Contractors- Have You Noticed? Take Action to Preserve Your COVID-19- Related Delay Claims
By: Julianne Wheeler, partner with Jennings Haug Cunningham
1. Notices of Delay: Look at Your Contracts
Whether a prime contractor or a subcontractor, your contract likely includes very specific notice provisions for advising the other party of force majeure events and/or delays. Many subcontracts incorporate by reference terms from the prime contract, requiring subcontractors to understand the notice requirements found in the subcontract and in the prime contract. Force majeure events are unforeseeable circumstances that prevent a party from fulfilling a contract. Some contracts include within the definition of a force majeure event epidemics, adverse governmental actions and quarantines, but others do not. Regardless, any contractor experiencing delays arising out of the country’s, state’s and cities’ reaction to the COVID-19 pandemic should examine the notice requirements and comply before the expiration of the notice deadlines.
The typical notice requirement require notice be provided within 48 hours to several days. Many notice requirements identify who is to receive the notice, and how that notice must be delivered. Certified mail is a common requirement. Seldom do contracts allow notice to be provided by email. Make certain the notice is provided as required by the contract.
Often, contracts require details about the delays, both as to precise schedule impacts and resulting costs, be provided in the notice or at some time after notice of delay. Obviously, precise delay/cost information may be unavailable at this time. The best strategy is to provide the information that is reasonably available to you at this time and to keep the other party informed about what is happening on the jobsite as events unfold.
2. The Claims You May or May Not Have- Look at Your Contracts
Some contract provisions leave the door open to the recovery of costs for delays that are beyond the contractor’s control. For example, the AIA A201-2017, at 8.3.3, provides that 8.3 “does not preclude recovery of damages for delay by either party . . .” Other contract provisions slam the door shut on such claims, leaving the contractor with a claim for additional time to complete and nothing more. These terms may limit the contractor to an “equitable extension of time” or something similar. You may even learn your contract does not address the issue, at all.
3. You May Need to Show the Delay Resulted from the Virus. Establish a Baseline Schedule Now
Because of the “causation” requirement at play, delay claims can be difficult to prove and usually require the testimony of scheduling experts. The contractor claiming a delay is generally required to prove it could have completed on time, were it not for the delay. Delay claims can be particularly difficult because, often, the delay is the result of more than one cause.
For example, the labor shortage may have already impacted your project. You may have a contingency plan in place for completing on time. If that plan is not well-documented or unrealistic, the additional time that you are requesting may be denied or significantly reduced because you cannot show causation, i.e., that the pandemic caused the delay.
Now is the time to document the status of the project and your pre-COVID-19 ability to complete, whether on time or otherwise. Establish the baseline schedule, document the production and other schedule information that you used to set and track your schedule. If possible, assign cost codes to costs that are COVID-19 related costs and track manpower deficiencies tied to COVID-19 and other events that are resulting in project delays.
4. You may Need to Show You Acted Reasonably in Trying to Minimize the Delays (and Resulting Costs, if Compensable Under the Contract).
Tied to the notion of causation is the general rule that you may not cause the impact of an excusable delay to be worse than it needed to be. We think of this rule as “damage mitigation.” If there are reasonably available options for lessening the impact of the delay, you must take advantage of them. For example, if an entire crew fails to show up at the jobsite because one or more of them appeared to have a cough the day before, you may need to do more than send a notice to the contractor about your crew’s unavailability.
But, how much more do you need to do? Do you need to pay top dollar to a temporary crew that will not promise more than a day or two of work at the site? Do you need to put on a tool belt and head out? There are no clear-cut answers but, at a minimum, you need to make a considerable effort to locate and hire qualified workers to replace at least some of the members of the missing crew.
5. Acting Reasonably May Include an Analysis of What You Did to Control the Virus Within Your Company
This may be first time in history when a defense to a delay claim may be embedded in the claimant’s failure to comply with CDC guidelines and/or establish reasonable COVID-19 safety procedures onsite. If crews or even random project personnel contract the virus on a jobsite where no written and/or verbal safety protocols are in place, there is an arguable failure to mitigate damages. For example, if your company does not have a policy of distancing, hand-sanitizer is not available onsite, no direction about coughing and sneezing etiquette was provided, and your personnel become ill, your delay claim may be jeopardized.
6. Start Thinking About How to Change Your Contract Documents
When you have time to think about your next project, think about the contracts you have already signed and the terms that could be redrafted to protect your position. Risk-balancing is inherent in drafting and negotiating contracts, construction contracts included. The current COVID-19 pandemic reminds that even inconceivable risks-great recessions, acts of terrorism, and yes, lethal and novel viruses-merit consideration when contracting. These mostly uninsured or uninsurable risks are now yours to minimize, both by the contracts that you sign with knowledge of their potentiality and the workplace decisions that you make.
7. Does Business Interruption Insurance Cover The Loss?
Many all-risk policies contain coverage for loss of profits caused by business interruption. Some include coverage for when the business interruption is caused by Civil Authority, i.e., order of a governmental agency. This coverage is often narrow and subject to limitations and exclusions. A contractor may want to review all policies that apply, including all-risk policies obtained by the project owner, to see if any portion of the monetary impact caused by this pandemic is covered by insurance.
Julianne Wheeler can be reached at [email protected]. The reader is encouraged to contact their attorney for answers to legal questions about the topics covered by this article. For more information, visit: JHC.Law.