It’s hard to imagine a construction project of any size that won’t eventually be impacted by the COVID-19 pandemic — whether it’s a labor shortage due to quarantined workers, a delay in receiving specially-fabricated materials or an inability to get permits because government offices are closed. This article provides answers to the most pressing questions a contractor is likely to face during the outbreak.
Can I get extra time to finish the project because of the COVID-19 outbreak?
Most likely yes. A project delay is likely to be the most immediate effect that you — a contractor — would experience. The ways that COVID-19 could delay the project are too many to list. When faced with a delay due to the outbreak, the question for the contractor is whether the delay is excusable. Generally, delays to the project are either considered excusable or inexcusable.
If a delay is excusable, then it means you will be given extra time to finish the project. (Whether you’re also entitled to extra money for the delay is a separate issue that we discuss below.) If the delay is inexcusable, then you’ll be held responsible if the project isn’t finished on time. If the contract includes a liquidated damages clause, then those damages would start to accrue after the contractor fails to meet the completion date. It goes without saying that there’s a lot riding on whether the contract excuses a delay related to COVID-19.
Luckily, the major industry form contracts (AIA, ConsensusDocs, EJCDC) along with the Federal Acquisition Regulation (FAR) are all relatively forgiving of pandemic-related delays — as long as the contractor is careful to give the owner proper notice of the delay:
- The AIA contracts consider excusable delays to be “labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions … or other causes beyond the contractor’s control.”
- The ConsensusDocs contracts consider an excusable delay as any “cause beyond the control of the constructor.” Notably, “pandemics” are specifically listed.
- The EJCDC contracts also allow for excusable delays due to “pandemics.”
- The FAR is the most explicit about disease as an excusable delay and allows for extra contract time for both “epidemics” and “quarantine restrictions.”
Under any of these four contract clauses, the contractor should be entitled to extra time because of the pandemic. Whether or not the contract language specifically references disease, epidemic, or quarantine, the COVID-19 outbreak was so unexpected that no contractor could have foreseen it, and the outbreak was beyond the control of the contractor.
But you may not have a delay claim merely because your city or state is under a “stay-at-home” order. Many such orders make an exception for residential and commercial construction as an “essential business” that can continue to operate while the order is in place.
The extra time, however, isn’t a given. You must still give the owner written notice of the delay. The notice periods will usually vary from 10 days (FAR) to 21 days (AIA) from either the date of the event giving rise to the delay or the date you learned of the delay, whichever is later. Considering that the president declared a national emergency due to the outbreak on March 13, 2020, there’s some argument that everyone’s clock has been running since at least that date. If there’s the least chance you think your project will be delayed by pandemic, give the owner written notice right now.
What happens if you don’t give the owner notice in time? Usually that can be a serious problem, because notice is supposed to give the owner an opportunity to take action to mitigate the delay. In this case, though, the whole world knows about the coronavirus and everyone is expecting disruptions to their lives and businesses. There’s a fair argument then that your notice wouldn’t tell the owner something he doesn’t already know, so there’s no harm in being late.
Further, you may have believed on March 13 that you would be able to meet the deadlines, but have since encountered problems obtaining supplies. Try hard to give your notice on time, but don’t let a minor slip-up cause you to think that all hope is lost.
Can I be compensated for my delay damages due to the COVID-19 outbreak?
Probably not. If you conclude that your delay is excusable, then you next need to consider whether the delay is compensable or non-compensable. On a construction project, time is money. The longer the project is delayed, the greater the cost to the contractor in the form of extended general conditions and increased home office overhead. If a project is delayed due to the pandemic, then the contractor will want not only extra time to finish but additional compensation, too.
Most commercial construction contracts these days aren’t as forgiving when it comes to extra money as they are when it comes to extra time. Today, owners often insert a no-damage-for-delay clause in the contracts. Under this clause, even if the contractor experiences an excusable delay, his or her only remedy under the contract is to get extra time to finish, but not extra compensation for the extended general conditions. Often, the only exception to this limitation is active interference in the work by the owner. During the COVID-19 outbreak, you can expect extra time to finish a project (and consequently relief from liquidated damages), but you shouldn’t expect to be paid for your extended general conditions or increased home office overhead.
In the next installment, Farley and Wells will discuss issues such as whether a contractor can recover increased costs from owners, as well as if projects can be terminated because of the outbreak. Make sure you visit our site next week for the second half of this article about construction in the era of COVID-19.
Luke J. Farley, Sr. is a construction lawyer at Ellis & Winters LLP in Raleigh, N.C. He can be reached at luke.farley@elliswinters.com. Dixie T. Wells is a partner in the Greensboro, N.C., office of Ellis & Winters. She is also a member of the Construction Law and Litigation Committee of the International Association of Defense Counsel (IADC). She can be reached at dixie.wells@elliswinters.com.
