That allocation of risk might be fair for short delays of only a few days or a couple of weeks.  But once a project delay stretches into several weeks or even months, a contractor is sure to incur substantial additional costs through extended general conditions, labor shortages, escalation in material and supply costs, and off-season work. Those losses will be even more dramatic if construction is stopped completely. It would not be unreasonable to assume that a contractor’s COVID-related delay damages might exceed its anticipated profit on a job. 

Do standard contracts and common law provide other opportunities for contractors to recover some or all of the losses they incur on account of the pandemic?  The answer is yes, depending on the contract and the circumstances surrounding the losses. Some of those opportunities are discussed below.

• Suspension by Owner. In some jurisdictions, construction remains an essential service either for all construction or for limited sectors such as healthcare. But even where construction is authorized, a project owner may be uncomfortable having workers wandering its facility during the pandemic. In those cases, the owner may suspend the work. Major form contract families, including the AIA and ConsensusDOCS, permit a contractor to recover the additional costs it incurs on account of that suspension. [1] Accordingly, before requesting a force majeure extension for a delay, a contractor should remind the owner of the contract’s suspension provision, especially if the contractor knows that the owner might be reticent about continued construction. 
• Suspension by Contractor or Subcontractor. Under ordinary circumstances, contractors and subcontractors are not permitted to suspend work just because workers are fearful of becoming ill. Even during regular flu season, it is still the contractors’ and subcontractors’ obligation to find a suitable workforce. These are unusual circumstances, however, and requiring employees to work on jobsites where workers could be exposed to the coronavirus might violate OSHA standards or applicable collective bargaining agreements.  If a contractor or subcontractor has no practical choice but to stagger work forces and work times, hire additional laborers, or delay the project until a sufficient workforce is available, it might be able to invoke the contract’s “emergencies” clause and recover costs for those efforts. The A201 states that “[i]n an emergency affecting safety of persons or property, the Contractor shall act, at the Contractor’s discretion, to prevent threatened damage, injury, or loss.” [2]  That section then allows the contractor to seek additional compensation under the agreement for acting on those safety concerns. While claims for emergencies under this provision typically relate to emergencies occurring suddenly on a project and requiring a contractor to act immediately, the term “emergency” is not defined and reasonably could be interpreted to include the national emergency we are facing now. Subcontractors may be able to rely on the subcontract’s flow-down provision to avail themselves of the same remedy.
• Suspension/Termination by Government. When a governor or mayor orders construction projects to stop, a contractor has no choice but to honor that directive and stop the work. But a contractor is not required to stop the work indefinitely. Many standard form contracts allow the contractor to terminate the contract once a stoppage exceeds a certain amount of time. The A201, for example, allows a contractor to terminate the contract after work has been stopped 30 days because of “an act of government, such as a declaration of national emergency, that requires all Work to be stopped.” [3] If the contractor terminates for that reason, it is entitled to payment for work executed through the date of termination, costs incurred by reason of termination, and profit and overhead on the remaining unexecuted work. [4] In other words, the contractor can earn all the profit it expected for the entire job, even if it terminates before the work is complete. The ConsensusDOCS General Conditions similarly allow a contractor to terminate after a work stoppage and to recover certain costs, but not profit and overhead on unperformed work.[5]

  This is not to say that a contractor should automatically seek to terminate a contract after a government stoppage of 30 days. That approach could backfire if the termination is deemed improper and, in any event, is not good for client relations. Instead, the better approach would be to communicate with the owner and negotiate compensation for the force majeure delay upon resumption of the project in return for the contractor’s agreement to wait out the stoppage, not terminate the contract, and not seek profit on unperformed work. 

• Termination by Owner. If an owner decides early enough that the pandemic has rendered the project no longer economically feasible, that owner may elect to terminate the project for convenience. When that happens, the contractor is usually permitted to recover its costs for work properly executed, plus costs incurred by reason of the termination, plus either profit and overhead on unexecuted work or a pre-negotiated termination fee. [6] Standard subcontracts similarly allow subcontractors to recover profit and overhead on unperformed work.
• Impossibility/Impracticability. The common law doctrines of impossibility and impracticability have long excused parties from performing under a contract where one party’s performance is either literally impossible or so commercially impractical as to render performance senseless or beyond the expectations of the parties. To benefit from these doctrines in the case of delays or other impediments arising out of the COVID-19 pandemic, a contractor must show that all possible alternatives have been exhausted, that all means of performance are commercially unreasonable, that no one else could perform the contract, that the pandemic and its associated fallout could not have been anticipated, and that the party seeking relief is not at fault and did not assume the risk of a pandemic. If a contractor can prove these elements, it may be relieved from contractual performance, may be able to terminate the contract (either completely or partially), and may recover costs associated with its attempts to perform the contract.
• Evidence of Owner’s Financial Arrangement. Standardized contracts require owners, upon request, to provide evidence of their financial ability to fund completion of the project. [7] If an owner fails to provide sufficient evidence of that financial ability, the contractor may stop the work until the owner complies. [8] That stoppage also triggers the contractor’s right to terminate the contract after 30 days and then recover the costs of the termination plus profit and overhead on work not executed. [9] Contractors should avail themselves of this privilege if they lose confidence in the owner’s ability to sustain the project through the pandemic.
• Owner’s Duty to Make Site Available. An owner generally has a duty to make the work site available to the contractor for construction. If the contractor is otherwise authorized to perform work (i.e., the construction is exempt from any stay-at-home order), but the owner impedes the contractor’s ability to perform the work without formally suspending the project, the contractor may be able to assert a compensable delay claim on the basis that the owner has breached the duty to make the site available.   
• Change in Law Provision. Contractors are generally required to comply with laws, regulations, and orders of authorities having jurisdiction over the project. When changes in those laws increase the contractor’s costs, can the contractor recover those costs through a change order? That depends on the contract. If the parties have adopted ConsensusDOCS contracts, the answer may be yes. [10] If the parties have adopted AIA contracts, the answer may be no.  

Contractors should not assume that they are relegated to the limited remedies available under standard force majeure contract clauses when the spread of the COVID-19 pandemic causes the contractor to suffer project delays. It pays for contractors to carefully review their contracts, consult legal counsel, and consider creative ways to recover what could be devastating cost increases as work stoppages, labor shortages, and supply chain disruptions continue to mount.

[1] AIA A201-2017 § 14.3.2; ConsensusDOCS 200 § 6.3.2.

[2] AIA A201-2017 § 10.4. See also ConsensusDOCS 200 § 3.12.

[3] AIA A201-2017 § 14.1.1.2.

[4] AIA A201-2017 § 14.1.3.

[5] ConsensusDOCS 200 § 11.5.

[6] AIA A201-2017 § 14.4.3; ConsensusDOCS 200 § 11.4.2. Previous versions of the A201 gave the contractor profit and overhead on unexecuted work upon a termination for convenience.

[7] AIA A201-2017 § 2.2.2; ConsensusDOCS 200 § 4.2.

[8] Id.

[9] AIA A201-2017 §§ 14.1.1.4, 14.1.3; ConsensusDOCS 200 § 11.5.2.1.

[10] ConsensusDOCS 200 § 3.21.1.