One thing that will change in the post-Coronavirus world will be protection clauses in construction contracts. “Legal” terms once buried in fine print, like “force majeure” and “frustration”, will be closely reviewed by contractors, owners and their legal advisors in the future.
Generic force majeure clauses will likely be more precise. The parties to the contract should give more thought to force majeure definitions. When seeking to limit exposure, contractors must be specific and clear in their contract language when defining the scope and effect of a force majeure clause to protect themselves from unexpected liabilities.
Before signing that new contract, consider several questions: What events are considered force majeure? Who is responsible for suspending performance? Who can invoke the clause? Which contractual obligations are covered by the clause? How should the parties determine whether the event creates an inability to perform? What happens if the force majeure event continues for more than a specified period?
An effective force majeure clause should specifically include any delay, disruption or suspension of the work due to illness, quarantines, closures, government stay at home orders and other restrictions, include both owner and contractor directives as well as municipal and governmental orders. And the result should not only be an extension of time but an equitable adjustment to the contract price. Finally, such measures should preclude or forgive the assessment of any damages, including liquidated damages.
Contractors have now become acutely aware of the problems caused by interruptions and delays in the delivery of materials caused by the Pandemic. As a practical matter, contractors should seek to develop some flexibility in their supply chains to reduce the risk of disruption. Notice and regular communication is imperative. Write into any purchase order or request that a supplier shall notify a customer in writing ten (10) days in advance of any expected delay in delivery and shall thereafter regularly communicate scheduled delivery dates, available product substitutes or replacements, and intended efforts to mitigate the effects of such interruption.
Documentation supporting any cost increases, typically limited to materials only, need to be kept and presented as evidence of any price increases caused by disruptions or delays in the contractor’s supply chain. Include a termination clause as an escape from contracts where the, “cost of materials has increased exponentially or the materials themselves have become difficult or impossible to find.”
During the current Pandemic, we have seen a variety of inconsistent approaches by local governments. Policies have differed substantially depending on the industry involved. The determination of what work is “essential” and what is not affects every industry, including construction. In drafting future contracts, what constitutes a “change in law” is a term to be discussed.
Being more versus less specific is the key. Add where necessary those words and phrases which better define the unforeseen, now that Coronavirus has brought so much into focus.