Since COVID-19 was formally declared a pandemic on March 11, 2020, the construction industry has been bracing for the impact it may have on the health of its employees and workers and on operations as a whole. There has been widespread speculation and concern as to what delays the pandemic would cause to the industry and specific construction projects. States, including Indiana, have proceeded with issuing sweeping Executive Orders defining essential business and services and typically allowing construction work and operations to move forward. Governor Holcomb issued Executive Order 20-08 defining construction activities as “Essential Infrastructure” while still imposing “Social Distancing Requirements” and other measures and restrictions on businesses and the industry.
Despite this Executive Order, the question of whether the COVID-19 pandemic gives rise to excusable or compensable delays remains largely unanswered. The industry is still facing the very likely prospect of labor and manpower shortages, disruption to supply chains, material delays, and the possibility that government and/or civil authorities may impose additional restrictions and limitations. There may be impacts to productivities and efficiencies as companies and job sites try to adapt to Social Distancing Requirements, OSHA, and CDC guidance and protocols. What is the result when companies voluntarily shut down or withdraw on a project?
While some form of delay or labor inefficiency seems inevitable, the key question then becomes: Who will bear the burden of any cost and schedule impacts? Many industry experts have debated whether the pandemic itself and/or any of the resulting impacts will qualify as an excusable delay or Force Majeure event. Force Majeure is the excusing of contractual performance as a result of unforeseen circumstances. Although many people associate Force Majeure with “Acts of God,” the application can vary significantly depending on the wording of the contract.
The purpose of an “excusable delay” or “force majeure clause” in a contract is to (1) allocate risk, and (2) provide notice to the parties of events that may suspend or excuse performance. Many contracts will make express reference to “Acts of God” or utilize the broader language of “circumstances beyond the control” of the parties. The American Institute of Architects (AIA) A201 General Conditions § 8.3.1 refers to “labor disputes, fire, unusual delay in deliveries, unavoidable casualties or other causes beyond the Contractor’s control.” The ConsensusDocs 200 Standard Owner-Constructor Agreement expressly refers to “epidemics” in its excusable delay clause. Although inclusion of the term “epidemic” or “pandemic” may make the analysis more straightforward, most parties will be left to argue whether the COVID-19 pandemic fits within the scope of their respective excusable delay or force majeure clauses. More importantly, it is the resulting events and impacts stemming from the pandemic that must be evaluated and put under the contract microscope.
Regardless of the scope of such clauses, the parties must look to their respective contracts to determine whether only a time extension is allowed, or whether there are grounds for an adjustment to the contract price. The contract may further define: (a) the types of costs recoverable; (b) the burden or methodology needed to establish, prove and document such costs; and (c) notice, timing, and formal submission of claim requirements associated with pursuing any time extension or contract price adjustment.
How will the Courts and arbitrators come down on these issues? Under Indiana law, claims that non-performance or delayed performance of a contractual duty should be excused under a force majeure theory are largely evaluated on a case-by-case basis. The first and most important issue for courts to consider is the specific language of the contract, as “the scope and effect of a force majeure clause depends on the specific contract language, and not on any traditional definition of the term.” Specialty Foods of Indiana, Inc. v. City of S. Bend, 997 N.E.2d 23, 27 (Ind. Ct. App. 2013).
The harsh reality is that delays associated with the COVID-19 pandemic will be extremely case specific based on the project, the contracts involved, and the underlying facts. While the industry’s primary goal is to keep its workers and their families safe and healthy–and that is undeniably the most important result–and not to revert to claims and litigation over these issues, it is critical to start evaluating these risks now and gain an understanding of how they can be avoided and resolved informally, and ultimately how they may be adjudicated if a dispute is unavoidable.
If you have questions about project delays or your specific contract, contact your DSV attorney or Patrick A. Drewry at firstname.lastname@example.org.