This week, the World Health Organization (WHO) has officially declared the coronavirus outbreak a pandemic. With the death toll rising and cases being reported on nearly every continent, there’s no telling what the overall impact this will have on lives and businesses across the globe. The spread of COVID-19 presents some unique challenges for the construction industry. One way construction companies can protect themselves is through a delay clause in their contract, also known as a force majeure clause.
A well-drafted force majeure clause can be a critical safety net to help contractors deal with unforeseen events, while a poorly-drafted one can result in a false sense of security as the virus continues to spread. Given the widespread impact of the virus, let’s take a moment to review what exactly a force majeure clause is, how it works, and ways to improve it to protect yourself if the virus ends up affecting your construction project.
Force majeure: Delay provisions for an Act of God
A force majeure clause is a type of contractual provision that relieves a party’s obligations under contract when circumstances beyond the party’s control arise. Force majeure is French for “superior force.” As such, these provisions are meant to cover events traditionally deemed as “acts of God.”
General vs. specific delays
Force majeure clauses can either be drafted generally (to cover a wide range of delays) or specifically (to cover delays caused by specific events). A general force majeure clause will provide that when an event arises, that is out the parties’ control, that materially affects performance, and wasn’t reasonably foreseeable; performance may be excused or extended. The more specific clauses will list a number of different “triggering events” that may give rise to an excusal of performance.
Applying boilerplate terms to coronavirus outbreak
These clauses are typically seen as “boilerplate” terms, meaning they are just that standard legal jargon that every contract has. But when global phenomena such as the coronavirus pandemic occur, many contractors will be forced to rely on these provisions. This is why they are so important. There’s no telling how long or to what extent this virus will continue, so let’s take a closer look at how force majeure provisions operate and ways to enhance their protection.
Video: Does a force majeure clause cover COVID-19 or recession delays?
Force majeure clauses in standard construction contracts
To examine the extent and coverage of a force majeure clause, let’s take a look at the provisions in two standardized construction contracts; the AIA A201, and the ConsensusDocs 200.
AIA A201-2017: General Conditions of the Contract for Construction
§8.3 Delays and Extensions of Time
§8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by
(1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor;
(2) by changes ordered in the Work;
(3) by labor disputes, fire, unusual delay in delivery, unavoidable casualties, adverse weather conditions documented in accordance with Section 22.214.171.124, or other causes beyond the Contractor’s control;
(4) by delay authorized by the Owner pending mediation and binding dispute resolution; or
(5) or by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.
§ 8.3.2 Claims relating to time shall be made in accordance with applicable provisions of Article 15.
§ 8.3.3 This Section 8.3 does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents.
ConsensusDocs 200: Standard Agreement and General Conditions Between Owner and Constructor
6.3 Delays and Extensions of Time
6.3.1 If Constructor is delayed at any time in the commencement of progress of the Work by any cause beyond the control of the Constructor, Constructor shall be entitled to an equitable extension of the Contract Time. Examples of causes beyond control of the Constructor include, but are not limited to, the following
(a) acts or omissions of Owner, Design Professional, or Others;
(b) changes in the Work or sequencing of the Work ordered by Owner, or arising from decisions of Owner that impact the time of performance of the Work;
(c) encountering Hazardous Materials, or concealed or unknown conditions;
(d) delay authorized by Owner pending dispute resolution or suspension by Owner under §11.1;
(e) transportation delays not reasonably foreseeable;
(f) labor disputes not involving the Constructor;
(g) general labor disputes impacting the Project but not specifically related to the Worksite;
(k) adverse governmental actions;
(l) unavoidable accidents or circumstances;
(m) adverse weather conditions not reasonably anticipated.
Constructor shall submit any requests for equitable extensions of Contract Time in accordance with Article 8.
6.3.2 In addition, if Constructor incurs additional costs as a result of a delay that is caused by items (a) through (d) immediately above, Constructor shall be entitled to an equitable adjustment in the Contract Price subject to §6.6.
6.3.3 Notice of Delays If delays to the Work are encountered for any reason, Constructor shall provide prompt written notice to Owner of the cause of such delays after Constructor first recognizes the delay. The Parties each agree to take reasonable steps to mitigate the effect of such delays.
How standard contracts apply to coronavirus delays
Neither of these are traditional force majeure clauses. Instead, these both list events that may entitle the contractor to an extension of time. These clauses are relatively vague. As far as a delay caused by the coronavirus is concerned, neither of these clauses offer a ton of protection.
Under the AIA clause, coronavirus would likely have to be legitimized by the catch-all phrase, “other causes that the Contractor asserts, and the Architect determines, justify delay.”
On the other hand, the ConsensusDocs delay clause is a bit more extensive. It lists a number of specific events that would allow for a time extension, which includes epidemics.
Another important thing to note is that both of these clauses grant the contractor an opportunity for an equitable extension of time. However, neither one mentions the possibility of an increase in the contract price.
So in the event a force majeure clause is invoked as a result of the coronavirus, the contractor would be entitled to more time to complete performance. But the contract would not provide for additional funding for salary, overhead, or other daily operating costs.
How courts treat force majeure clauses
Whether the coronavirus constitutes a force majeure event will ultimately come down to the terms and language contained in the contract. Dealing with disease and outbreaks under force majeure clauses is more or less uncharted legal water, as there’s not much case law on the matter.
However, there are a few things that most courts would analyze. They would typically look at a few key factors:
- The precise language of the clause
- Whether the coronavirus was “unforeseeable”
- Proof of causation between the coronavirus outbreak and the resulting non-performance
- Evidence that the pandemic is so severe to excuse non-performance
To make matters even more difficult, depending on the jurisdiction, these clauses can be treated very differently. While some will examine the circumstances in the paragraph above, others use a much more narrow approach.
New York courts, for instance, use a strict interpretation. They rely on the express language, and only events specifically listed in the delay clause will excuse performance. Other courts, such as California, require that the party invoking the clause to prove reasonable efforts to avoid the consequences of the force majeure event.
Coronavirus and construction delays
Ultimately, a majority of US Courts will likely determine that any construction delay caused by the COVID-19 pandemic is way beyond the “reasonable control of the parties,” and covered fall under even the most general force majeure clauses. But, as mentioned above, there are jurisdictions that interpret these clauses narrowly. And how will the courts view contracts entered into now?
If a general force majeure clause is used, will they consider the coronavirus threat as “unforeseeable?” Maybe, maybe not. This is why it might be a good time to take a closer look at your own contract’s force majeure clause.
Be sure to review these provisions closely. Understand your rights, remedies, and any notice requirements under the clause. Determine whether the clause specifically refers to disease, quarantines, or pandemics. If not, you may want to include that language. Also, assess whether the clause provides for equitable extensions of time, contract price, or both.
Everyone who is a party to a construction contract should review their force majeure clauses carefully. Instead of flexing leverage, now is the time to come together and negotiate an allocation of risk that is fair and reasonable for all parties.