Many contracts contain clauses that provide or deny relief on the basis of “causation” (i.e., time extensions when delay is caused by one party or is outside the reasonable control of the other). This approach does not work very well with COVID-19 impacts. How do you attribute causation for COVID-19-related impacts? Do you blame the person who tests positive? If one of the contractor’s employees shows up to the job site for work, starts feeling bad, goes home, and tests positive for COVID-19, who is to blame for a shutdown or mandatory quarantine? What if the owner’s representative was COVID-19-positive but asymptomatic and untested and gave it to the contractor’s employee in the preceding days? What if a worker follows all of the COVID-19-related protocols and catches COVID-19 anyway? Are they to blame? What if 20 workers gather together, ignoring social distancing and nobody has COVID-19? Nobody will catch COVID-19 from that interaction. What about workers who have already had it or have been vaccinated and presumably have some level of immunity?
Without belaboring the point, there are many potential complications that arise in trying to use a causation-based system to deal with parties’ rights and responsibilities with respect to COVID-19 impacts. It is recommended that the parties negotiate a teaming approach. Parties have been able to work out issues related to schedule float and contingencies in the past. A similar approach is suggested for COVID-19.
Perhaps the most discussed contract clause related to COVID-19 is the force majeure clause. Force majeure clauses are designed to address the risks of significant and unexpected events on the level of an act of God. Not all force majeure clauses are equal. The obligations and relief afforded vary by clause. Here is one example:
Neither party shall be held liable to the other party for failure or delay in fulfilling or performing any obligation under this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party which are unforeseeable, including but not limited to fire, floods, hurricanes, tornadoes, embargoes, war, acts of war, acts of terrorism, insurrections, riots, epidemics, civil commotions, strikes, lockouts or other labor disturbances provided, however, that the party so affected shall use commercially reasonable efforts to remove such causes of nonperformance, and shall continue performance hereunder with reasonable dispatch whenever such causes are removed. Either party shall provide the other party with prompt written notice of any delay or failure to perform that occurs by reason of force majeure.
Clauses similar to this are very common. COVID-19 has exposed some problems in such clauses. Notice that the conditions in the clause above do include “epidemics.” That is potentially helpful. Also notice that under this clause, in order for an event to constitute a force majeure, the cause of the failure or delay must have been unforeseeable. Prior to COVID-19, concepts such hurricanes, fires, floods, and acts of war, were typically unforeseeable, so many people may have given this qualification little consideration. In a COVID-19 environment, we must consider whether the requirement that it be “unforeseeable” needs to be adjusted. Does the epidemic, or the impacts on the project, need to be unforeseeable in order to entitle a party to relief? Given the widespread impacts of COVID-19, one could hardly argue that it was unforeseeable, but multiple job shutdowns may be.
Notice that the clause above talks about causation. To qualify for relief, the impact must be “caused by or result from causes beyond the reasonable control of the affected party.” As discussed above, the issue of causation should not be overlooked. Causation may be a very difficult concept to nail down. It is recommended that the parties negotiate a separate COVID-19 clause to specifically deal with the uniqueness of the pandemic. The focus should be on following rules and guidelines and not whether someone ultimately gets sick or not.
There are many standard clauses that require notification within a short period of time of circumstances that could cause a potential delay. These clauses should be adjusted such that neither party has to give the other a meaningless notice on the potential for a COVID-19 impact. A more prudent approach should require specific notices under more narrowly tailored circumstances that mean something in the COVID-19 environment. Some examples would be providing notice when an employee or subcontractor reports a positive test or someone reports feeling sick. Parties need to carefully consider what information is important in this context and adjust these clauses (or have a separate COVID-19 set of provisions) that provide meaningful notice at the right time. Parties also need to ensure they are not trying to contractually require someone to violate labor, employment, and healthcare privacy laws.
Changes in the Law
Equal care and consideration must be given to clauses related to changes in the law. Change-in-law clauses give one party relief when a law changes after contract execution if it affects price or schedule. Some clauses grant relief for changes in the law after execution of the contract but only in those circumstances where the change was unforeseeable. The idea of such a clause is to account for situations in which one party knows that a change in the law during the pendency of the project will occur and will have some quantifiable effect that should be addressed in the pricing at contract time. While COVID-19 restrictions, limitations, temporary shutdowns, etc., are foreseeable, the financial and scheduling impact probably is not foreseeable enough to be priced into the contract. Accordingly, parties need to carefully consider the definition of changes in the law and determine whether it should account for temporary “stay at home” orders of governors and local health departments.
On-Site Impacts Caused by Off-Site Problems
Many contract clauses will condition relief on impacts that occur on the project site. With COVID-19 and potential international and state travel restrictions, parties need to carefully consider whether these sorts of clauses need to be adjusted to account for the risks associated with travel bans.
A contractor that encounters problems on a project has a number of different approaches to deal with the impacts. The contractor may receive
- schedule relief and additional compensation;
- schedule relief but no additional compensation;
- no schedule relief, an order to accelerate, and additional compensation; or
- neither schedule relief nor additional compensation.
In negotiating the contract, the parties should carefully consider whether COVID-19 impacts require a different approach than other types of delays.
Contracts need to be reconsidered in this new environment. The clauses that parties were used to agreeing to in the past may not fit well with the nature of COVID-19 and its impacts. Parties are advised to consider establishing some terms and conditions for dealing with COVID-19 in the event they want to keep their traditional approach for all other issues.