COVID-19 and the Construction Industry: Important Considerations (For Information Purposes Only Not Intended as Legal Advice)

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COVID-19 has created a severe disruption to the construction industry. Certain jurisdictions, including Boston, San Francisco and Pennsylvania, have placed restrictions on construction projects deemed “nonessential” and require waivers for certain projects to continue. Owners, contractors, suppliers and others may currently have more questions than answers. This article addresses some important concerns, and provides links to additional resources that more specifically address these concerns.

Health and Safety

Health and safety remain a primary concern of owners, contractors and suppliers navigating the impacts of COVID-19. Most construction projects require multiple individuals working together, often in close spaces. So all parties should revisit their health and safety policies and train employees on how to best combat the new risks associated with COVID-19. Parties may also want to implement new policies to ensure procedures are in place in case of infection, including plans to comply with the Centers for Disease Control and Prevention’s recommended mitigation practices. Finally, continue to follow all federal guidelines and monitor the Occupational Safety and Health Administration (OSHA) for updates. Additional information about COVID-19 and OSHA can be found here.

Check State and Local Restrictions

Responses to COVID-19 have widely varied throughout the country. Your jurisdiction may have imposed restrictions on construction projects. These may include enhanced safety requirements, suspension of “non-essential” or “non-emergent” projects, or requiring you to obtain a waiver or exemption to continue work. In addition to reviewing state and local guidance to determine if you must obtain a waiver or exemption, you should also consider whether your work fits within the U.S. Department of Homeland Security, Cybersecurity and Infrastructure Security Agency’s critical infrastructure advisory. Most states and local jurisdictions review each request for a waiver on a case-by-case basis. Some jurisdictions have created waiver forms to expedite the waiver-seeking process. In other jurisdictions, it could be as simple as a call to the designated state or local official.

The consequences for noncompliance can be severe. Enforcement and penalties vary by state and may include ineligibility for state aid, license suspension, shutdown orders, fines and criminal enforcement. There could also be penalties for a business making false statements to government officials about the essential nature of its operations in an effort to remain open. In New York, for example, the essential business application must be made subject to penalties of perjury.

Review Your Contracts

Owners and project sponsors should examine their contracts with lenders to determine whether and how delays might affect their ability to service debt and continue to pay project costs. Contractors should review their contracts, focusing on provisions related to notice requirements, compensable delays, changes to work, termination rights and force majeure clauses. Force majeure clauses are common contractual provisions that may excuse performance when events outside the parties’ control, like weather, public health crises, or federal or state government orders, make performance impossible or untenable. Whether performance is excused depends on several factors, including the contractual language and the relevant jurisdiction. Note, even when performance is excused, the relief available will often depend on the language in the contract, and thus close attention must be paid to the relief that is being sought and the basis for such a request. Additional information about force majeure provisions can be found here.

Communication and Relationship Management

During these uncertain times, communication is key. Navigating performance and delay issues with an adversarial partner may prohibit the free exchange of information. Notwithstanding any express or implied contractual good-faith requirements, owners and contractors should consider how they intend to discuss questions of contractual performance. Despite its benefits, contractors should not rely solely on the goodwill of a cooperative owner, and should closely adhere to all contractual notice requirements. Doing so will help to reserve your rights if litigation later ensues.

Exercise of Statutory Rights

Contractors supplying labor, materials or equipment to construction projects affected by project delays and shutdowns should closely monitor whether and when to invoke statutory remedies, including mechanics’ lien notices, stop payment notices and bond rights. Deadlines to enforce mechanics’ lien rights may turn on when the contractor completes work on the project. Although project suspensions may be temporary, project funding issues may present payment risks to contractors, subcontractors and suppliers. Thus, notice deadlines may already be triggered. Additional information about impacts to statutory remedy deadlines can be found here.

New Contracts

Contractors may be currently bidding on, or negotiating contracts for, projects that could be delayed due to COVID-19. Those negotiating new contracts should ensure that owners/project sponsors have adequate funding, and that contractors have adequate protections in the event of owner default. Contractors may want to seek new or alternative sources of supply to avoid areas heavily affected by COVID-19 or facing travel restrictions. Contractors may also want to seek additional protections against cost fluctuations in materials and equipment and project delays. Parties that take steps to protect themselves during the negotiation stage will be best suited to manage the risks associated with COVID-19’s global impact.

Developments throughout the country and the world are rapidly changing. We will continue to provide relevant updates on issues impacting the construction industry. If you have further questions or seek advice based on your specific facts, Pepper Hamilton and Troutman Sanders maintain a COVID-19 Dedicated Resource Center to help guide clients through the challenges presented by COVID-19.

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