COVID-19 AND THE CONSTRUCTION INDUSTRY

Here's How You Can Protect Your Business
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Addressing the Coronavirus in Boston

As COVID-19 begins to spread throughout the U.S., federal, state and local governments have instituted an array of emergency measures designed to temper the effects of what is now considered by the World Health Organization, a global pandemic. The City of Boston took drastic measures this week, announcing a temporary suspension of all construction activity within the city limits until further notice.

The Suspension

In his Public Health Address on March 17, Boston Mayor Marty Walsh announced a temporary suspension of all construction activity on jobsites with permits issued by the City of Boston. Construction employers were ordered to immediately secure all construction sites utilizing only necessary construction personnel, and to complete all security measures before Monday, March 23. From then on, employers will only be allowed to employ “skeleton crews” for the purpose of keeping jobsites safe and secure throughout the temporary suspension.

There is, however, an exception for “essential work” projects to which the suspension does not apply. Essential work is defined by the Boston Inspectional Services Department (ISD) as:

  1. emergency utility, road or building work, such as gas leaks and sinkholes,
  2. new utility connections to occupied buildings,
  3. mandated building or utility work,
  4. work at public health facilities, healthcare facilities, shelters, including temporary shelters and other facilities that support vulnerable populations, and
  5. work which ensures the reliability of the transportation network, and, other work necessary to render occupied residential buildings fully habitable.

Additionally, projects that do not fall within an “essential work” exception but should be exempt on the basis that continuing construction will “increase[] public health and safety” are eligible for review on a case-by-case basis. Employers who believe their projects should be granted such an exception must submit a request with the Boston Commissioner of Public Works for street-related projects, and the Boston Commissioner of Inspectional Services for building-related work.

Consulting your Contract

This suspension comes in the midst of a city-wide construction boom and threatens to halt construction on some of Boston’s most anticipated new development for the foreseeable future. And while Boston trade unions supported the suspension given the widespread threat of COVID-19, the decision is sure to cause confusion and uncertainty for construction contractors. When searching for answers, the best place to start is with your construction contract.

Does your Contract Include a Provision Governing Impossibility of Performance?

Contractors that are unable to perform work because of local, state or federal prohibitions may argue that it is impossible for them to perform or that the purpose for which they were performing has been “frustrated”. Occasionally, you will see a separate provision governing impossibility or frustration but normally they are included in either the Acts of God or Termination/Suspension for Convenience provisions discussed below.  An example of a boiler plate impossibility of performance provision is:

Neither party to this Agreement shall be deemed to be in violation of this Agreement if it is prevented from performing any of its obligations hereunder for any reason beyond its control.

While the language of the contract is generally your first line of defense, in cases where the contract is silent as to impossibility or frustration, Massachusetts law recognizes impossibility of performance/frustration of purpose as a valid defense to claims for breach of contract. Impossibility or Frustration would be the legal theory most applicable to disputes arising from the Mayor’s suspension, where a local order makes it impossible for contractors to perform pursuant to the contract. The remedy for implicating such a theory, however, would merely be that you cannot be held responsible for any delays or damages caused by the impossibility. Under this theory you will not be compensated for your damages that arise from the work stoppage.

Does your Contract have a Force Majeure Clause?

A typical force majeure clause provides that in the event of a hurricane, earthquake, war, strike or other occurrence beyond the control of the contractor, that performance will be excused, the project will be terminated, or there could be some other form of compensation available for the contractor.  A classic example of a force majeure clause is:

Any failure or delay by a party in the performance of its obligations under this Agreement is not a default or breach of the Agreement or a ground for termination under this Agreement to the extent the failure or delay is due to elements of nature or Acts of God, acts of war, terrorism, riots, revolutions, or strikes or other factors beyond the reasonable control of a party (each, a “Force Majeure Event“). The party failing or delaying due to a Force Majeure Event agrees to give notice to the other party which describes the Force Majeure Event and includes a good faith estimate as to the impact of the Force Majeure Event upon its responsibilities under this Agreement, including, but not limited to, any scheduling changes. However, should any failure to perform or delay in performance due to a Force Majeure Event last longer than thirty (30) days, or should three (3) Force Majeure Events apply to the performance of a party during any calendar year, the party not subject to the Force Majeure Event may terminate this Agreement by notice to the party subject to the Force Majeure Event.

Obviously, it is preferred that your contract refers directly to a pandemic, state of emergency, or virus requiring quarantine in its force majeure clause. But regardless, there is likely a good argument that government-imposed suspensions due to a global pandemic like COVID-19 could be classified as an Act of God pursuant to a traditional force majeure provision. If so, the suspension imposed by the City of Boston will shield construction companies from liability for the delay in construction. If your force majeure clause has a procedure for compensation in the wake of such an event, it is important that you follow the procedure promptly and precisely so as not to waive its application.

What Does your Contract Say About Project Suspension and Delay?

While, legally speaking, a contractor should be able to rely on an impossibility or force majeure clause in these situations, it is not uncommon for general contractors to direct trade contractors to treat such events as a general delay pursuant to the contract. Accordingly, trade contractors should familiarize themselves with the delay provisions in their contract.

The standard AIA A201 (2017), Section 8.3 contains a detailed provision on requesting time and in some cases costs as a result of delay.  Roofing contractors will need to identify if there is a “no damages for delay” clause in the contract which on its face prohibits obtaining additional costs for delay.  Regardless, submitting a claim for delay time and/or costs is recommended.  Keep in mind there are often legal ways around a “no damages for delay” clause and you can review our past articles on the topic.

More importantly, if there is a provision that covers project suspension, contractors should follow that provision and submit a claim to cover demobilization/remobilization costs, etc.  AIA A201 (2017), Section 14.3 governs suspensions for convenience by the owner and details what costs can be pursued as a result of the suspension.

Even if a contract provision is not specifically on point and/or the contract is silent, the contractor should submit a claim for equitable adjustment to account for the extended carrying and storage costs of the suspension.

Can you be Terminated for Convenience?

Many contracts contain termination provisions for both default and convenience.  Terminations for convenience allow the customer to terminate the contract at any time for any reason but, generally speaking, the contractor has to pay for the work performed through the date of the termination for convenience plus reasonable profit and overhead thereon.  Normally, the terminated party is not entitled to lost profit and work not performed or other breach of contract type damages.  See AIA A201 2017, Section 14.4.

Delay in work due to the construction suspension would likely not be grounds for termination for default or cause, absent unusual contractual circumstances. However, we have had several projects that were terminated for convenience as a result of COVID-19 and government measures in response. It is therefore likely that many contractors in Boston will undertake the same steps if the suspension lasts for a significant amount of time. In these cases, contractors should move quickly to submit recoverable costs.  As I always say: “The party with the best paper wins the day,” so make sure you are providing the required backup to avoid delays in processing.

While your contract should be the first thing you consult when trying to ascertain the implications of the Boston construction suspension on your business, it is not the end-all-be-all. Government responses to the outbreak are changing rapidly and remaining up-to-date on recent developments in your state and locality is of the utmost importance during these uncertain times. As many industry experts anticipate other states and localities will follow Boston’s lead, contractors unaffected by Mayor Walsh’s announcement should be paying close attention to the response from Boston’s construction industry in its wake, as well as their own state and local responses that are sure to be announced in the coming days and weeks.

Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

Trent Cotney is CEO of Cotney Construction Law, a member company of NERCA. He is NRCA General Counsel and a licensed lawyer in Massachusetts.  With 14 offices across the United States including Boston, Cotney Construction Law is dedicated to representing and fighting for the industry nationwide. For more information, please visit www.cotneycl.com.