Construction projects are feeling the effects of public health measures to combat COVID-19. As a result of the chaos, the construction industry will likely see an uptick in litigation, arbitration and insurance claims. Taking action early could help businesses deal with these eventual disputes more efficiently and increase chances for a positive outcome.
To understand financial exposure and options to cover losses and expenses under the terms of contracts, the best course of action is to engage the business’ legal representation and insurance providers — the professionals best equipped to navigate contracts, insurance claims and government-funded economic relief packages. But to determine how to start recouping costs and preparing for future shutdowns, it helps to know what questions to ask the experts.
1. What Qualifies as an Excusable Delay?
Because construction contracts require work to be completed on a certain schedule, failure to meet deadlines could result in litigation over who caused the delay and if that should impact compensation. However, delays due to COVID-19 may be out of anyone’s control and thus not anyone’s fault.
Review contractual provisions related to excusable delay with an attorney to determine options to seek time extensions and/or protect scheduling bonuses — not to mention to insulate yourself from future claims over unreasonable delays.
Next, determine if there are any laws or rules in your jurisdiction that might have the same effect as an excusable delay provision. Every state recognizes some form of the law of impossibility that may excuse delays or terminate the contract due to the inability to perform under it.
2. What is the Impact of My Obligation to Provide a Safe Work Environment?
Employers have obligations to provide a workplace free of recognized hazards likely to cause serious injury. As job sites get back to work, the shortage of personal protective equipment (PPE) may present obstacles to providing a safe working environment.
Legal counsel can help determine whether a PPE shortage or presence of COVID-19 impacts liability exposure. For example, if required PPE is unavailable, what is a business’s exposure if (1) employees are required to work on the job, or (2) work is delayed until PPE is available? If shelter-in-place orders are lifted but COVID-19 is still prevalent in the community, it’s important to determine whether the business faces any liability by having employees go back to work — or risks a delay claim if it doesn’t.
3. What are the Notice Obligations Under My Contracts?
Most contracts require a notice of any issues impacting the ability to perform required work within the prescribed time frame. Failing to provide such notice could impact claims for delay damages.
Understanding notice obligations is critical to ensure options are protected for future claims. For prime or general contractors, understanding what obligations subcontractors have to provide notice is equally important. Does the business have any obligations to provide notice to the project owner or others on subcontractors’ notices of delay, for example? It also helps to know the project owner’s notice obligations so the business can be on the lookout for the notices — and to know if the project owner fails to comply with contract terms.
Make sure legal counsel is documenting all steps in obtaining and providing notice for projects so the materials are ready to go should litigation or arbitration be necessary.
4. Can I Terminate My Contract?
Waiting out the COVID-19 crisis to resume work may not be financially sound. It’s worth exploring with legal counsel if the contract can be terminated and, if so, do you have any rights to get expenses or the value of work performed compensated?
5. Would a Contract Amendment be a Better Move?
Even if the business is entitled to recovery, it may not be able to get it due to COVID-19-related bankruptcies, reduced project funding or other factors. Explore if working with other parties now to amend agreements to address delays and supply shortages resulting from COVID-19 could eliminate the need for disputes (and resulting legal fees) later.
6. What are My Duties to Mitigate Damages?
Although COVID-19 may result in losses due to project delays, lack of supplies or cost increases, businesses still have obligations to mitigate those damages where they can. Work with legal counsel to determine contractual obligations to reduce damages, as well as any compliance requirements with statutory or common law rules. Document mitigation efforts and communications in real time to not only save time in the long run, but also to provide the best chance of recovery if involved in a lawsuit.
7. What are My Potential Insurance Options?
While it isn’t clear whether insurance policies will help cover COVID-related losses and extra expenses, there are steps to prepare for making an insurance claim. Identify current insurance policies and determine what, if any, options are available for the business to file a claim. Multiple conversations with separate insurance carriers about the individual policies will be necessary, so document the policy number and answers received to make sense of the options later. Issues to consider include whether there are business interruption or civil authority clauses in the policies, what evidence is needed to support a claim and how to submit a claim.
8. What’s Recoverable?
Once recovery options are understood, figure out what expenses are recoverable. Can future delays or the increase in the cost of materials qualify as a recoverable loss? Do delays from COVID-19 impact any schedule-based compensation; can you seek damages for missed income?
Create categories for the expenses incurred. After the categories are identified, compile documentation for each by project. Categorizing by type and project will help legal counsel know what the damages are, as well as ensure the documentation of everything that can support the claims.
Lastly, with federal assistance programs potentially easing financial hardship, work with legal counsel to understand any impact these programs may have on the contractual or insurance recovery of the business.
As personally and professionally stressful as the coronavirus has been, using this time to keep workers safe and properly prepare for future claims will save headaches — and provide the best possibility of recovery — down the line.
A third-generation attorney, Caitlin Ward is with DISCO, where she helps lawyers innovate to overcome their e-discovery and case management challenges.
