How do your contracts address delays and financial implications associated with the novel coronavirus and COVID-19?  Is additional time or additional compensation allowed?  Under what circumstances? These are just a few of the questions many professionals in the construction industry have begun asking this week as more counties and cities in Texas impose stay at-home and business cessation orders.  The COVID-19 page of our website contains all the current stay-at-home orders issued by counties and large cities in Texas.

To find some answers, we will examine a few common contract provisions starting with the force majeure clause.  Since there are many different forms of construction contracts used in the industry, we will focus on one of the more commonly use forms, the American Institute of Architects (“AIA”) A-series contracts.

If you are using a modified AIA document or a completely different form of agreement, you should have legal counsel review the contract to determine what, if any, remedies may be available.  Our attorneys have many years’ experience negotiating and litigating construction and design contracts and would be happy to answer any questions you may have.

 Force Majeure

Most construction contracts include a force majeure clause, although they are rarely titled “force majeure”.  Force majeure translates from the French as “superior force.” In construction contracts, force majeure usually means circumstances beyond the reasonable control of the parties.

A force majeure clause usually allows a party to suspend or terminate performance when circumstances outside beyond its control makes performance inadvisable, commercially impractical, illegal, or impossible. Force majeure events might include acts of war, terrorism, riots, fire, flood, hurricane, typhoon, earthquake, lightning, explosion, labor actions (including strikes, lockouts, or slowdowns), prolonged shortage of energy supplies, and/or acts of state or governmental action which prevent a party from performing its respective contractual duties.

Many construction contracts are less specific about what constitutes a force majeure event. For parties that contract under the common AIA A-series of agreements, the typical force majeure clause provides as follows.

If the Contractor is delayed at any time in the commencement or progress of the Work by (1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor; (2) by changes ordered in the Work; (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 15.1.6.2, or other causes beyond the Contractor’s control; (4) by delay authorized by the Owner pending mediation and binding dispute resolution; or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.

Of these 5 subparts, the two that would seemingly have the most applicability to the novel coronavirus and COVID-19 pandemic are:

(3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 15.1.6.2, or other causes beyond the Contractor’s control; and 5) by other causes that the Contractor asserts, and the Architect determines, justify delay

While neither one of these provisions, in fact none of the language in the standard AIA force majeure clause, specifically mentions viral or bacterial infections or executive stay-at-home orders, these two subsections are broad enough that they may encompass it.

The standard AIA force majeure clause allows for a “reasonable” extension of the time to perform the contract for the delay.  Other provisions in construction contracts typically address whether damages associated with delay are recoverable.

The standard AIA force majeure clause does not provide for additional compensation due to impacts resulting from the delays.  Parties may need to look to escalation clauses and/or liquidated damages for delay clauses to determine whether such additional compensation is permitted.

Emergency Clauses and COVID-19

Aside from a force majeure clause, the AIA standard agreements contain an “emergency clause” which allows the Contractor to obtain additional compensation or extensions of time.  The standard AIA emergency clause states as follows.

In an emergency affecting safety of persons or property, the Contractor shall act, at the Contractor’s discretion, to prevent threatened damage, injury, or loss. Additional compensation or extension of time claimed by the Contractor on account of an emergency shall be determined as provided in Article 15 and Article 7.

The requirement to prevent “threatened injury”, combined with the allowance for changes in work found in other parts of the AIA agreement, may provide a basis for recovering increased costs of labor, equipment, materials, insurance, and field supervision associated with the novel coronavirus.  Such costs might include protective equipment, additional labor (including staggered or split shifts to prevent violation of a 10-person/area limitation) or equipment to meet governmental regulations for social distancing/isolation.

Notice of Delays

Typically, written notice of delays, including delays associated with a force majeure events, are required.  While most contracts require “timely” notice, some go further and require “immediate” notice.  Immediate as in immediately upon the occurrence of the event that could impact performance, regardless of whether the impact is ultimately incurred.

In a global pandemic, which the novel coronavirus certainly is, manufacturing is shut down, supply chains disrupted and projects delayed, disputed or shut down altogether.  Vigilance is required to quickly identify potential delays and to provide notices of possible disruptions.

The timing and type of notice varies from contract to contract, but in general project participants should (1) explain how the pandemic qualifies as a force majeure or other excusable event under the agreement; (2) provide reasonable specificity about impacts to performance; (3) include additional contractually‐required information to the extent known; and (4) provide updates as more information becomes available.

We are here to help you

Our attorneys in Dallas and Austin, working remotely during the pandemic, are available to answer any questions you may have about your contractual or legal rights and to help you navigate these uncharted waters.  Contact us at info@gstexlaw.com if you have any questions.

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