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Construction Contracts in the COVID Era

Credit: EBA Engineering

By David A. Blake for GlobeSt.com 

Those entering into new construction contracts should include custom language addressing the parties’ respective rights and responsibilities related to COVID-19. Many articles and webinars have focused on how traditional contract clauses in existing contracts may respond to COVID-19 issues. The fit is not always clear. Some guesswork is involved and creativity is called upon as square pegs are coaxed into round holes. While there is a need to perform that retrospective analysis to assess how COVID-19 issues will play out under existing contracts, there is no need to propagate uncertainty in new contracts. Uncertainty can cause parties to shy away from new contracts or include significant contingencies, neither of which supports an industry trying to recover from the pandemic. 

This article addresses custom COVID-19 language for new construction contracts. (Read the entire article here.) The principles discussed can be applied to any construction contract. This article is based on two construction contracts for which I successfully drafted and negotiated custom COVID-19 language. One is a private project and the other is a public project. Some of the views expressed during those negotiations are weaved into the discussion to provide both sides’ perspective. 

Contract Clauses and Issues 

Just like a building needs a solid foundation, new COVID-19 language in a contract should start with key definitions on which the parties’ rights and responsibilities will be built. Four terms to define upfront are COVID-19, COVID-19 Proclamations, COVID-19 Condition, and Unknown COVID-19 Condition. 

Everything ties back to COVID-19, so define that term first. Consider a definition that includes both the virus and the disease it causes, such as: “The 2019 novel coronavirus and the disease it causes are collectively referred to herein as COVID-19.” 

Next, pick a term, such as COVID-19 Proclamations, to capture the orders, directives and guidance concerning COVID-19 that have been issued, and which may be issued, by public bodies with jurisdiction over the project. Those orders, directives and guidance may require the project to shut down or otherwise increase the contractor’s cost or time of performance by calling for things such as social distancing and the use of personal protective equipment. Having a term for that collection of orders, directives and guidance is helpful when allocating the parties’ rights and responsibilities pertaining to them. 

Delay 

In many construction contracts, one of the criterion for an excusable delay is it must be unforeseeable. Contractors may be concerned that in new contracts all delays related to COVID-19 will be deemed to be foreseeable because the parties were aware of the COVID-19 pandemic when they signed the contract. This is the type of uncertainty that can arise if standard clauses are not clarified.  

Owner Directed Suspension 

The owner may want to suspend work at the project site due to COVID-19 health concerns even though the contractor is allowed to proceed with the work based on COVID-19 Proclamations. This may be more likely for sites partially occupied by the owner during the course of construction. If the contract provides the owner the right to suspend the work for its convenience, then one approach is to add language that describes this type of a suspension and states it will be deemed to be a suspension for the owner’s convenience with the contractor having the corresponding remedies stated in the contract for such a suspension. If the contract does not allow the owner to suspend the work for reasons other than the contractor’s breach, then consider adding a new section specifically addressing the owner’s right to suspend work due to COVID-19 health concerns and the relief to which the contractor is entitled for that suspension. 

Compliance with COVID-19 Proclamations 

Include a section that states the contractor is required to comply with COVID-19 Proclamations in the performance of the work. This is true irrespective of when the COVID-19 Proclamations are issued. The timing of their issuance (before or after the contract or GMP amendment is signed) will affect whether the contractor is entitled to an equitable adjustment for such compliance, but not whether compliance is required.  

Compensation for COVID-19 Costs 

The last significant issue to address is the contractor’s right to be paid for COVID-19 costs, including, but not necessarily limited to, price escalation due to COVID-19 supply disruptions and the cost of complying with COVID-19 Proclamations. This critical language should strike a fair balance to achieve the twin goals of dissuading contractors from including excessive COVID-19 contingencies in their lump sum bids and GMP proposals, and encouraging lenders and owners to commit their funds to new projects. 

Read more at GlobeSt.com. 

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