The COVID-19 pandemic has generated a host of legal issues for U.S. construction pros. Here, construction attorneys from Minneapolis-based international law firm Dorsey & Whitney answer readers' top questions.
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The information provided in this article does not, and is not intended to, constitute legal advice. All information here is for general informational purposes only.
Do most contracts regard the current crisis a force majeure?
There are several points to consider here. If the contract expressly includes a FM clause, then the wording of the clause will be the primary guidance on determining whether the current crisis falls within the definition of a FM event.
It is unlikely that the words “pandemic” or imposed “shelter in place” or the likes are written into existing FM clauses. Therefore, the parties will have to look to other commonly used wording in FM clauses to find ways to apply this crisis to the permitted FM events in the subject contract.
Likely avenues could be an unforeseeable and/or extended change in law event, a national disaster event, unforeseeable supply or material restrictions or shortages, state and/or federal invoked acts of wartime, and acts of God. It seems likely that most FM contract clauses contemplate or should or will be understood to contemplate much of the current crisis.
For example, on-site labor shortage or shutdown due to transmission is likely to fall within a FM contract clause in some manner. However, supply chain problems may be more difficult to argue, given the fact that there have been supply chain issues from foreign countries in place now for several months.
Another factor to consider is whether the contract generally excuses performance in the face of a force majeure event that interferes with an action, or whether it has a higher standard for excusing aspects of performance (like “rendered impossible by” or “substantially hindered by” the force majeure event). If the latter, then it may be necessary to evaluate the effect on each aspect of performance. For example, procurement and sustenance of insurance is not likely to be impossible or substantially hindered, and certain aspects of construction may also not be substantially hindered.
What happens if there is no force majeure clause in a contract?
Without a specific FM clause in the contract, the parties would need to look to common law and/or statutes as to whether there is an implied concept of FM in the subject contract.
There are also common law doctrines in equity that courts sometimes apply to excuse performance under a contract. Doctrines of “frustration of performance” and “impossibility” or “impracticability” can be applied. Those doctrines often depend heavily on the mutual understanding of the parties at the time of contracting, as well as the specific performance made “impossible” or “impracticable” by the unforeseen events.
Generally speaking, however, in the event it becomes literally impossible or illegal to perform under the contract, the more likely such doctrines are to apply.
If a city or state shuts down construction work, would that be a force majeure?
It depends upon the provision. Some FM provisions define FM to include an act of government or new law, in which case, yes, it would apply. If limited to the “traditional” FM definition, this is more likely a change in law, not FM.
Change in law is, like FM, also a creature of contract. That is, if it isn’t expressly included in the contract, it probably won’t apply. However, irrespective of not having a FM or change in law clause in the contract, a government shutdown of this magnitude will likely trigger other common law doctrines or statutes that could be avenues to grant relief to a contractor. In addition, as noted above, if performance becomes (or is nearly) literally impossible or illegal to perform, the more likely other doctrines like “impossibility” might apply.
If a contractor elects to shut down projects, would force majeure come into play?
That depends. The most obvious question here is “did the contractor shut down because of immediate issues that are identified in the applicable contract’s FM clause?” In doing so, the contractor should strictly follow notice provisions, including invoking the notice/action contract provisions when faced with an emergency or safety issue.
Unilateral decisions to suspend operations are sometimes a must, but they should be a last resort and should be invoked under the provisions of a safety/emergency situation with written notice and documentation to the owner.
Contractors, along with their subcontractors and owner, should be actively discussing how best to treat the current issues, and mutually determine what, if any, of the construction can remain in execution. Maintaining open dialogue with transparency among the parties will likely result in less contentious changes or stoppage to the execution of the work.
If delays are due to a supply chain or labor issue, who is responsible?
Assigning responsibility at this point is likely going to be very difficult, if not impossible. Look to the contract terms, carefully review FM, change in law, excusable delay and other clauses that may be applicable. Contractors need to keep their team and the owner fully informed and work in good faith in the interests of safety first, as well as critical needs and innovative mitigation of project delays.
Contractors also need to keep detailed records of extra-contractual expenses (like the cost to demobilize, protect works, etc.) for purposes of potential relief.
Can contractors amend their current contracts to help protect themselves from risks associated with the coronavirus or is it too late for projects in progress?
It is certainly worth approaching the owner and trying to work in good faith to reach a mutually beneficial amendment to the contract so as to avoid timely and costly claims and disputes. Amending a contract to address the reality of performing the contract due to this unanticipated national and international crisis is in the best interests of both parties. This should be a first course of action for parties to undertake in this environment.