Editor's Note: The following is a guest post from Roscoe Green, partner at Cotney Construction Law. The information contained in this article is for general educational information only and does not intend to constitute legal advice nor should be relied upon as legal advice.
In the post-COVID-19 construction climate, contractors around the country can expect to find themselves exposed to COVID-19-related delays or suspensions on their projects at some point. While project suspensions are often an unwelcome sight for many contractors, those contractors that are able to respond quickly and appropriately will be better positioned to overcome this hurdle successfully.
As we continue with the second part of this three-part series (click here for part one), we will address another important issue to consider when faced with a COVID-19-related suspension.
Once a suspension on a project has occurred, numerous thoughts are probably running rampant through the contractor’s head. One of those thoughts should without question be, “What should I be doing to properly preserve my claims for additional cost, time lost and payment for the work performed on the project?”
The answer to this question will depend on a number of things, but a good place for the contractor to start is the contract. Contractors should review the contract and look for language addressing the parties’ rights and obligations upon a suspension. This includes:
Does the owner have the right to suspend the project?
Has the owner provided written notice documenting the date of the suspension?
How long is the suspension expected to last?
Will the suspension affect the critical path on the project?
Are you entitled to recover additional cost or time for the suspension?
This line of thinking will be critical in your efforts to determine the scope of the claims and to properly preserve them.
Preserve suspension-related claims
Most construction contracts have explicit requirements for making claims that will change the contract amount or time. Like the provision below, contractors are often provided with a limited amount of time to make a claim upon notice of an event giving rise to the claim.
Initial notice of Claims by Construction Contractor shall be made in writing to Owner and the appropriate Design Professional within seven (7) calendar days after the first day of the event giving rise to such Claim or else Construction Contractor shall be deemed to have waived the Claim. Written supporting data shall be submitted to Owner and Design Professional within thirty (30) calendar days after the occurrence of the event, unless Owner grants additional time in writing, or else Construction Contractor shall be deemed to have waived the Claim.
Here, the contractor is provided only seven days to notify the owner of the claim before it is waived. Therefore, it is imperative that contractors respond quickly upon notice of the suspension and timely notify the owner of any additional cost or lost time that will result from the suspension. What additional costs the contractor can reasonably expect to recover as a result of the suspension will likely be found in the suspension clause.
Nevertheless, it is common for contractors to include in their suspension claims costs for escalations in the price of materials during the suspension, demobilization and remobilization costs, additional overhead costs, idle equipment costs, equipment and material storage costs, and a number of other additional costs the contractor has or expects to incur as a result of the suspension.
These are certainly costs the contractor will want to make sure to capture. Therefore, contractors should make sure to review the contract and submit any resulting claims timely, properly and in accordance with the contract upon notice of the suspension. This simple step will help to avoid an argument that the claimed has been waived. The last thing you want is to be in a dispute over whether you waived the right to recover additional costs resulting from the suspension because you did not properly preserve the claim.
It is worth noting that many contracts include what is referred to as a “force majeure clause” that seeks to absolve liability for acts of God and other occurrences. In practice, savvy contractors will not allow a force majeure clause to discourage them from taking the steps necessary to preserve their claims. They understand that the scope and enforceability of this clause is a fight for another day.
Preserve payment-related claims
Contractors should also remember to preserve their payment-related claims for the work they have performed on the project. In the event the project funds dry up or the owner disappears as a result of the suspension, the contractor’s goal is to be in the strongest position possible to get paid for the work performed on the project. Generally speaking, being in the strongest position to get paid means the contractor has taken the steps necessary to preserve lien or bond claims.
The proper means for contractors to do such will differ by state, as all fifty states have their own statutes governing lien and/or bond claims, so consult with an attorney that is experienced in construction law and licensed in the appropriate state to make sure you properly preserve these claims. Frequently, the contractor’s failure to comply with laws governing lien and bond claims will result in a waiver of the right to pursue the claim.
It would also be smart to submit a payment request for work performed up to the date of the suspension. Just think, the project could end for any number of reasons during the suspension and you could find yourself outside of a deadline or without a means to pursue your lien or bond claim if you did not timely preserve these claims.
Proper notice of the claim
As a final note, it is important to remember that part of preserving claims on a project means making sure that the claims are submitted properly. Construction contracts generally include a “notice of claim” provision that governs the procedures for properly notifying a party of a claim:
All notices required or made pursuant to this Contract by Construction Contractor to Owner shall be in writing and may be given either (i) by mailing same by United States mail with proper postage affixed thereto, certified, return receipt requested, or (ii) by sending same by Federal Express, Express Mail, Airborne, Emery, Purolator or other expedited mail or package delivery, (iii) by hand delivery to the appropriate address as herein provided, or (iv) by telecopy with confirmation copy to be mailed. Notices required hereunder shall be directed to the following address:
In many states, notice provisions in construction contracts are strictly enforced. Consequently, the failure to comply with the notice provision can be catastrophic to the contractor’s claim.
In practice, all too often we find contractors in a dispute over whether there was proper notice of the claim, simply because the contractor sent the claim to the wrong person or address. Prior to submitting your claim, review the notice provision in the contract and make sure to submit the claim in the agreed upon manner. This simple step can help you avoid the headache of a costly legal dispute.
Do you have a coronavirus-related legal question? Send it to Construction Dive.