Due to coronavirus concerns, owners and higher-tier contracting parties may be considering pausing work on a project until the impacts of the virus are better known and under control. Suspension clauses typically confer upon one party a unilateral right to suspend contract performance (usually for a certain period of time) without materially breaching the contract.
Before issuing such a suspension directive, however, a party should take care to read and understand its contractual rights and obligations under the contractual suspension clause. Specifically, the party ordering the suspension should understand what additional amounts may be owed under the contract if that party chooses to suspend performance of the work and should be aware of at what point, if any, the other party would be legally justified in terminating the contract. Some suspension of work clauses allow termination of the contract after a prescribed period of suspension of the work. Note also that if the contract does not contain a suspension clause, the owner that suspends work on the project may be putting itself in material breach of contract.
Force majeure law in the context of pandemics and epidemics is largely uncharted territory. While some sources predict an uptick in disputes, claims, and litigation because of the novel coronavirus and its reverberating effects (which could, unfortunately, be felt for some time), it is hard to know now exactly how a court or arbitrator would decide the issue of responsibility for project delays or disruption due to labor shortages, unavailability of or delay in obtaining materials, or the significant increase in cost of materials, caused by or resulting from a spreading virus. In many cases, the unavailability, delay, or increased expense may be out of the contractor’s control. For example, local governments, health organizations, and employers are recommending, and in some cases, mandating restrictions on traveling or assembling in groups, and quarantines.
Rule 9 of the Construction Industry Arbitration Rules published by the American Arbitration Association (AAA) empowers the arbitrator to decide issues regarding the “existence, scope, or validity of the arbitration agreement” and “the existence or validity of a contract of which an arbitration clause forms a part.” This is referred to as a delegation clause. Delegation provisions can be found in various standard rules provided by the AAA and other arbitration administration organizations.
Construction companies with union employees often must make contributions to a defined benefit pension plan sponsored by the union. These plans are called “multiemployer” pension plans.
As a general rule, multiemployer plans are not well-funded. In 2015, for example, a federal study showed that 98.3 percent of multiemployer plans were underfunded. Collectively, that underfunding surpassed $560 billion. And nearly 40 percent of multiemployer plans are in the construction industry.
Most construction professionals regularly file or dispute mechanic’s liens and feel fairly comfortable dealing with them. However, this experience is often concerning a single building constructed under a single contract. Professionals don’t regularly deal with contracts covering multiple buildings. Therefore, professionals often try to follow the same rules they use to file a single lien on multiple buildings constructed under one contract. Unfortunately, by following the same rules, they often inadvertently give up their lien rights on at least one building.
The United States’ recent imposition of a 25 percent tariff on imported steel has been problematic for contractors and subcontractors alike. The increased cost of steel means increased costs on projects, and in many occasions, on projects for which parties have already entered into contracts. In fact, benchmark U.S. steel prices have risen almost 40 percent since the beginning of the year, according to an Engineering News-Record report. In these situations, can a contractor or subcontractor find relief from additional costs in the force majeure clause of their contract? While Missouri courts have not addressed the relationship between increases caused by tariffs and force majeure clauses, extra-jurisdictional courts have offered some guidance on how tariffs could be treated under such a clause.
The author has practiced construction law for nearly 40 years and continues to be amazed or disappointed, as the case may be, by the frequency of one type of problem: Non-compliance with what are usually simple contract terms for giving notice of a claim for additional compensation, damages or time.
Subcontractors and suppliers performing work in Illinois do not have the right to file a mechanic’s lien on publicly owned property. Despite this, the “lien against public funds” provides a useful tool for subcontractors that have performed work on public projects in Illinois and have not been paid.
Businesses with a large number of union employees can often feel trapped in union-sponsored pension plans. This is because “withdrawal liability” — i.e., the employer’s share of an underfunded multiemployer pension plan’s liabilities — can be huge, easily in the tens of millions of dollars. However, as explained below, there is an exemption that employers in the building and construction industry can rely on to avoid withdrawal liability.
The potential ramifications of performing construction without being properly licensed can be severe. Fines and penalties are only the tip of the iceberg. For example, in several states, a contractor that is not properly licensed is precluded from filing a mechanic’s lien. In other states, an unlicensed contractor is precluded from bringing a lawsuit to recover amounts due and owing for its work. California imposes an even harsher punishment — unlicensed contractors may be required to disgorge monies paid for work performed without a license. Finally, several states impose criminal penalties for failure to comply with licensing statutes.