Good Grief! Now What?

Published On
Apr 15, 2020

The problems electrical contractors are facing from the coronavirus epidemic are not only extremely difficult ones, but government actions seem to make the situation even more chaotic. There is an old curse that applies here: May you live in interesting times.

Across the United States, there is no consistent approach by state and local governments to protect the public. As a result, there is no consistent global legal analysis to address each instance of job disruption, delay, work stoppages, late deliveries, etc. In each area of the country, some industries, warehouses and delivery services continue to operate while others are problematic. While you are trying to come up with a feasible plan to confront the very serious issues facing your company, and to control the financial harm, the rules keep changing.

Many construction attorneys have immediately turned to a contract’s force majeure clause as the controlling element. This type of clause gives a time extension but usually no delay or disruption damages, in the event of certain types of catastrophes: fires, strikes, acts of civil disobedience and unusually severe weather, to name a few.

Epidemics are rarely on this list but may be seen as being the type of event that should be included. The difference, however, is that the virus, unlike a flood for example, may not make construction impossible. In addition, the major impact to your work may be emergency measures taken by the government and not because your workers are ill.

As a general rule, the cost and time for a contractor to comply with new health and safety regulations does not entitle it to additional time or money. I am sure you have experienced code changes during a project, and you must comply without being compensated for the cost.

For federal government contracts, there is a specific regulation that addresses the effects of an epidemic. Under FAR Section 52.240-14, a contractor will not be deemed in default for failure to perform if the failure is caused by an epidemic or quarantine restrictions. Individual states, for state contracts, may have similar laws and they need to be researched. Note, however, while the FAR may prevent you from facing a default termination, it does not offer much else.

Very generally, the types of contract clauses that can give you some relief, besides the force majeure clause, include suspension of work provisions. The changes clause may also apply, either to the direct cause of the job disruption or to the eventual restart of operations, especially under the circumstances where the project owner makes decisions, independent of government orders, that affect your ability to work efficiently. These questions are extremely job specific.

Although the present crisis is a matter of obvious public knowledge, any written notice clause of your contract should still be followed. When you send a notice, it may be a good approach not to make a legal decision as to what contract clause applies. Rather, a description of the nature and effect of your job impacts will give the owner a clearer idea of what you are confronting.

It is worthwhile for you to contact your construction attorney on what course of action to take. Your attorney, for example, might suggest an off-the-record meeting with the owner to work on some compromise plan for reducing the financial harm of a disrupted project for both parties. Practical considerations may take precedence over legal positioning.

There is another good reason for meeting with the owner: the viability of the project. For example, a hotel developer may seriously consider canceling a new hotel construction for two reasons: there will be a lack of hotel patrons in the near future and, more important, the developer may not have enough revenue from existing sources to continue the project. It is a sensitive issue in the law to request financial assurances from an owner, but you may want to explore that approach with your attorney.

It may be worthwhile to contact your principal subs and suppliers to find out if there is going to be any interruption in their services. You may also want to talk to the owner about paying for prepurchased supplies for your projects to avoid future shortages or price increases. Keep in mind, under classic contract law principles, you are not released from your obligations because a job becomes more difficult or more expensive, but usually only if it becomes impossible to continue.

Finally, it appears that the federal and some state governments are giving consideration to legislation to compensate some individuals and companies because of the epidemic. These are laws that cannot be known now but should be monitored.

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