Expert Commentary

Modify Construction Documents in Light of COVID-19

As we now work toward returning to some form of normalcy, I want to highlight some issues that could come up in the near future and try to offer some strategies on handling the risks concerning existing construction projects as well as potential new projects.


Construction Law
May 2020

For your existing projects, we want to try to avoid waiving claims that you may have for extensions of time or for equitable adjustments as a result of the delays/suspensions or stoppages of work resulting from the pandemic. For potential new projects, we want to try to make sure that you are able to get extensions of time or recover additional costs if there are future delays resulting from the COVID-19 pandemic.

I fully expect that there will be significant cooperation between and among all of the entities involved in construction projects, from the owners and developers to the construction managers, prime contractors, subcontractors, and suppliers. I fully expect that extensions of time for time lost due to the pandemic will be given without hesitation or argument. Where appropriate and possible, I would hope that owners/developers are sensitive and responsive to the financial distress caused by the pandemic, so at least they will consider reimbursing the additional costs incurred by the contractors and subcontractors as a result. I expect owners and developers to release funds as quickly as possible, with upper-tier construction managers and contractors releasing funds ahead of the times mandated in the lower-tier contracts when possible.

However, since we are still in the real world, consider the following.

On Existing Projects

Beware of waivers and disclaimers when submitting future requisitions. Most owners/developers/construction managers obviously require partial releases and waivers of lien in connection with every requisition that is submitted. The language typically is very broad, requiring the contractor or subcontractor submitting the requisition to waive all claims for additional costs or additional time in exchange for receiving a progress payment.

Typically, these waivers and releases are enforced by the courts. Therefore, for each requisition that you submit for a progress payment, make sure you exclude any claims for additional time or additional costs tied to the delays caused by the COVID-19 pandemic. Many times, the partial or interim release and waiver of lien will have language that allows you to specify any open claims.

So, if you are working with that form, make sure you include language saying that the partial waiver and release does not apply to the requests for extensions of time and claims for additional costs that have been submitted or that will be submitted relating to the pandemic. If the partial waiver and release form does not have space or language that allows you to identify claims that are not being waived, then I would suggest that you write in language at the end of the form that makes clear that you are not waiving those types of claims.

The situation may be more complex if a construction manager or owner will not allow any edits or changes to a partial/interim release and waiver and will not allow you to add any language that reserves your rights to make the claim for an extension of time or additional costs tied to the pandemic. Frankly, I think that would be a dumb and inexcusable position for an owner or construction manager to take. However, if that happens, then you may need to consider trying to force them to make a decision on the claim immediately so that you do not risk waiving the claim. If the claim is denied, follow the procedures in the contract. Typically, a contract will require the contractor or subcontractor to continue work when a claim is denied but then describes the process that must be followed by the contractor or subcontractor to reserve and then pursue the claim.

Make sure your claim is presented as required by your contract. I will formally advise you, at no cost, that reading your contract with the upper-tier after work starts (whether the upper tier is the owner/developer, construction manager, or general contractor) is not against the law. In my construction law seminars, when I say that, there is always a deadly silence from the attendees right after. (In one of my seminars, however, a contractor yelled out, "Thank You," after I gave that advice. At least it sounded like "Thank you.")

Your contract will very likely provide explicit instructions on how to make a claim for an extension of time or for additional costs. Follow the procedure to a "T" since most contracts will say that if you fail to comply, that acts as a waiver. I generally suggest to our clients that they create a form that tracks exactly what the contract requires. For example, if your contract says what is needed to make a force majeure claim for a certain extension of time, I suggest you put those words at the top of the form so that it clearly reads, at the top, "Force Majeure Claim for Extension of Time." Below that, identify the project, the date, and the parties (owner, construction manager, or contractor) and then have separate numbered paragraphs below that have the information required by the contract for the claim.

For example, your contract likely will require a description of the delay event, a breakdown of how the delay is affecting the work, a guesstimate of the duration, and a description of what is being done to try to mitigate (or lessen the impact of) the delay. The claim form that you create and submit will have separate paragraphs for each item. The first numbered paragraph could be titled "1. Description of Claim." Give a summary of the delay event at that line. The second could be titled "2. Breakdown of How Delay Is Affecting the Work." You would then list the effect of the delay on your work. (It may say nothing more than "As a result of the delay and suspension of the project, we cannot proceed with our work.") The next few numbered paragraphs would contain the rest of the details as required by the contract.

Submitting the claim. Once the form is complete, make sure your office submits it as required. Your contract probably has a separate paragraph that says how notices must be submitted—follow that requirement.

Late notice. The extraordinary circumstances surrounding this pandemic may have caused your company to miss the accelerated times that your contract may require to submit a request for extension of time or a claim for equitable adjustment. I recommend that you file the request or claims as quickly as possible even though it may be after the time frame. In my mind, the failure to meet the really expedited time frames is understandable under the circumstances. Besides, the upper-tier likely is aware that the claim will be made given the prior communications between your company and the upper-tier as this pandemic spreads.

For example, an owner or construction manager who issues a stop-work order as a result of the pandemic must be aware that a claim for an extension of time will be made for the lost time. To me, it would be a sharp practice for an upper-tier then to claim there was a waiver since the claim was not made within the 2 or 3 days mandated by the contract. (I'm not really sure what a "sharp practice" is—but someone once accused me of that, and it sounded bad.)

Request for equitable adjustment. I've read a few expert articles about whether contractors and subcontractors can collect additional costs resulting from a delay caused by the pandemic. Even if you believe that a claim may not be successful, it may be worthwhile to submit a request for equitable adjustment for those additional costs to at least protect your rights. Who knows? I will say that I recently saw a subcontract that incorporated by reference a development agreement saying that the owner would pay for various categories of additional costs if the project is stopped due to force majeure.

New Contracts

Last week, I reviewed a proposed prime contract for a general contractor client and was surprised by the language dealing with extensions of time for delays caused by force majeure. The clause said the following.

(h) Time is of the essence for each and every portion of the Work.… Contractor shall not be charged with any excess cost if [Owner] determines that Contractor is without fault and that the delay in completion of the Work is due to: …

(2) an uncontemplated cause beyond the control and without the fault of, or negligence of Contractor, and approved by [Owner], including, but not limited to, acts of God or of public enemy, fires, epidemics, quarantine, strikes, freight embargoes and unusually severe weather; and

(3) any delays of Subcontractors or Materialmen occasioned by any of the causes specified in subsections 1 and 2 of this paragraph.

The language makes clear that the contractor is entitled to an extension of time if the future delay is caused by force majeure events, including a pandemic. However, the paragraph also says that the extension of time will only be given for uncontemplated delays tied to the force majeure event. If our client signs the contract now, then a delay tied to the COVID-19 pandemic may not be considered "uncontemplated," would it? It certainly seems that in the near future—and perhaps for the foreseeable future—there could be delays as a result of a lack of manpower or a lack of efficiency as a result of COVID-19. Therefore, delays tied to COVID-19 may be deemed expected or contemplated. Since they could be considered "contemplated," those COVID-19 delays then would not give rise to an extension of time. Yikes!

As a result, we modified the language in the paragraph to make clear that any delays tied to COVID-19, "2019-nCoV," the "novel coronavirus," "severe acute respiratory syndrome coronavirus 2," "SARS-CoV-2," or the pandemic would give rise to an extension of time, regardless of foreseeability.

Conclusion

In summary, double-check the partial releases and waivers of lien that you submit with your requisitions to make sure that you do not accidentally waive claims for extensions of time or for additional costs. For new projects, check the language on the extension of time to make sure that any delays due to the pandemic can still be grounds for an extension of time and/or increased costs.

I hope everyone is safe and well. The pandemic has taken an enormous toll on the physical, emotional, and economic well-being of our families, friends, neighbors, employees, and colleagues. Keep plugging. And please wash your hands and brush your teeth after reading this article.


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