COVID-19 and the Construction Industry

The COVID-19 pandemic and response necessitated thereby are having a profound impact on the construction industry.  Contractors, architects, subcontractors and suppliers are facing supply chain disruption and workforce unavailability, which problems will likely deepen with no immediate end in sight to the challenges presented by COVID-19.  In turn, owners, developers and lenders are experiencing the consequential effects of such material and labor shortages, as well as increasing restrictions, that result in stalled or terminated projects.  Grappling with this rapidly-evolving situation, parties are attempting to determine their rights, remedies and obligations.

 Whether an owner, developer, architect, design-builder, construction manager, contractor, subcontractor or supplier, it is important to promptly determine and continually reevaluate risks and options going forward.  With respect to contractual provisions in construction agreements, below are some areas of focus in light of the conditions caused by COVID-19:

Review of Contractual Provisions

• Force majeure clauses, including what is and isn’t covered, circumstances that may limit relief (such as concurrent delay or critical path) and how claims must be triggered.
• Other provisions relating to contract time, including: (i) excused and unexcused delay, and milestones or phase deadlines; and (ii) liquidated and consequential damages.
• Provisions relating to the contract sum or GMP, including: (i) increased costs resulting from excused delay and/or price increases on materials; (ii) “no damage for delay” clauses; and (iii) application of the cardinal change rule.
• Existence of contingency funds and limitations on the use thereof.
• Responsibilities to mitigate delays and increased costs.
• Dictated procedures if a designated key employee no longer remains on the job, and requirements to hold meetings on a determined frequency.
• Allocation of responsibility for project permitting.
• Compliance with retainage requirements (given increased risk of lien claims).
• Owner’s rights to suspend work or terminate for convenience, including any associated fees or costs that might be owed to the contractor.
• With respect to recovery efforts, owner’s rights to: (i) engage separate contractors; and (ii) require the contractor to accelerate performance.

Other Items to Address

• Documentation governing construction financing and/or equity partnerships, and obligations in the event of delays or increased costs affecting the project.
• Creative mitigation actions for material and labor shortages.
• Availability of coverage that may be triggered under various types of insurance policies.
• If performing work as or on behalf of a tenant, lease provisions will come into play.
• Plans in the event of a governmental shutdown of jobsites or general stay-at-home orders.

Steps should also be taken to protect personnel as well as the community.  Most human resources and IT departments are actively determining best practices and providing support, balancing an effort to keep necessary business running, if and to the extent possible, while maintaining compliance with the requirements and recommendations of government and health professionals.  The Associated General Contractors of America (Houston Chapter) recently published COVID-19 recommended practices for construction jobsites (as of March 17, 2020).

Planning ahead in good times helps lessen the inevitable negative effects of disaster when it hits.  Addressing the present issues at hand and planning the appropriate next steps, both immediate and long term, will help mitigate the continuing challenges of COVID-19.