Constructing contracts and covid-19

As the coronavirus continues to affect construction projects across the United States, everyone needs to be preparing for the next few months. Construction is going to be (and has already begun to be) one of the more severely impacted industries. One way to proactively prepare your construction company is to review your contracts to ensure your business is protected during the coronavirus pandemic.

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8 contract provisions to review in light of coronavirus (COVID-19)

A well-drafted construction contract will outline all the obligations, liabilities, and procedures needed to protect your rights and your money. Those who have been in business for a few years have fine-tuned their contracts to their company’s specific needs.

However, with the coronavirus affecting nearly every aspect of life and business these days, it may be the right time to review some of the provisions to ensure you are protected in the months ahead. Here are a few of the more pertinent contractual provisions you should review – and consider revising.

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1. Delay and disruption damages

Delays are going to play a major part in construction projects moving forward. This is why it’s so critical to review the clauses in your contract related to delay claims and disruption claims.

These clauses will determine which types of delays and disruptions are excusable and inexcusable. Once that’s established, be sure to the clauses detail if and when a party will be entitled to an increase in the contract price or an extension of time. If a delay is incurred, project managers should avoid trade stacking and other attempts to catch back up to the initial schedule. Compensation and time should be fairly allocated to ensure the project is completed safely and efficiently.

Also, keep an eye out for a no damages for delay clauses, also referred to as a “no pay for delay” clauses. These clauses are typically inserted by higher-tiered parties to reduce or eliminate their liability to pay for delays. Essentially forcing a subcontractor to absorb the additional costs of delays caused by others on the project. If there is one in the contract you’re about to sign, attempt to negotiate around it.

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2. Force majeure clause

One clause that’s getting a fair amount of attention these days is the force majeure clause. Also known as the “acts of God” clause, is particularly relevant in light of the circumstances. These clauses are meant to excuse non-performance for delays caused by circumstances that were unforeseeable and well beyond the contractor’s control.

Depending on the language in the clause, this could be a viable defense if coronavirus is considered a force majeure event. Consider adding language specifically tailored to disease, pandemics, and quarantines that may impact the progress of the work.

3. Notice provisions

Notice provisions aren’t necessarily a specific clause, but rather provisions that may be spread throughout your contract. Many of your rights and obligations under a construction contract require some sort of notice. Notices may be required prior to claims for delay damages, an extension of the contract time, change orders, stop-work requests, and terminations.

It’s almost a guarantee that all of these necessitate sending a notice within a certain timeframe in order to exercise or invoke these particular rights. Be sure you familiarize yourself with all of the details, such as when a notice is required, who they should be sent to, and the time period in which they need to be sent. Failing to do so could result in forfeiting claims or taking money out of your pocket.

4. Termination clauses

The termination clauses in your contract will also be particularly relevant during the pandemic. This is understandable from both angles. A property owner or a project manager may want to terminate a contract, or the project as a whole due to coronavirus outbreak-related issues. On the other side, subs and suppliers may want to terminate their contract for fear of exposing themselves to the virus. You want to be sure that the contract clearly outlines the circumstances, notice requirements, and other relevant procedures to execute a termination for convenience.

5. Escalation clauses

The construction supply chain is also a hot topic under the current circumstances. With travel and transportation embargoes in effect, the construction material supply chains will be severely impacted. Everyone in the construction industry will need to prepare for the coronavirus impact on the construction supply chain.

This could entail requiring contractors and subs to secure more than one vendor, or at the very least one back-up. In addition to that, including an escalation clause could also help control cost overruns due to supply chain disruptions. When volatile market conditions and material shortages are factors, this clause helps protects contractors from price fluctuations for raw materials. It shifts the burden of increased costs from the contractor to the client, to ensure they’re not the ones left with an inflated tab.

6. Mobilization costs

Some form of mobilization costs are included in a typical construction contract. These can be structured in a number of different ways. It can be a flat fee for costs, based on a percentage of the contract price, and can be paid out in advance or follow a draw schedule.

But given the possibility of projects shutting down and restarting in response to government-issued restrictions, the mobilization provisions should be a bit more extensive. Contractors may be forced to de-mobilize and re-mobilize more than once, so you may want to include the right to request additional compensation.

7. Insurance requirements

Construction contracts should also require some sort of insurance policy coverage for all parties involved. This can include a number of different types of policies. General liability insurance is always a must, but it may be time to review the your business’ worker’s compensation coverage. Will “injuries sustained on the job site” include contracting COVID-19? Two states have already approved worker’s comp coverage for first responders and health care workers. This will be an interesting development going forward. This trend may extend to “required emergency construction,” and potentially even further.

Another type of coverage to consider is business interruption insurance. Depending on the language of the policy, this may be a viable option to protect your business’ finances if forced to shut your doors due to “shelter-in-place” restrictions or other measures such as quarantines and curfews.

8. Safety provisions

Lastly, if a construction project will be proceeding during the outbreak, a section outlining the safety protocols is a good idea. These provisions should require that everyone on the job site follow certain guidelines to ensure cleanliness and avoid the spread of the virus. It should include restricting equipment sharing, mandatory hand-washing stations, and limited job site access to non-essential parties, and more. In addition, the provisions should also address and encourage sick employees and laborers to stay home and/or seek medical attention.

For more on the types of measures that should be taken on the job site, see:

Additional construction & coronavirus resources

These are just a few of the more pertinent sections and clauses that contractors should review going forward, but a full review of your contract during this pandemic is highly recommended. And keep in mind, this doesn’t just apply to your contracts, be sure to thoroughly review your vendor contracts as well. Everyone needs to be proactive and prepared if they plan on continuing to work on construction projects during this pandemic. Here are a few other resources you may find useful: