COVID-19 Effects on Clauses in Construction Contracts
by Danielle Maya, Cotney Construction Law
(Editor’s Note: Danielle Maya is a partner at Cotney Construction Law and has over 20 years of experience as an attorney. Cotney Construction Law is an advocate for the roofing industry and General Counsel of Western States Roofing Contractors Association. Maya can be reached at (866) 303-5868.)
The spread of COVID-19 has nearly grinded the United States economy to a complete halt, and the effects from this pandemic will be long-lasting and devastating. One industry that the pandemic is wreaking havoc on is construction because it is disrupting every aspect of the industry from the supply chain and labor force to project delays and uncertain lenders. Many construction businesses that are feeling the effects of COVID-19, which is resulting in disruptions to their projects, are asking if this pandemic will excuse delays or non-performance under a force majeure clause in their contract. The answer to whether you will be excused will rely, among other factors, on the specific language of the force majeure clause and the specific facts at issue.
A force majeure clause is a contract provision that relieves a party from performing their contractual obligations when certain circumstances outside the party’s control make performance impossible or impracticable. The provision is based on a fairness principle because it allows a party to extend, suspend, or terminate a contract due to an unexpected and unavoidable event that the party had no control over such as earthquakes, hurricanes, and tornados. Without a force majeure clause in place, there would be great uncertainty as to who would bear the risk if a force majeure event did occur. Even though some contracts have force majeure clauses in place, an unforeseen event, such as the COVID-19 pandemic, may not fall within the protection offered by the clause depending on how it was drafted.
The first step one should take is to carefully review the contract to determine what a triggering event is within the force majeure clause and whether the issues they are facing were caused by the triggering event. For example, the current COVID-19 pandemic might fall under the category of widespread epidemic, pandemic, and/or public health emergency. Additionally, the issue caused by this pandemic is that travel is prohibited or employees have become infected, which results in delays to the completion of the project. If you believe that COVID-19 might be a force majeure event, you will want to also carefully review the notice and dispute resolution provisions within the contract. The contract will most likely set forth information about required procedures, notices, and other information if a circumstance is considered a force majeure event and a party will want to make sure they comply with any specific requirements.
Force majeure clauses in a contract are put in place for exactly the type of situation that COVID-19 is causing. This is one of the reasons why it is important to have a well-drafted contract, because it needs to prepare you for an event that is out of your control and unforeseeable. In any event, it is important to remember that almost everyone is feeling the effects from COVID-19 to some degree and it is important to maintain good relationships during these turbulent times. Thus, it is key to keep in contact with all your customers and keep them up to date on the current status of the company so that the parties can resolve any problems or disputes that may arise instead of taking the matter to court. If COVID-19 is causing disruptions to your construction project and you are unsure whether there is any relief under your contract, contact a local experienced construction attorney to help you assess the situation.