain a force majeure clause, the common law doctrine of commercial impracticability may supply a defense for COVID-19 impacts. Not all states recognize this defense, but it is codified in the Uniform Commercial Code and included in the Restatement (Second) of Contracts. Also, do not forget to identify change-in-law provisions (if any) in your contract and analyze whether they provide another means of potential relief.
COVID-19 Force Majeure Action Items
- Review your contract for sources of relief as well as notice and documentation requirements.
- Plan to mitigate impacts and to contemporaneously identify and track specific unavoidable delays and costs. You must prove COVID-19 actually caused the time and costs claimed.
- Communicate to inform, not to agitate. Be precise, factual, and without emotion or hyperbole. It will facilitate early resolution and prepare you for a formal dispute, if it comes. You want to appear to the other party and, if necessary, to a judge, jury, or arbitrator to be reasonable, businesslike, and looking for solutions. It matters.
Jones Walker’s Capabilities
Jones Walker’s Construction Team is ready to help. Beyond construction, Jones Walker has a dedicated COVID-19 Task Force capable of handling all force majeure issues. Our task force is working around the clock to gather information, analyze fast-moving legal and regulatory issues, and provide solutions to your most pressing business concerns arising from the coronavirus emergency.