August 03, 2020 ARTICLE

COVID-19’s Impact on Construction: Treatment of Force Majeure Under Standard Form Contracts

Chris Cazenave, Bill Shaughnessy and William Underwood

With so many projects impacted by COVID-19,  now is the time to pull out your contract (contractors and project owners alike) and consider how the contract’s “delay,” “time extension,” “force majeure” clauses, and other legal theories allocate this unusual risk.  This article focuses primarily on the treatment of force majeure in standard form construction contracts, as well as typical language in public construction contracts that may provide relief.

 “Force majeure” clauses allocate risk of natural and unavoidable catastrophes that affect contract performance.  Most U.S. standard construction contracts (e.g., AIA and ConsensusDocs), federal, and most state and local public construction contracts do not use the term “force majeure,” and instead indirectly provide relief for force majeure events through delay and time extension remedial clauses. However, within this article, we use the term “force majeure” to cover all such remedial clauses.

What is a “Force Majeure Event?

Generally speaking, a force majeure event is unforeseeable and outside the contractor’s control—that is the starting point for an analysis under the form documents. COVID-19 certainly seems to be that. But the details of the specific contract language and how a project is impacted will ultimately determine the extent of force majeure relief as a result of COVID-19.

As discussed below, if your force majeure clause contains “epidemic,” “pandemic,” “outbreak of disease” or other similar terms, then COVID-19 almost certainly fits. However, some clauses limit relief to specific events involving nature (e.g., “severe floods” or “earthquakes”), and a court may strictly construe such precise clauses to exclude events not named, in which case COVID-19 is less likely to be covered.  Even interpretations of “acts of God” vary.  Some states limit acts of God to wars, riots, hurricanes, floods, epidemics, and natural disasters, and COVID-19 is more likely to be covered here. Other states look at “act of God” as something caused by nature. Most force majeure clauses list specific events, but also include “catch-all” language to generally cover unforeseeable delays that are not the fault of the contractor.

Nature of Relief

Most force majeure clauses only allow for an extension of time, and not a corresponding price adjustment.  But COVID-19 will almost certainly cause the cost of performance to increase. As a result, a contractor reacting too quickly and categorically by simply claiming force majeure may unnecessarily limit itself to only a time extension. Conversely, an owner that adamantly denies a time extension without compensation under a force majeure clause may find itself defending under another clause or legal theory that allows for contractor compensation. 

COVID-19 Under AIA Documents

The AIA A201-2017 General Conditions form, often incorporated by reference into the owner/contractor agreement, does not specifically use the term “force majeure”; however, Section 8.3.1 (Delays and Extensions of Time) includes some broad “catch-all” terminology that provides several examples of excusable time extensions for events outside the Contractor’s control, and may very well cover COVID-19 impacts:

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.

Therefore, COVID-19 impact could fall into a number of different excused events under the AIA documents, including “unusual delay in deliveries” and “other causes beyond the Contractor’s control”.

What if your company is thinking about terminating a contract in consideration of COVID-19 impacts?  AIA A201-2017, Article 14.1.1.2 of the A201-2017 (Termination or Suspension of the Contract) provides the Contractor the right to terminate the Contract if the Work is stopped for a period of 30 consecutive days through no fault of the Contractor for: “An act of government, such as declaration of national emergency, that requires all Work to be stopped.” Therefore, certain Contractors may be able to terminate the contract based on work stoppages caused by COVID-19.

COVID-19 Under ConsensusDocs

The ConsensusDocs standard forms almost certainly will allow contractors relief from COVID-19 delays. The ConsensusDocs 200-2017 Standard Agreement between Owner and Contractor in Article 6.3 specifically identifies “epidemics” as an excusable delay and gives the contractor the right to an equitable extension of time under the contract. Article 6.3 goes on to identify numerous examples of causes beyond the control of Contractors, including “adverse governmental actions” and “unavoidable…circumstances.”

ConsensusDocs provide contractors and owners with similar suspension or termination rights and remedies as the AIA documents for “national emergency or other governmental act.” (Articles 11.4 and 11.5).

COVID-19 Under DBIA

The standard DBIA form that incorporates the Standard Form of General Conditions (DBIA 535, 2010 version) defines Force Majeure Events to include events beyond the contractor’s control, including “epidemics.”  However, and unique from other standard contract forms, Section 8.2 of the DBIA form (Delays to the Work) expressly carves out Force Majeure events and prohibits a contractor from contract price adjustments for Force Majeure events, but allows such adjustments for other changes such as differing site conditions and hazardous conditions.

COVID-19 under EJCDC

The EJCDC Standard General Conditions (C-700) does not use the term force majeure, but like the DBIA form, specifically references “epidemics” as delays beyond the contractor’s control. Very likely a contractor would be entitled to equitable schedule extensions for COVID-19 impacts, as well as certain expenses for suspensions of work under the EJCDC form.

Federal, state, and local public construction contracts.

Federal procurement contracts do not use the term force majeure. Instead, they rely on time extension clauses for delays outside the contractor’s control. If you are working under a federal contract, your contract likely includes FAR 52.249-14 (Excusable Delays), which lists specific examples of excusable events of delay, including “epidemics” and “quarantine restrictions,” which should provide a contractor a time extension on the project for COVID-19 delays. If you are currently working on a federal project, check your contract to ensure FAR 52.249-14 is referenced and included. Also be sure to document all delay impacts and underlying facts to best present your schedule extension request to the Contracting Officer.

Similarly, most state and local procurement contracts do not use the term force majeure. As a result, your best bet in analyzing COVID-19 impacts is to review your excusable delay provisions, which should allow for time extensions.

Relief outside or without a force majeure clause.

If a contract does not contain a force majeure clause, the common law doctrine of commercial impracticability may supply a defense to COVID-19 impacts. Not all states recognize this defense, but it is codified in the UCC and included in the Restatement (Second) of Contracts. Also, do not forget to identify and analyze whether change in law provisions (if any) in your contract provide another means of potential relief.

COVID-19 Force Majeure Action Items

We recommend several key actions that you should immediately take to properly plan and evaluate for a force majeure event:

  • Review your contract. Identify key clauses implicated by COVID-19. What relief are you entitled to under these clauses? What do you need to do the preserve your rights (e.g., required notice) to claim this relief in terms of notice and other documentation? Many states demand strict compliance with notice requirements found in the form contract documents, and failing to comply with that technicality can render otherwise valid force majeure relief void.
  • Formulate a plan. All parties have a legal duty to mitigate COVID-19 impacts. Identify these impacts and the steps you can take to lessen their effect. Are there other scopes of work under the contract you could be performing despite all the governmental shutdowns? Maintain communication with clients, contractors, suppliers, etc. Monitor updates to legislation and other governmental orders, which continue to evolve and vary state to state.
  • Communicate to inform, not to agitate. Formal notices and other written and verbal communications among the parties should be precise, factual, and without emotion or hyperbole. The point is to inform, while also satisfying technical notice requirements. Think of how your communications will be received by the other party and how they will look to a third party (judge, jury, or arbitrator) in a worst case scenario. Will you appear reasonable, businesslike and looking for solutions, or just the opposite? It matters.

Division 2 strives to demonstrate that transactional work and Contract Documents do not have to be boring.  Division 2 members get together at each Forum conference for at least one fun event.  Division 2 has attended a Lakers/Clippers game, belly-danced on the tables at a Greek restaurant, and hit the batting cages and bowling lanes.  At the Midwinter Meeting in Tucson, Division 2 got to know its colleagues at Division 6 (Workforce Management & Human Resources) a little better with a speed networking lunch session.  While Division 2 knows how to have fun, it also knows how important it is to broaden its members’ networks and enhance their practice.  Division 2 holds monthly conference calls on the second Thursday of each month at 12 p.m. (Eastern Time).  Approximately 20 minutes of each call is dedicated to a “hot topic” (e.g., waiver of subrogation, limitations of liability, and contingency clauses), wherein Division 2 members openly discuss the pros/cons of these provisions, war stories, and drafting strategies.  Division 2 also publishes a bi-annual newsletter that highlights what AIA, ConsensusDocs, EJCDC and DBIA are up to and the new and revised contract forms that are planned.  To learn more about Division 2, contact Karen Denys, Division 2 Chair, at karen.denys@dbr.com or 609-716-6698.

Division 3: Design

Chair: Karen Erger (kerger@lockton.com)

The mission of Division 3, Design, is to provide practical knowledge concerning the problems and needs, risks and rewards, and duties and liabilities of each of the parties involved in the design process.  Division 3 accomplishes that goal through a variety of means, including the following:  

  • Hot Topics calls and webinars on current issues affecting design practice and design professionals.  Division 3’s 2019 Hot Topics presentations are listed below: 
    • Design Professionals’ Challenges with Geotechnical Engineers
    • Design Professionals and Fiduciary Duty
    • Delegated Design
    • Statute of Limitations: Generali-U.S. Branch v. Lachel & Associates, Inc.
    • Surety Bonds for Project Success
    • North Carolina’s New Anti-Indemnity Law
    • Standard of Care – What Does It Really Mean?
  • 50-state surveys of law relevant to design practice, including the following:
    • Firm Licensure Requirements for Architectural and Engineering Firms 
    • Licensed Design Professional Stamping and Sealing Obligations
  • Presentations at breakfast and lunch sessions at the Forum national meetings.  These have included a discussion of whether offering an apology is an effective strategy in construction mediation (Annual Meeting 2018), a roundup of statutory solutions to “duty to defend” indemnity clauses (Fall Meeting 2018), and a case study of the Kansas City Skywalk collapse (Midwinter Meeting 2019).
  • Information exchange through our Division 3/Design webpage at ABA Connect, where Division 3 members ask and answer questions about issues related to design practice, share new legal developments, and more.

A signature event of Division 3 is an annual outreach to design professionals in the community in which one of the Forum’s national meetings takes place.  This event comprises a networking reception and short informational program, and is typically well attended by both local architects and engineers and Division 3 members.

Fellowship and fun are the hallmark of Division 3, and its dinners at the Forum’s national meetings are always a blast.  Frequently, Division 3 also organizes a special tour or activity for its members and friends, such as the Los Angeles Conservancy Tour of Downtown LA (Midwinter Meeting 2019).

Division 3’s monthly calls take place on the first Wednesday of every month at 2 p.m. (Eastern Time), and all are welcome to join.  Unless otherwise announced (a different number is used for webinars), the call-in number is 866-646-6488, and the passcode is 9034065734.  Please contact Karen Erger, Division 3 Chair, at kerger@lockton.com with any questions.

Division 4: Project Delivery & Construction Technology

Chair: Tracy James (tjames@lawhssm.com)

Division 4, Project Delivery & Construction Technology, has monthly calls on the fourth Tuesday of each month at 12 p.m. (Eastern Time).  Each month, Division 4 focuses on a particular topic relevant to its mission to provide a forum for the study and discussion of legal issues related to varying systems of project delivery and construction technology. For example, the topic for our May 2020 call is “The Emerging Role of Robots in the Construction Industry” presented by Brett Holmes, MBP, and our June 2020 call will be on Virtual Realty Modeling.  

In addition to Division 4’s monthly calls, at each Forum conference, Division 4 members get together for a social dinner, and have a lunch presentation on topics germane to Division 4.  For materials or information related to past presentations, or to get involved with Division 4, individuals may contact Tracy James, Division 4 Chair, at tjames@lawhssm.com.  For future calls, the call-in number is 866-646-6488, and the access code is 6835243965.

Division 6: Labor & Employment

Chair: Jodi Taylor (jotaylor@brasfieldgorrie.com)

Joining forces with the Membership Committee, Division 11, and the Young Lawyers Division, Division 6 presented a CLE in Philadelphia entitled, “The Cannabis Question – What Construction Industry Employers Need to Know About Drug Testing, Policies, and Pitfalls Arising from Medical and Recreational Marijuana Laws.”  Division 6 member Christine Burke, a partner with Lorenger & Carnell PLC in Alexandria, Virginia, presented the program, and Phillip Russell, a partner with Ogletree, Deakins, Nash, Smoak & Stewart, P.C. in Tampa, Florida, co-authored the paper.  The event preceded the Fall Meeting in Philadelphia, and was a great success.  Thank you to all who were involved. 

Be on the lookout for Division 6’s regular column in Under Construction.  Each publication will include an article on a relevant labor and employment issue affecting the construction industry.  Division 6 is pleased to share its first installment in this edition discussing situations where a general contractor may be required to pay a subcontractor’s wages entitled, “General Contractors: Know Your Subcontractors (and Sub-subcontractors) or Pay the Price or, in this case, the Wage, Penalties, and Other Damages”, written by Jessica A. Hill, Esq., Dave O’Mara Contractor, Inc., North Vernon, Indiana.

Division 6 enjoyed a speed networking lunch with Division 2 during the Midwinter Meeting.  Many business cards were exchanged, and all agreed it was a great way to meet Forum members outside their own division.  Later that evening, Division 6 members met and mingled with members of Division 3, Division 9 and Division 12 during a gorgeous dessert dinner.

Division 8: International Construction

As part of the Forum’s continuing mandate to increase transparency within the divisions, Richard Wong - Chair of Division 8 (International Construction) created an organizational chart illustrating the various pathways of engagement using the Forum’s focus on “People”, “Programs”, and “Publications”.

Examples of such roles (with more detailed descriptions) include: member engagement, marketing, hot topic creation, national meeting activities, and generation of new ideas.

A copy of the chart is available on the Division 8 site or by contacting Richard directly at rwong@osler.com.

Division 9: Subcontractors & Suppliers

Chair: Neale Johnson (ntjohnson@foxrothschild.com)

Division 9, Subcontractors & Suppliers, holds monthly calls on the third Wednesday of the month at 12 p.m. (Eastern Time), except for July or months in which a Forum national meeting takes place.  During each call, Division 9 presents a 30-minute program on topics of interest to lawyers representing subcontractors and suppliers.  At national meetings, the Steering Committee meets to plan future events.  Typically, Division 9 also hosts a lunch presentation during the meeting and an evening social event.  To get involved, join the Division 9 ABA Connect community and call Neale Johnson at 336-378-5319 or ntjohnson@foxrothschild.com.  Division 9’s schedule for the rest of the 2020 ABA fiscal year appears below:

5/20/2020
Monthly Call:  Subcontractor Liens against Projects Contracted with Nonowners (e.g., Tenants, Developers, and Undisclosed Agents)

6/17/2020
Steering Committee Call (Report on Forum Planning Retreat)

7/15/2020
NO CALL—SUMMER BREAK.  May swap with 6/17/2020 call, depending on Forum Retreat scheduling.  New Division Chair to schedule individual calls with Steering Committee members

8/19/2020
Monthly Call:  Impact of Statutes of Limitations and Repose on Construction Defect Claims against Subcontractors

Division 10: Transportation, Energy & Environment

Chair: Ben Patrick (bpatrick@grsm.com)

In 2020, Division 10 will explore the future of transportation, energy, and the impacts of environmental change on the construction industry.  Developing, disruptive technologies have already begun to impact these sectors of the construction industry, and the pace of change is expected to accelerate for the foreseeable future.  Division 10’s monthly teleconferences will feature speakers from these industries, who will explore and explain these changes.

2x4x10 is the Division 10 Newsletter. It is published twice a year and is focused on publishing articles related to the energy, transportation and environmental industries, with a focus on legal developments and issues facing those industries.  Those interested in submitting articles can contact Asha Echeverria, aecheverria@bernsteinshur.com.  

Division 13: Government Construction

Chair: Paul Varela (pvarela@vlmglaw.com)

Division 13, Government Construction, is devoted to the unique legal issues and challenges arising out of federal, state, and municipal public construction contracting.  Although Division 13 is the Forum’s newest division, it boasts an extremely active and energetic membership.  New members are welcome to join and become active in speaking or writing for the Division.  

Division 13 has monthly Steering Committee calls on the second Wednesday of each month at 12 p.m. (Eastern Time), and all are welcome to participate.  

Members of Division 13 are encouraged to present “Hot Topics” relating to government construction on these calls.  Division 13 also publishes a quarterly newsletter on topics of interest to government construction, with articles contributed by its members.  

At the Forum conferences, Division 13 members gather for lunch and make presentations, sometimes jointly with other divisions (for example, at the Midwinter Meeting in Tucson, Division 13 and Division 12 jointly presented “The Tip of the Spearin: Notes from the Cutting Edge of Design-Related Owner Liability”).  Following the Thursday evening reception at the Forum conferences, Division 13 typically hosts a networking event for its members – at the Midwinter Meeting, Division 13 hosted draft cocktails and appetizers at a speakeasy.  

To get involved with Division 13, please contact Paul Varela, Division 13 Chair, at pvarela@vlmglaw.com.  For future Steering Committee calls, the number is 866-646-6488, and the conference code is 9436107144.

Entity:
Topic:

Chris Cazenave

Jones Walker LLP, New Orleans, LA, Division 1 (Litigation and Dispute Resolution)

Bill Shaughnessy

Jones Walker LLP, Atlanta, GA, Division 1 (Litigation and Dispute Resolution)

William Underwood

Jones Walker LLP, Atlanta, GA, Division 1 (Litigation and Dispute Resolution)