For the South Florida construction industry, the coronavirus pandemic has caused suspensions of construction projects and a complete shutdown of the permitting/inspection department in Miami-Dade County. Contractors facing these and other challenges during the COVID-19 outbreak will need to consider several strategies to help mitigate the impact and decrease their losses.
The process should begin with thorough contract reviews by qualified construction attorneys for their “force majeure” provisions, which are typically incorporated in construction contracts to afford contractors with relief in circumstances that are considered “acts of God,” “unforeseen events” or “natural disasters.” These clauses may allow contractors to obtain time extensions on completions and possibly also recover additional costs or increase their total payment terms.
Legal counsel will evaluate whether current conditions categorize the COVID-19 outbreak as a force majeure event or whether other contractual provisions may apply to allow for claims for added costs and time extensions. Though a virus has never impacted the construction industry to this magnitude before, contractors may be able to turn to force majeure law or other similar contract provisions to file claims and seek damages.
Contractors will also need to follow the notice provisions under their contracts for communicating delays and additional costs. It is essential to use their contracts as the guide for the time limits for giving proper notice as well as determining who must be copied on the notice and how it should be delivered.
Typically, many standard form construction contracts require a contractor to provide notice to the owner of any delays in a timely fashion. While the situation continues to evolve rapidly with COVID-19 and none can predict the ultimate outcome of this pandemic, all contractors should be providing notice to the owners of any anticipated delays and potential impacts due to labor and material shortages, compliance with social distancing requirements, and the inability or delay in obtaining inspections. These notices should also include a request to discuss with the owner a plan to reduce the impact on the schedule and additional costs that are expected to be incurred.
For those eventual discussions, contractors will need to keep detailed records of all the ways the virus has impacted a project in order to substantiate their claims for additional costs and extensions of time. Staffing changes due to infections, project delays caused by social distancing directives or other mandates, and all other pandemic-related circumstances affecting the project must be carefully chronicled.
It is also recommended that contractors have a preparedness plan to help mitigate issues that would cause delays or disruptions, as otherwise their non-performance might be considered a breach of contract. For example, contractors should have replacements in line in case any of their employees gets infected. If shortages to project labor are expected, contractors should have recruiting companies available to help fill those shortages.
Contractors remain responsible for the means and methods of construction, and they must take appropriate actions to mitigate any delays and costs. They should review and implement jobsite safety procedures to prevent having the disease spread around the construction site. Providing staff with handwashing stations, ensuring that personnel maintain six feet of separation, and monitoring and disbursing employees who may congregate during breaks can prevent projects from being shut down for non-compliance with emergency orders.
Even though governmental orders have not halted construction in South Florida, some developers and property owners are suspending work at their jobsites. Depending on the contract, there are often clauses that not only allow an owner to suspend a project, but also give contractors the right to terminate the agreement or seek additional compensation if a project suspension surpasses a certain amount of time.
Contractors should review their insurance policies to determine if they are covered for coronavirus-related losses. Business interruption clauses or supply chain risk insurance may provide coverage for the economic impact COVID-19 has had on their business.
Additional financial relief for contractors is also available under the new Coronavirus Aid, Relief and Economic Security (CARES) act, which includes the Paycheck Protection Program with 100 perfect federally guaranteed loans to small businesses. Additional information on the program and online applications are available at www.SBA.gov.
The COVID-19 outbreak is having a devastating impact on several industries across the nation, and the construction industry is not being spared. Contractors will need to work closely with highly experienced construction law attorneys to implement the most effective tactics to help mitigate the impact of the pandemic on their projects.
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