August 03, 2020 Feature

Post-COVID-19 General Conditions Revisions for Contractors

Tony Starr and Lexie Pereira

COVID-19 continues to have devastating impacts on the world, but few industries are more equipped to start rebuilding than the construction industry. While some projects were allowed to continue operations during COVID-19, or will soon restart based on existing contracts, other construction projects are in the planning and contract preparation phases. Contractors planning for new projects should consider the many lessons learned thus far from the pandemic and seek to revise their new contracts accordingly. Below are five helpful ways contractors can revise their AIA A201-2017 general conditions to reflect the realities of construction projects following the outbreak of COVID-19.

Allow Email Notice

§ 1.6.2 Notice of Claims as provided in Section 15.1.3 shall be provided in writing and shall be deemed to have been duly served only if delivered to the designated representative of the party to whom the notice is addressed by certified or registered mail, or by courier providing proof of delivery. Notwithstanding anything to the contrary, the Contractor may provide e-mail Notice to the designated representative of the party to whom the notice is addressed if presented with delays under Section 8.3.1, sub-part (3) and/or delays, disruptions, suspensions, or other impacts under Section 8.4.

At the outset of COVID-19, and particularly in reaction to government-mandated stop work orders, most contractors quickly provided notice of delay to their project owners. However, since most administrative staffs were already working from home, e-mails became the practical way to put owners on notice. Although many owners were amenable to e-mail notice, such notice was technically insufficient under § 1.6.2 and, therefore, could afford an owner a lack of proper notice defense. In addition to including the language above, contractors should ensure that the email addresses of designated representatives are documented in this section or on the cover page.           

Clarify the Compliance with Law Provision

§ 3.7.2 The Contractor shall comply with and give notices required by applicable laws, statutes, ordinances, codes, rules and regulations, and lawful orders of public authorities applicable to performance of the Work (together “Applicable Law”). If there is a change in Applicable Law after the agreement has been signed by the parties, then the Contractor shall comply with that change and be compensated for the reasonable and verified additional costs of said compliance by Change Order, pursuant to Article 7.       

The AIA A201-2017’s compliance with law provision is typically silent on which party bears the costs of the contractor complying with a change in law that occurs during contract performance. Some courts have held where the contract is silent, the risk is on the contractor since the contractor has agreed it shall comply with all Applicable Laws (without qualification). The current COVID-19 crisis has shown us that public authorities will impose additional safety measures on construction and other business operations when confronted with a public health crisis. Prudent contractors should heed the lessons of COVID-19 and include language that places the risk of added costs due to a precipitous change in law on the owner.

Expand the “Force Majeure” Clause     

§ 8.3 Delays and Extensions of Time
§ 8.3.1 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 (including, but not limited to, labor and/or material shortages, supply chain disruptions, delays to deliveries, and Owner, government, or regulatory actions, such as stop work orders, arising out of or relating to quarantines, embargos, travel restrictions, virus, disease, contagion, or any other widespread communicable disease, such as epidemics or pandemics); (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.

Although most delays arising out of or relating to COVID-19 were, at least at the outset, covered by the AIA A201-2017’s excusable delay clause, many contractors realized a surprising gap in the clause: there was no mention of a pandemic. While there is no way to predict the next force majeure event, it is especially prudent to fill the gap by specific mention to pandemics and other widespread communicable diseases given the tremendous impacts of COVID-19. In addition, though many owners will have some pause, contractors may consider adding language that allows for adjustments to the Contract Sum when faced with a force majeure event.

Add a COVID-19 Excusable Compensable Delay 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, disrupted, suspended, or otherwise impacted at any time in the commencement or progress of the Work by causes beyond the Contractor’s control arising out of or related to COVID-19 and/or any governmental, regulatory actions, and/or orders arising out of or relating to such (collectively “COVID-19”), including, but not limited to, (1) disruptions to material and/or equipment supply; (2) illness of Contractor’s workforce and/or shortage or unavailability of labor; (3) delayed inspections or permit approvals, (4) government quarantines, shelter-in-place orders, closures, or other mandates, restrictions, and/or directives, including those relating to social distancing; (5) Owner or Contractor restrictions and/or directives; and/or (6) fulfillment of Contractor’s contractual or legal health and safety obligations, including personal protective equipment, then Contractor and its Subcontractors and suppliers shall be entitled to an equitable adjustment to the Contract Time and Contract Sum to account for any such delays, disruptions, suspensions, and/or impacts.
§ 8.4.1.1 In the event of such a delay, disruptions, suspension, or other impact, an equitable adjustment of the Contract Time shall consist of a one day extension of the Contract Time for each day of delay to Work on the critical path, as indicated in the construction schedule, arising out of or related to COVID-19. Contractor and its Subcontractors and suppliers shall not be required to prove that such delay is not concurrent with any other delay, and Contractor and its Subcontractors and suppliers shall not be required to use float for such delay.
§ 8.4.1.2 In the event of such a delay, disruption, suspension, or other impact, and provided that Contractor presents documentation of such increases (including the original prices and/or estimates) and evidence of Contractor’s reasonable efforts to mitigate such delay, disruption, suspension, or other impact, an equitable adjustment of the Contract Sum shall consist of the reasonable and verified additional costs in performing the Work to the extent directly and solely attributable to COVID-19 and to the extension of time arising out of or related to COVID-19, including without limitation extended general conditions, actual increased costs of Subcontractors and suppliers, and increased labor and materials costs.      

Solely expanding the § 8.3.1 delay clause is simply not enough given the realities of COVID-19; especially since these COVID-19 delays are no longer entirely “beyond the Contractor’s control” and are now foreseeable as COVID-19 appears likely to impact construction until at least 2021 and the hoped for discovery of a vaccine. As such, contractors should add a specific COVID-19 clause, which states that COVID-19 is an excusable compensable delay. The language above is quite broad, covering most of the issues arising from COVID-19. In addition, the parameters to allow for an extension of time and price are reasonable and likely to receive less owner push-back (besides, perhaps, that there be no requirement for the contractor to use float). For example, time extensions are only granted if COVID-19 affects the critical path. Similarly, adjustment to the Contract Sum is dependent on the contractor providing reasonable mitigation efforts and documentation of such. While the response to a proposed COVID-19 clause will be entirely owner-specific and likely a point of negotiation, contractors should seek clear contract language that known and future costs due to COVID-19 will be paid for by the owner, subject to appropriate mitigation, verification, and transparency.

 Permit Contractor to Terminate for COVID-19            

§ 14.1 Termination by the Contractor
§ 14.1.1 The Contractor may terminate the Contract if the Work is stopped for a period of 30 consecutive days through no act or fault of the Contractor, a Subcontractor, a Sub-subcontractor, their agents or employees, or any other persons or entities performing portions of the Work, for any of the following reasons:
.1     Issuance of an order of a court or other public authority having jurisdiction that requires all Work to be stopped;
.2     An act of government, such as a declaration of national emergency, that requires all Work to be stopped;
.3     Because the Architect has not issued a Certificate for Payment and has not notified the Contractor of the reason for withholding certification as provided in Section 9.4.1, or because the Owner has not made payment on a Certificate for Payment within the time stated in the Contract Documents; 
.4     The Owner has failed to furnish to the Contractor reasonable evidence as required by Section 2.2; or
.5     Causes beyond the Contractor’s control arising out of or related to COVID-19 and/or any governmental, regulatory actions, and/or orders arising out of or relating to such.

Similar to item three (3) in this article, terminations due to COVID-19 were likely covered by the standard AIA A201-2017 language. However, this may no longer be the case since contractors now have the foresight of COVID-19. Future contracts should appropriately account for terminations, and specifically those related to COVID-19.

Conclusion

In conclusion, contractors should be sure to account for the effects of COVID-19 when drafting new construction contracts post-COVID-19. Hopefully, reasonable owners seeking to move forward with new construction projects in these uncertain times will be open to negotiating fair terms that fairly place on the owner the added costs of doing work under current and future COVID-19 rules. After all, it is the owner who remains the ultimate beneficiary of the construction project. Nonetheless, contractors should demonstrate lessons learned by implementing sound contract language, starting with their AIA A201-2017.

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Tony Starr

Mintz Levin, Boston, MA

Lexie Pereira

J.D./M.B.A. candidate at Boston College Law School