August 03, 2020 Feature

AIA A201-2017 Revisions for Owners’ Contracts Post-COVID-19

Rhian Cull and Lexie Pereira

The ramifications of the COVID-19 pandemic on live construction projects is the subject of numerous articles. This article looks at the changes owners should make to the AIA A201-2017 general conditions to protect themselves and address, as best they can, the realities of construction projects post-COVID-19.

Going forward, the single biggest issue for owners to consider is whether they should diverge from the long-established principle that a “force majeure” event entitles the contractor to an extension of time, but not to compensation for additional costs incurred as a result of such delay. Owners who choose to hold to the established principle should be prepared for a tough negotiation in a post-COVID-19 world where contractors now understand the painful implications of that standard. For those owners who are willing to deviate from the principle, and allow the recovery of additional costs resulting from force majeure impacts, we recommend the following amendments to the AIA A201-2017 so as to clearly define exactly which delays will be excusable and which costs may be recovered, as well as stipulating the substantiation required to justify relief (in terms of both time and money).

Sharpen the “Force Majeure” Clause

§ 8.3 Delays and Extensions of Time
§ 8.3.1 If the Contractor’s critical path activities are delayed… (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, pandemics or epidemics, … or other causes beyond the Contractor’s control; … or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time, net of any float in the schedule and any preceding or concurrent delays (for which the contractor is responsible), shall be extended for such reasonable time as the Architect may determine based on the Contractor’s substantiation of unavoidable delays to the critical path and the Contractor’s documented efforts to mitigate such, in accordance with Section 15.1.6.1. Notwithstanding anything to the contrary, nothing in this section excuses preceding contractor-caused delay.

As a first measure, owners should seek to define exactly which delays are excusable. Both owners and contractors will be well-served by expanding the definition of ‘excusable’ delays in § 8.3.1 to specifically include “pandemics” and “epidemics.” However, this revision to § 8.3.1 alone is insufficient to allocate the risks inherent in current COVID-19-related impacts because § 8.3.1 addresses “force majeure” events, which are by definition future unknown events outside of both parties’ control. Accordingly, owners should add specific COVID-19-related provisions, which may allow for COVID-19, but not all “force majeure” events to be considered excusable, compensable delays (see below).

Add a Bespoke COVID-19 Provision      

§ 8.4 Delays, Disruptions, Suspensions, or other Impacts Arising out of or Relating to COVID-19
§ 8.4.1 If the Contractor is delayed at any time in the commencement or progress of the Work by causes beyond the Contractor’s control directly arising out of or exclusively related to COVID-19 and/or any governmental, regulatory actions, and/or orders arising out of or exclusively relating to such (collectively, “COVID Delays”), Contractor may be entitled to an equitable adjustment to the Contract Time and Contract Sum to account for any such delays, pursuant to Sections 8.4.1.1 and 8.4.1.2.
§ 8.4.1.1 In the event of a COVID Delay, an equitable adjustment of the Contract Time shall consist of a one day extension of the Contract Time for each day of delay to critical path activities, net of any float, if, and only if, the Contractor provides documentation substantiating: (a) the COVID Delay impacted the critical path of the Work, (b) there is no remaining float in the schedule,  (c) Contractor undertook reasonable efforts to avoid or mitigate the impacts of the COVID Delay, and (d) there is no concurrent delay for which the Contractor is responsible. The Contractor’s documentation shall include an updated critical path schedule, a recovery plan, and an estimate of cost and of probable effect of the COVID Delays on progress of the Work.
§ 8.4.1.2 In the event of a COVID Delay, an equitable adjustment of the Contract Sum shall consist of the reasonable, unavoidable, direct and verified additional costs incurred by the Contractor which are solely attributable to a COVID Delay, if, and only if, the Contractor provides documentation of such costs (including the original prices and/or estimates) and evidence of Contractor’s reasonable efforts to mitigate the same. In addition, the Contractor shall establish new cost codes to track all expenses related to the COVID Delays, any subsequent disruptions and loss of productivity, and submit documentation of such as part of its Claim. These cost codes should include (1) extended General Conditions costs, (2) additional costs of demobilization and remobilization and ‘make safe’ work, (3) production inefficiency resulting from labor shortages and COVID-19 constraints, such as social distancing, and (4) all other quantifiable expenses exclusively arising out of or related to COVID Delay.

Both parties will benefit from the clarity that will be achieved via the addition of a COVID-19 specific provision. This provision should clearly identify which COVID-related delays will be excusable and stipulate the documentation which a contractor must submit in order to prove entitlement to an extension of time. Such a provision may or may not allow COVID-related impacts to be compensable events, again, provided that contractors document their increased expenses, reasonable mitigation efforts, and create new COVID-19 costs codes.

Modify the Claims for Additional Cost and/or Time Provisions

§ 15.1.5 Claims for Additional Cost
If the Contractor wishes to make a Claim for an increase in the Contract Sum, … The Contractor shall establish new cost codes to track all expenses related to the delay, disruption and loss of productivity and submit documentation of such as part of its claim.

Regardless of whether owners divert from the long-standing “force majeure” principle, the contractor should specify (a) precisely which additional costs are compensable and (b) the substantiation required to establish entitlement. The proposed revisions to § 15.1.5 require the contractor to establish new discrete cost codes for each additional expense category. This revision forces contractors to implement precise recordkeeping, intended to reduce the possibility of a subsequent total cost claim by requiring that contractors separately track the costs of the negative impacts to a project, including (1) costs arising solely as a result of extensions of the Contract Time, (2) additional scope for demobilization and remobilization, and (3) production inefficiency while working with COVID-19 constraints, such as social distancing.

§ 15.1.6 Claims for Additional Time
§ 15.1.6.1 If the Contractor wishes to make a Claim for an increase in the Contract Time, …The Claim shall include an updated Project Schedule, the Contractor’s proposed recovery plan, and an estimate of the additional costs and of probable effect of delay on progress of the Work…  Contract Time may only be increased for delays to the critical path, net of any float. In addition, there shall be no increase in the Contract Time for concurrent delays for which eth Contractor is responsible.

Regardless of whether an owner chooses to divert from the long-established “force majeure” principle of ‘time not money’, owners should revise § 15.1.6.1 to specify the documentation a contractor must provide to prove entitlement to a claim for additional time. To avoid future disputes regarding extension of time claims, owners should require the contractor to produce an updated schedule at the outset of the delay. This schedule update should identify all preceding and any concurrent delays, confirm critical path activities at the time the impact of the “force majeure” event, and provide the basis to establish extension of time entitlement, as provided in §8.3.1.

4.     Limit Contractor’s Termination Rights

§ 14.1 Termination by the Contractor
§ 14.1.1 The Contractor may terminate the Contract if the Work is stopped for a period of the longer of  120 consecutive days or 100% of the total days scheduled for completion through no act or fault of the Contractor…

Lastly, in a post-COVID-19 world of delays of unknown duration, owners may consider extending the time by which a project is suspended before the contractor’s right to terminate may be invoked. Of course, a more aggressive approach would be to completely eliminate a contractor’s right to terminate regardless of the duration of the suspension. An owner’s effort to alter a contractor’s right to terminate for delay will almost certainly be met with a renewed effort by the contractor to be paid for the delay which, therefore, brings us back to the single biggest issue that all owners have to address.

Conclusion

In conclusion, whether owners decide to divert from the long-established position that a force majeure event results in an extension of time, but not necessarily to the payment of additional costs, will greatly impact the necessary revisions to their contracts. Prudent owners would do well to implement the suggested AIA A201-2017 revisions herein so as to protect themselves in future post-COVID-19 construction contracts. Owners should be prepared for tough negotiations with contractors who are still weathering the COVID-19 storm, while also remembering that it is the owner, not the contractor, who benefits from the project once all is said and done.

 

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Rhian Cull

Goulston & Storrs, Boston, MA

Lexie Pereira

JD/MBA candidate, Boston, MA, Division 1 (Litigation and Dispute Resolution)