The government and market response to the COVID-19 pandemic is presenting novel and difficult legal issues and challenges across all industries. In construction in particular, with projects of all types and sizes at risk, industry and project financiers need to consider the impacts COVID-19 will have on a project.  Unfortunately, the virus has and will continue to disrupt supply and distribution chains, prevent trades and materialmen from working, complicate inspections and make credit less available to fund construction projects. These issues may disrupt and delay projects, and may affect projects for months to come. On a daily basis, state and local governments are issuing orders shutting down non-essential businesses. Whether construction projects are considered essential varies by state.  Who bears which risks posed by these shut-downs, disruptions and delays depends primarily on the language in the parties’ construction contracts.

Most construction contracts have “force majeure” or “acts of God” provisions. Force majeure events are generally unforeseeable circumstances beyond a party’s control that prevent a party from fulfilling or timely fulfilling a contract. Acts of God language refers to natural events such as storms, earthquakes and floods. Force majeure events include natural disasters — but often go further to include any event that occurs beyond a party’s control that could not be prevented by the exercise of prudence, diligence and care.

Whether COVID-19 will qualify as a “force majeure” or “act of God” under a contract depends on: (1) the specific terms of the clause governing the project; and (2) the specific manner in which COVID-19 impacted the project. For example, did a government or administrative body halt the project? Are necessary materials delayed in the supply chain? Are project personnel unable to work? 

Many form contracts often used in the construction industry do not have specific “force majeure” clauses, but they do have certain “excusable delay” clauses and compensation adjustment provisos in the face of certain force majeure events, which could include various project impacts caused by coronavirus.

COVID-19 Under AIA Forms

The AIA A201-2017 General Conditions form does not mention “force majeure,” “epidemics” or “pandemics.”  The language of Section 8.3.1 (Delays and Extensions of Time), however, still excuses some force majeure events:

"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."

Delays caused by COVID-19 may fall within several of these categories, including “unusual delay in deliveries,” “unavoidable casualties,” “other causes beyond the Contractor’s control” and “by other causes that the Contractor asserts, and the Architect determines, justify delay.”  This provision does not excuse the contractor’s performance; it only affords the contractor extensions of time. 

COVID-19 Under ConsensusDocs

The ConsensusDocs 200-2017 Standard Agreement between Owner and Constructor states in Article 6.3 that “[i]f the Constructor is delayed at any time in the commencement or progress of the Work by a cause beyond the control of the Constructor, the Constructor shall be entitled to an equitable extension of the Contract Time.”  It then lists several examples of causes beyond the contractor’s control, including “epidemics.” [1]  Other examples that may cover COVID-19 disruptions include “transportation delays not reasonably foreseeable,” “adverse governmental actions” and “unavoidable…circumstances.”  ConsensusDocs does protect contractors from delays caused by COVID-19.

Similarly, ConsensusDoc 410, the Standard Design-Build Agreement and General Conditions between Owner and Design Builder, provides in Section 6.3.1. that a design-builder is entitled to an equitable extension in time for certain “causes beyond the control of the Design-Builder” which include, among other items, “epidemics, adverse governmental actions, [and] unavoidable accidents or circumstances.”

ConsensusDoc 831, the Standard Owner and Construction Management Agreement, states at Section 1.1 that a "Construction Manager’s compensation, including any limitation on the amount, shall be equitably adjusted in the event of changes that alter the cost of or time required for performance of Services such as changes to the Project, the Project Schedule, the Trade Contracts, the Owner-Design Professional Agreement or the Work, or any other event or circumstance beyond the reasonable control of Construction Manager, including but not limited to force majeure[.]” Therefore, project impacts attributable to COVID-19 could also give rise to an equitable adjustment in a construction manager’s compensation.

COVID-19 Under F.A.R.

Those using the Federal Acquisition Regulation (FAR) form contracts are likely governed by 48 CFR § 52.249-14, which addresses excusable delays. While not expressly referred to as a “force majeure” clause, this provision dictates that a contractor will not be in default if the delay arises from causes “beyond the control and without the fault or negligence of the Contractor.”

The FAR goes on to list specific examples of such causes, many of which could be applicable to delays or defaults attributable to coronavirus: acts of God or of the public enemy; acts of the Government in either its sovereign or contractual capacity; epidemics; or quarantine restrictions. 

F.A.R.’s specific reference to “epidemics” or “quarantine restrictions” are categories under which coronavirus could fall. However, such specific reference to epidemics or quarantine restrictions is not the norm, especially in general commercial contracts.

COVID-19 Under FIDIC  (The Red Book – First Edition, 1999)

Under FIDIC’s Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer, the Force Majeure Provisions set forth at Article 19, provide that:

"Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) - (d) above are satisfied:[2]

(i)      war, hostilities (whether war be declared or not), invasion, act of foreign enemies,

(ii)    rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war,

(iii) riot, commotion, disorder, strike or lockout by persons other than the Contractor's Personnel and other employees of the Contractor and Sub­contractors,

(iv) munitions of war, explosive materials, ionising radiation or contamination by radio-activity, except as may be attributable to the Contractor's use of such munitions, explosives, radiation or radio-activity, and

(v) natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity."

Article 19 of the FIDIC Red Book does not refer to an epidemic or pandemic, although it otherwise provides an extensive listing of force majeure events. However, it is possible that a court or international tribunal would classify COVID-19 as a natural catastrophe.

Notwithstanding the above provisions present in some construction contracts, most contracts still require the contractor to mitigate damages and to comply with relevant notice and claim provisions in the contract. Moreover, the force majeure or act of God event must be the proximate cause of the delay – no other act could have caused the delay and no other act could have prevented the delay.

Ultimately, the interaction between COVID-19 and the rights and obligations of various project parties depends on the specific terms of a contract, along with how and why coronavirus is affecting a project. 

Some practical tips for evaluating your exposure to COVID-19 delays and disruptions include:

• Review contracts for:
  • Force majeure language
  • Excusable delay provisions
  • Notice and claim requirements that may be triggered by the response to COVID-19
  • Material price escalation provisions

• As a contractor or subcontractor, mitigate damages caused by COVID-19, including protecting project workforce from contracting COVID-19, contacting suppliers to plan ahead, and communicating with owners to develop contingency plans if suspensions are mandatory or prudent;
• As an owner or contractor, document every delay and how it was caused so you are able to later identify which delays were caused by COVID-19 or for another reason; and
• As a contractor, notify the owner and architect in writing when delays occur, taking care to meet contract requirements.

[1] The CDC defines an “epidemic” is “an increase, often sudden, in the number of cases of a disease, above what is normally expected in that population in that area.”  The CDC defines “pandemic” as “an epidemic that has spread over several countries or continents, usually affecting a large number of people.”  Therefore, while Coronavirus has generally been referred to as a “pandemic”, it could be expected to fall within the definition of an “epidemic” as well.  https://www.cdc.gov/csels/dsepd/ss1978/lesson1/section11.html.

[View source.]