COVID-19 now controls our day-to-day, but it may not control our existing contracts. To know the extent of its reach on construction projects, it’s important to touch on how delay is handled under contract law and specifically the role of force majeure.
What is Force Majeure?
An unforeseen, uncontrollable event. Force majeure is an event or effect that can be neither anticipated nor controlled by parties in a contract; an unexpected event, including acts of nature and of other people, which prevents a party from performing its contractual duties.
Why does Force Majeure matter?
It can excuse nonperformance of a contract. Force Majeure is an excuse for nonperformance or untimely performance of a contractual duty, such as constructing a building. General contract law excuses nonperformance only when the contractual duty becomes impossible or “commercially impracticable,” frustrating the basic purpose of the contract by no fault of the party seeking relief—a very high bar¹. A force majeure contract term, however, overcomes that rule and provides an excuse to nonperformance or delayed performance. But in most construction contracts it doesn’t terminate the duty to perform the contract, it only delays it.
For example, in the standard American Institute of Architects (“AIA”) contract document, AIA Document A201-2017, the force majeure clause is titled “Delays and Extension of Time.” This clause identifies circumstances that a contractor may not foresee and cannot prevent or minimize, including examples of force majeure events, and allocates the risk of those events between the parties. If your contract does not include a force majeure clause, or if it’s too boilerplate to trigger relief, a party may find relief under the doctrine of impossibility, but, again, it is a high bar.
When does force majeure apply?
When the contract says it does. The clause applies when an event identified in the contract occurs that, in fact, could not have been foreseen. For example, a project may be delayed if a fire, flood, earthquake, epidemic, government order, or act of god (a popular catch-all) occurs in the location of the project. Whether COVID-19 is an act of god is a question of law. In this instance, the question will be whether coronavirus is similar to the events listed in your contract. The force majeure events can be as many or as few as the parties negotiate and the answer will depend on what is expressed in your contract.
In addition to the occurrence of an unforeseeable event, the contractor will be allowed an excuse for delay only to the extent that the event caused the delay and that the event’s effects could not be minimized. Delays in performance that occurred before the force majeure event, for example, are not excused and the contractor must take that out of its force majeure claim.
A common force majeure event is an unforeseen government order. Contractors are legally and contractually required to comply with “authorities having jurisdiction” (as the government is sometimes identified). When an unforeseen order—for example, to “shelter-in-place”—is issued and it prevents some or all of the contractor’s work, the order may be a force majeure event, permitting the contractor extra time to complete the job. But if the government order merely makes performance of the contract more burdensome or expensive—for example, a social-distancing order–there will be a question as to whether the construction work is prevented, or the degree to which it is prevented if the contractor were to minimize its effect, even if that requires additional expense. It might be a force majeure event, but perhaps not. The contract’s language will provide the rule to decide, and parties will negotiate a change order, or file a claim, to decide how the facts fit the rule. This is yet another reason to document events and their consequences during a project.
If I’m delayed can I recover my extra costs (a.k.a. damages) under the force majeure clause?
Not unless a party agreed to it in other terms of the contract. Force majeure applies only to the time to perform, not the costs. Other contract terms must be used to address the costs of delay. In one case where the judge decided that excessive rainfall was an “act of God” under the construction contract, the State of Washington was liable for damages (extra costs) only for work it expressly assumed in the contract, which in that case was permanent work and not temporary work². The court stated, “Neither party to a construction contract is liable to the other for acts of God, unless liability is expressly assumed.” However, it is vital that the parties follow notice procedures and other protocols articulated in the contract to avoid potential damages as a result of a missed step.
What can be done to minimize potential damages? Take action.
Follow Notice Procedures
Washington law requires contractors to follow contractual notice provisions unless those procedures are waived. It is common for a construction project to have changes that require notice to the other party, so take a moment to review your contract. Look for the time, type, and delivery requirements for notices about issues such as delays and extensions, supply and labor shortages, out-of-sequence work, etc. Put a timeline together and follow the procedure.
Communicate, Communicate, Communicate
It’s not too soon to talk with the general contractor, subcontractors, or others on the project. If you believe supplies or materials may be delayed or you foresee labor shortages, let the other party know of your concerns and be sure to track your conversations. Also, know the procedure for reporting COVID-19 positive tests and follow jobsite sanitation procedures to ensure the safety of the workers. If you have more questions about employment-related matters as it relates to COVID-19, the Miller Nash employment team compiled a list of resources here.
Renegotiate the Contract
After reviewing your contract, it may be worth attempting to obtain a change order or to renegotiate the relevant contract terms to distribute the risk fairly and keep the job progressing. For example, general contractors may want a shortened notice timeline which would require parties to report known delays and shortages sooner; subcontractors may ask for compensation for out-of-sequence work or delayed schedules to accommodate for uncontrollable supply and material delays; owners may seek to remove overtime charges for expedited work which could assist in job completion. If you think this might be the right step for you, reach out to your primary Miller Nash attorney for assistance with drafting and negotiation.
It’s likely you will have questions about your specific contract as it relates to COVID-19. We are here for our clients, and ready to help navigate through contracts, safety, employment, real estate, and insurance questions.