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November 2020

The Pandemic May Be in Its Ninth Month, But Your Construction Contract Should Still Address COVID-19 Head On

Every construction contract MUST address COVID-19. Period. Full Stop. The virus impacts construction projects in several ways, just as it affects our daily lives in a myriad of ways. Regulations at the local, state, and federal levels—including workplace restrictions and total shutdowns—COVID-related materials shortages, and owner decisions to suspend performance, increased sanitization measure, and workplace safety claims, leave developers and contractors exposed to financial loss and/or liability. All these things impact the project- timeline and profitability of the project.

Contracts should be priced to account for potential COVID-related delays and unexpected costs and must be adjusted accordingly at the front-end to reduce claims for equitable adjustments as the project proceeds. In addition to proactively pricing for COVID-related costs, construction contracts should have a provision dedicated to COVID-19, specifically.

On the top of the list of concerns for most contractors are unexpected delays and related costs, which tend to be more likely than extreme events such as a shutdown of work. Force majeure provisions are nothing new, however they do not contemplate the unique circumstances posed by the virus. A provision addressing COVID should account for the possibility of equitable adjustments and address the particulars that either party must prove for an adjustment, including an explanation that the increased cost arose from work which was materially different than that which was contemplated, the increased costs were proximately caused by the results of the unexpected changes, and an explanation that the change was not foreseeable.

The contract language should address which specific events constitute force majeure and the remedies afforded to any affected contractor, if any (i.e., time or money).

At this point in the pandemic, contractors can be expected to know, or at least foresee, the potential impact COVID can have on a project. Clearly laying out what contractors must prove for a COVID-related equitable adjustment permits adjustments for any legitimate delays while also deterring contractors from manufacturing bases for an equitable adjustment.

Before entering into any construction contract, thoughtful consideration must also be given to any COVID-related risks based on the nature of the project itself and your role in the project. Not all COVID-related measures apply equally to all contractors. For example, certain contractors’ scope of work may require regular deep cleaning of the work area whereas other contractors working in open-area environments in uncompleted phases of a project will not. This calls for tailored solutions as to which phases of construction require regular deep cleaning and which entity is responsible for coordinating and paying for any such deep cleaning. This can be addressed by including a standard contingency clause with a specified amount covering certain costs that permits the contracting parties to either select or deselect the contingency clause based on the relevancy of the contingency to their scope of work.

Gordon & Rees assists all types of businesses involved in construction at all stages of the contracting and construction processes. If you need help drafting and negotiating contractual language concerning COVID-19, get in touch with our highly experienced construction team.

Construction

Andrew R. Schindler
Ari C. Shapiro



Construction

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