Construction Attorneys Answer Coronavirus Legal Questions

Written by: Jenn Goodman, Senior Reporter, Construction Dive online

The COVID-19 pandemic has

generated a host of legal
issues for U.S. construction
professionals. Here,
construction attorneys from
Minneapolis-based
international law firm Dorsey
& Whitney answer top
questions.

Do most contracts regard the

current crisis a force
majeure?

There are several points to consider here. If the contract expressly includes a FM clause, then the
wording of the clause will be the primary guidance on determining whether the current crisis falls within
the definition of a FM event.

It is unlikely that the words “pandemic” or imposed “shelter in place” or the likes are written into
existing FM clauses. Therefore, the parties will have to look to other commonly used wording in FM
clauses to find ways to apply this crisis to the permitted FM events in the subject contract.

Likely avenues could be an unforeseeable and/or extended change in law event, a national disaster
event, unforeseeable supply or material restrictions or shortages, state and/or federal invoked acts of
wartime, and acts of God. It seems likely that most FM contract clauses contemplate or should or will be
understood to contemplate much of the current crisis.

For example, on-site labor shortage or shutdown due to transmission is likely to fall within a FM contract
clause in some manner. However, supply chain problems may be more difficult to argue, given the fact
that there have been supply chain issues from foreign countries in place now for several months.

Another factor to consider is whether the contract generally excuses performance in the face of a force
majeure event that interferes with an action, or whether it has a higher standard for excusing aspects of
performance (like “rendered impossible by” or “substantially hindered by” the force majeure event). If
the latter, then it may be necessary to evaluate the effect on each aspect of performance. For example,
procurement and sustenance of insurance is not likely to be impossible or substantially hindered, and
certain aspects of construction may also not be substantially hindered.

What happens if there is no force majeure clause in a contract?

Without a specific FM clause in the contract, the parties would need to look to common law and/or
statutes as to whether there is an implied concept of FM in the subject contract.
There are also common law doctrines in equity that courts sometimes apply to excuse performance
under a contract. Doctrines of “frustration of performance” and “impossibility” or “impracticability” can
be applied. Those doctrines often depend heavily on the mutual understanding of the parties at the time
of contracting, as well as the specific performance made “impossible” or “impracticable” by the
unforeseen events.

Generally speaking, however, in the event it becomes literally impossible or illegal to perform under the
contract, the more likely such doctrines are to apply.

If a city or state shuts down construction work, would that be a force majeure?

It depends upon the provision. Some FM provisions define FM to include an act of government or new
law, in which case, yes, it would apply. If limited to the “traditional” FM definition, this is more likely a
change in law, not FM.

Change in law is, like FM, also a creature of contract. That is, if it isn’t expressly included in the contract,
it probably won’t apply. However, irrespective of not having a FM or change in law clause in the
contract, a government shutdown of this magnitude will likely trigger other common law doctrines or
statutes that could be avenues to grant relief to a contractor. In addition, as noted above, if
performance becomes (or is nearly) literally impossible or illegal to perform, the more likely other
doctrines like “impossibility” might apply.

If a contractor elects to shut down projects, would force majeure come into play?

That depends. The most obvious question here is “did the contractor shut down because of immediate
issues that are identified in the applicable contract’s FM clause?” In doing so, the contractor should
strictly follow notice provisions, including invoking the notice/action contract provisions when faced
with an emergency or safety issue.

Unilateral decisions to suspend operations are sometimes a must, but they should be a last resort and
should be invoked under the provisions of a safety/emergency situation with written notice and
documentation to the owner.

Contractors, along with their subcontractors and owner, should be actively discussing how best to treat
the current issues, and mutually determine what, if any, of the construction can remain in
execution. Maintaining open dialogue with transparency among the parties will likely result in less
contentious changes or stoppage to the execution of the work.

If delays are due to a supply chain or labor issue, who is responsible?

Assigning responsibility at this point is likely going to be very difficult, if not impossible. Look to the
contract terms, carefully review FM, change in law, excusable delay and other clauses that may be
applicable. Contractors need to keep their team and the owner fully informed and work in good faith in
the interests of safety first, as well as critical needs and innovative mitigation of project delays.

Contractors also need to keep detailed records of extra-contractual expenses (like the cost to
demobilize, protect works, etc.) for purposes of potential relief.
Can contractors amend their current contracts to help protect themselves from risks associated with
the coronavirus or is it too late for projects in progress?

It is certainly worth approaching the owner and trying to work in good faith to reach a mutually
beneficial amendment to the contract so as to avoid timely and costly claims and disputes. Amending a
contract to address the reality of performing the contract due to this unanticipated national and
international crisis is in the best interests of both parties. This should be a first course of action for
parties to undertake in this environment.

###

This article was written by Jenn Goodman, Senior Reporter for Construction Dive. She
can be reached at mailto:jgoodman@industrydive.com. It was published March 26,
2020 on Construction Dive online.

Have a coronavirus-related legal question? Send it to Construction Dive.

The information provided in this article does not, and is not intended to, constitute
legal advice. All information here is for general informational purposes only.