Construction Considerations During the COVID-19 Pandemic

An open, collaborative mindset is important in these unprecedented times.

The COVID-19 pandemic has radically impacted how development and construction firms operate. The industry is currently navigating rapidly changing governmental orders concerning business closures, many of which vary state by state, as well as major disruptions of ongoing projects. Now is the time for these business to think ahead about how they will deal with delay claims and claims for additional compensation once the full extent of the pandemic  is known.

During a recent NAIOP webinar, Duane Morris LLP attorneys Meghan DiPerna and Kenneth Lazaruk, along with Brian Perlberg, senior counsel for construction law and contracts with Associated General Contractors (AGC) of America, discussed contractual force majeure provisions and other challenges arising from the pandemic.

A Force Majeure Event?

“We are in unprecedented times,” said Perlberg. “The first question we have is, ‘Is this a force majeure event?’ ”

Despite construction being declared an "essential" business in most states, many projects are on hold across the country amid the coronavirus pandemic. Getty Images

Perlberg explained that force majeure (which literally means “superior force”) is a risk-allocation principle that is best interpreted as “It’s nobody’s fault; how are we going to handle this?”

While not every contract calls it “force majeure,” most contracts do feature a force majeure clause, Perlberg said, which usually provides an extension of time for performance. The pivotal questions to consider are: How are you going to deal with the added costs, and what insurance products might you have?

Notably, Perlberg said, contracts with force majeure clauses require prompt written notice, and the clause doesn’t take effect automatically — you have to show causation. It’s important to consider increased costs for construction as well as liquidated damages.

Notice of Delay Letters

When building owners receive a notice letter, their responses can vary, said Lazaruk. Some letters might have language that refers to force majeure or contemplated delay clauses. Others might refer to circumstances, such as the contractor reserving their rights under the contract because the state has shut down the job.

That’s exactly what happened in New York, both the state and the city. Lazaruk said his law firm has responded to some of these letters by saying, “Yes, we acknowledge that there is a stoppage and we ask that you reduce your forces on the job to what is necessary and close down the job according to the New York Department of Buildings regulations. You keep it secure, and you reduce your manpower down to what is necessary to keep that job secure.”

DiPerna said construction contracts usually include strict time frames that the contractor has to comply with to submit a claim. However, there is usually no mandatory time frame for the owner to respond or risk waiving the right to object to the claim. Every contract is different, she said, but from an owner’s perspective it’s very difficult to assess these claims given that we don’t yet know the full impact of the pandemic or duration of these job stoppages.

“What owners have to be thinking about right now — if you’re located in a state where your job is shut down — is that you need to be communicating to your contractors what has to be done in terms of wrapping up the project and securing the site,” DiPerna said.

For jobs that are allowed to continue, it’s essential to make sure the contractor has a plan in place for complying with any requirements such as ongoing safety inspections or required reports, DiPerna said. In some states, projects related to health care or other critical infrastructure can continue; however, a COVID registration number is required.

“If you’re going to continue operations, which is essentially a permission slip from the government, you have to do it right,” Perlberg said.

Managing Ongoing Operations

The coronavirus pandemic is raising questions about the roles owners can play with regard to safety. Should they be able to tell contractors how to operate safely? Do owners have a role in scheduling and ongoing construction operations?

“As an owner, you still want to act responsibly, especially in these times,” Lazaruk said. “You don’t want to be someone who is pushing a job that will incur problems,” citing the example of a project that would have to shut down for containment and cleaning if a worker tested positive for coronavirus. “I don’t think the owner is going to create a job site that is going to encourage an unhealthy place to work.”

Marie Ruff is communications senior manager at NAIOP.