An Approach to Determining Exemption from Stay in Place Orders - Construction in California

Snell & Wilmer

Snell & WilmerGiven the number of orders that have been issued by California public authorities, you may want to consider some type of systematic approach to analyzing if you qualify as an Essential Business and whether your projects are Essential Infrastructure. This analysis needs to be done on a contract by contract and project by contract basis given the different projects undertaken by Owners and the typical construction company (GC).

  • Determining Essential Construction vs. Non-Essential - What do we do? Consider the following:
    • Inventory your projects
    • Obtain owner input to evaluate where the project falls into the exemption’s definitions; work together if possible
    • Get subcontractor vendor input- GC is responsible for subcontractors
    • Private owner- Review loan documents regarding force majeure/commercial impracticability and address lender concerns
    • Mitigation Efforts- determine how to mitigate impact on the project
    • Replacement subcontractors/vendors - have a back-up
    • Document, document, document actions
  • Review Notice and Claims Requirements-Document in Writing
    • Notice
      • Timing
      • Manner
      • Description
      • Probable impact
      • Indefinite nature
      • Be aware of contract flow down & up notice requirements
    • Claims
      • Detail impact
      • Advice regarding time and cost impact
      • Identify costs recoverable
      • Track your costs
      • Update as Reasonable
      • Project ahead as reasonable
  • What Options Are Available
    • Continue the work - Document impacts in writing- GCs may have to obtain or reaffirm commitments from subcontractors and vendors that they are willing and will be able to perform. If they are unwilling, then a replacement may need to be found. There will likely be impacts and claims and these may need to be passed through and thus it may be critical that claims procedures and documentation be followed up and down the contracting chain.
    • Owners may want to be prepared for how to deal with the delays and additional costs and may wish to look at their options to suspend work or terminate for convenience. There is a cost impact for each and may not be practical or advisable.
    • Suspension of the work - Most construction contracts provide that the work can be suspended. The length of suspension and obligations related thereto are identified in the contract as well as the compensation for the period the work was suspended. Some contracts only grant a time extension, with no compensation for delay or disruption. Again, check your contracts, subcontracts and vendor agreements if work is suspended to determine what is required under those contracts.
    • Terminate for convenience - The owner may have a contractual right to terminate for its convenience. Like suspension, compensation for such termination will depend on the contractual terms. Unlike suspension, a termination for convenience terminates the contract and the contractor will have to cease operations and take such actions as provided in the notice of termination, including terminating subcontract and vendor agreements and taking such actions as necessary to effectuate an orderly cessation of work and securing the jobsite. Contract language will generally control the actions to be taken.
  • Consider Other Contract Provisions
    • Business interruption, builder’s risk, and other insurance
    • Storage responsibility
    • Handling of paid for goods
    • Securing lien rights or limiting such rights
    • Notices of cessation of work
    • Project security
    • Safety compliance- address new COVID-19 requirements

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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