Sound the alarm! Sound the alarm! The construction industry is impacted by the coronavirus.
And the impact is big. Cities across the country have already begun to shut down construction. Boston suspended all construction. And parts of California. The supply chain is pinched. Cash is tightening. The feared recession is here.
You will feel this. Now the question is…what can construction businesses do to survive the coronavirus pandemic!?!
We’ve collected advice from leading construction attorneys across the country who are starting to predict and examine all the legal fallout that is to come for you. Here are 10 quick tips from lawyers in Levelset’s construction attorney network.
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Chris Ng: Parties should get ahead of a very tangled legal situation
Christopher Ng, Gibbs Giden’s managing partner who focuses on construction law in California, fields lots of coronavirus questions these days. Contractors are struggling to keep jobs on schedule, and in many cases, governments are forcing job shut-downs. In this environment, who will be responsible for the cost overruns and project delays? How will delay liquidated damage clauses be read? Do insurance policies kick in? What kind of change orders are appropriate and how to negotiate a change in cost and time?
“These are all difficult questions that will require lawyers to comb through a lot of areas,” says Ng.
“Businesses must carefully examine their contracts to determine if a force majeure provision dictates the rights, duties, and obligations of the parties in this situation,” Ng continues, “but, the web is very tangled since most force majeure provisions do not allow the parties to simply walk away from the contract, and will require prompt notice and a plan to mitigate damages.”
Many elements are in play: a national emergency, forced shutdowns, the different nature of supply contracts versus construction contracts, inconsistent obligations across the supply chain, existing legal statues (like Section 2-615 of the Uniform Commercial Code that considers commercial impracticability due to unforeseen supervening circumstances), and much more…
“Parties should put their heads together, make compromises and sacrifices, and get in front of the legal chaos ahead,” says Ng.
Robert Lovein – It’s time to file your lien!
Robert Lovein has more than 20 years of experience helping Texas contractors navigate through tricky payment situations. The Coronavirus pandemic, global shutdown, and looming recession is a major situation.
Since the next 12 months are uncertain, Lovein urges contractors to increase their payment probability.
“During these uncertain times, contractors, subcontractors, and suppliers will likely begin to see a delay in receiving progress and final payments on their projects,” says Mr. Lovein. “To protect your unpaid invoices, now is the time to start sending your pre-lien notices and filing liens. This is the most effective and cost-efficient way to increase the probability of being paid.”
Andrea Goldman – You likely won’t be liable for job delays
Andrea Goldman points out that many contractors worry about shutting down or delaying a project. After all, job delay is a mortal sin in the construction industry.
So, can contractors just suspend a job now and not be stuck with tons of liability and damages?
“Yes,” answers Goldman. “At the end of the day, this is a national emergency. You have the right to protect yourself, your employees, subcontractors, and your customers.”
It is possible people will sue for delay damages related to the COVID-19 shutdown. But, in Goldman’s opinion, “a lawsuit based on delay or breach of contract related to coronavirus will probably not survive a motion to dismiss.”
Jason Lambert – Protect the lien rights on your jobs & get advice about your contracts!
Jason Lambert is a leading construction attorney in Florida who advises general contractors, subcontractors, and suppliers. Since Lambert’s in Florida, and hurricanes are an annual occurrence, he runs into unexpected job delays a lot.
“Job delays caused by external events are quite normal and anticipated,” says Lambert. He recently published a Construction Executive article about this very topic, citing hurricanes as a good example. Lambert writes, “Contracts commonly alleviate contractors from delays caused by natural disasters, strikes, wars, etc.”
Of course, Lambert warns, the COVID-19 scope is much greater. “One problem is the massive scope and extended nature of this shutdown,” says Lambert. Another problem? “Most contracts do not go the extra step of determining how the risk of these external events are to be allocated between the parties.”
Here is the advice that Lambert is giving contractors:
“First, it’s more important now than ever to make sure you’re properly noticing and liening jobs,” instructs Lambert. “This is the exact type of scenario where you might not get paid or a project may be significantly delayed through no fault of yours. When things ramp up again, those who secured their lien rights will be the first ones taken care of; those who do not, will get what’s left.”
This helps with payment, but there are also tons of contractual implications.
“The coronavirus may or may not actually give you a contractual basis for delay,” warns Lambert. “It depends on the wording of your contact and the other facts surrounding the project. You should talk to an attorney who can provide insight on if there are contractual requirements that need to be met for you to stop a job or slow it down.”
Lambert’s firm just published a public COVID-19 portal with resources for businesses of all types that explains employment law issues, FMLA issues, contract issues, and more.
Seth Smiley – Accelerate efforts to protect all outstanding payments
Seth Smiley is a practicing construction attorney in New Orleans, Louisiana, and his advice to contractors is simple: accelerate all outstanding receivables and payments.
While it’s unclear how long this situation will last, Smiley warns that “construction payments are about to come to a complete stop.”
“Money is just going to stop moving,” said Smiley, “and this, of course, is a big problem for all businesses.”
“There’s no perfect solution for contractors to this problem, but at the very least, contractors must look at every dollar owed to them right now and take measures to protect that money, and that means filing mechanics liens and bond claims right away.”
This is actually easier said than done…because counties are starting to close their doors in droves, or are limiting all recording to e-recording (See: County Offices Closed? How to record a lien or notice remotely). Certified mail delivery may also be tricky. Even if the postal system remains active, many people will be quarantined and not available at a commercial address to sign for certified mail.
“Contractors should move fast,” says Smiley.
Christopher Hill – Subcontractors BEWARE of tripping up on notice provisions
The COVID-19 situation will impact jobs. Chris Hill reminds contractors that “any commercial or residential construction project is controlled by a series of contracts.”
“One of the major provisions that could trip up any construction professional on these jobs is the notice provision of the subcontract,” warns Hill. “In times like these, knowledge of these provisions is imperative.”
“Your contract will likely set out how to notify and who to notify regarding any COVID-19 related issues,” says Hill. Some of these notice provisions are really, really short, and so it’s important to get on top of sending required notices immediately. And courts have been known to very strictly enforce them!
Here is an article about all construction notices, including “Claim Notices” and “Notice of Stopping Work,” both of which may be extremely relevant to contractors immediately: Your Complete Guide to Construction Notices.
Kenneth Stephens — Start having conversations NOW and deal with delay provisions
Kenneth Stephens is a partner at the Houston construction firm, Stephens Reed & Armstrong. In a recent video update posted to his clients and LinkedIn followers, Kenneth addresses “what to do with your current projects in light of the coronavirus.”
“One of the impacts I see…is delays,” explains Stephens in the video, which you can watch here:
“You have to look at your contracts,” says Stephens, and “there is going to be information” about time, delays, external events, and how to apply for change orders. In many cases, though, Stephens observes that owners and other stakeholders may still be entitled to damages for these delays, too.
With so many things in play, Stephens concludes that the important thing is to “address this on the front end now and not on the back end…hopefully, you can work it out in a way that is reasonable.”
Nate Budde: Remain safe, understand outstanding contracts, & protect lien rights
Nate Budde is the Chief Legal Officer for Levelset. He’s a licensed attorney in Texas and Lousiana, and has spent his career helping construction companies, material suppliers, and equipment rental companies manage lien rights and excel in getting paid quickly and smoothly.
“This is a critical time for parties in the construction industry,” says Budde. “Cash is always tight, and margins are always slim in construction, so project and payment delay can be devastating.”
Project and payment delays are devasting in a normal case, but of course, the coronavirus impact is much more severe.
“Now, more than ever, contractors need to take practice steps to make payment easy, and remain protected against nonpayment on all projects. The first step is making sure you remain safe, the second step is understanding contractual performance obligations and nuances with respect to a national or locally declared disaster, and the third step is making sure lien and bond claim rights are protected to ensure payment for the work you have done and are doing.”
Darryl Horowitt – Get Ready for Obligations Under Emergency Aid Bills
Darryl Horowitt, a managing partner at Coleman & Horowitt has represented general contractors, subcontractors, suppliers, insurers, design professionals, and construction managers for nearly 40 years. Some of the issues currently facing the construction industry are unprecedented, and Horowitt stresses that contractors must be proactive to understand the current legal landscape.
With payment delays likely on jobs that struggle to stay on schedule, and some jobs stopping completely, it is important for companies to take a hard look at their contracts, in order to be prepared, says Horowitt.
“Contractors need to understand the obligations and nuances of their contracts, and how their contracts may impact finances in the face of a national emergency.”
“And,” Horowitt continues, “construction companies may be impacted by the passage of emergency aid bills that require payment to employees despite no ongoing projects, and compliance with these new employer obligations can further impact a company’s cash position. Getting paid timely for all outstanding invoices is critical.”
There are also a myriad of questions about force majure based on the general orders to shelter in place (and similar requirements) that will delay projects, and knowing what the ramifications are is critically important.
Free Coronavirus Advice & Consultations from Top Construction Lawyers
Most of these lawyers have also volunteered to give free telephone consultation to Levelset users, and you can always ask them — and hundreds of other construction attorney and payment experts — your questions for free at our Ask An Expert Center.