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Construction contracts and coronavirus complications: Will force majeure hold?
By Emily Hermreck on March 18, 2020 at 3:30 PM

Construction contractForce 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.

With government-imposed implementation of preventative measures to avoid exposure to the coronavirus and/or other measures in cases of actual infections, it is not out of the question that domestic contractors could see a significant effect on productivity, costs, and their ability to meet completion deadlines.

Contractors and subcontractors facing these issues may look to force majeure law or relevant contract provisions to provide some guideposts to aid parties in evaluating their potential claims and grounds for relief.

As an initial matter, it is important to note that force majeure law varies by jurisdiction. Similarly, the right to time or cost relief will vary on the controlling contract terms. Thus, contractors and subcontractors with projects in multiple states should evaluate each contract and force majeure provision in light of the specific contractual text and that jurisdiction’s force majeure precedent.

Force majeure contract provisions

For construction contracts containing a force majeure provision (such as a time extension clause), the language of the force majeure provision must be evaluated regarding specific occurrences identified as qualifying force majeure events.

While some jurisdictions are willing to read force majeure provisions broadly, other jurisdictions have case law narrowly enforcing force majeure provisions and may not grant relief unless the force majeure clause specifically references the cause of the delay or nonperformance. As a general matter, contractors are likely to be in a better position to argue that a force majeure event has occurred if their contract language specifically denotes a “pandemic,” “epidemic,” “outbreak,” or “quarantine,” as a qualifying force majeure event, than a contract with only general force majeure language. Whether the coronavirus would fall under a more general provision such as “acts of God” or “any other emergency,” “any other unforeseen event,” or “any other cause beyond the contractor’s/ subcontractor’s control” may depend on whether courts in that jurisdiction read force majeure clauses broadly or narrowly. Some courts have limited “acts of God” to natural disasters.

Contractors and subcontractors should also consider whether their contract provides for the level of interference, or extent of the harm, that the party must feel before it may invoke force majeure and seek relief.

Defining “impossible”

Does the contract provide that the occurrence of the force majeure event must make performance of the contract impossible (such as government-imposed quarantine or import restrictions), or does the contract language allow for commercial impracticability or non-profitability to serve as grounds for force majeure?

Some courts have been less willing to find that a change in economic or market conditions affecting the profitability of a contract constitutes a force majeure event if the cause of the change is not among those force majeure events listed.

The claimed force majeure event must be the actual cause of the party’s nonperformance. If, for example, it was unlikely that the party could have timely performed even if the outbreak had not occurred, the party’s force majeure argument is weaker – although this may nevertheless be considered a concurrent delay.

Additionally, reasonable efforts should be taken to mitigate the effect of the force majeure event. For example, in the case where a contractor is short-staffed due to its workers self-quarantining, does the contractor or subcontractor have a contractual obligation to cover by attempting to find healthy temp laborers? Furthermore, a party desiring to invoke force majeure should also take care to abide by any notice provisions in the contract, and should document the time and costs incurred resulting from the force majeure event.

Other legal doctrines similar to force majeure such as doctrines of impracticability

Where no specific force majeure clause is included in the contract, a party may be able to seek relief from contractual performance via the common law doctrines of impracticability (frustration of purpose) or commercial impracticability.

Under these doctrines, a court may relieve a party from performance under the contract if changed social, economic, or market conditions have made performance under the contract impossible or extremely burdensome and unreasonable.

However, the doctrines of impossibility and impracticability are generally construed narrowly by courts. Absent favorable contract terms, courts have been generally unwilling to provide relief based on claims of impossibility or impracticability.

What can we learn from cases stemming from the 1918 flu epidemic?

Cases born from the 1918 influenza epidemic and World War II give some insight into how a court might construe force majeure clauses, or claims of impossibility, in light of government directives.

In one World War II case, governmental restrictions and priority regulations were held to create an excusable delay because it was impossible for the project owner or contractor to commence construction.

In another World War II case, a contractual obligation to ship certain materials was excused where the United States Maritime Commission ordered that the goods contracted for be replaced with a different type of good. Because of the nature of the “governmental crisis,” the contract obligation was discharged.

In breach of contract cases tried in aftermath of the 1918 influenza epidemic, courts were split. Some courts held that where a contract became impossible to perform because of school closings mandated by public health officials, the contract was unenforceable and there could be no recovery for the time period during which the contract was unenforceable. In contrast, other courts held that the possibility of a school closure due to a health epidemic was not unforeseeable at the time of contracting, and that if a school wished to escape contractual liability for such an occurrence it should have inserted a provision to that effect in its contracts.

Key takeaways and recommendations

In the case of both force majeure and impracticability, the event must have been unforeseeable to the parties at the time of contracting. The argument could be made that the coronavirus was unforeseeable to the parties at the time of contracting. Whether failure to meet contract obligations because of the coronavirus is an excusable force majeure event will ultimately depend on the specific government-imposed requirements and how courts in that particular jurisdiction or an arbitrator construe the relevant contract terms and force majeure legal principles.

Below are some recommendations for taking proactive steps to minimize impacts from the coronavirus on existing contracts:

  • If you suspect that the coronavirus may impact your team and/or your progress on the project and ability to meet project completion dates, begin documenting those impacts, immediately.
  • A detailed log showing how and when the project was impacted due to the coronavirus outbreak will be important should you wish to make a force majeure or impossibility/impracticability claim.
  • Consider whether your contract contains a notice requirement to the other party in the event of a possible force majeure claim.
  • In the event that you do encounter project impacts related to the virus, you may be required to send formal notice pursuant to the requirements of the applicable contract.

To proactively take steps to minimize impacts on future contracts, we recommend:

  • Parties negotiating contracts now and in the future would be prudent to ensure that their force majeure provisions expressly address the subject of pandemics, epidemics, the risk of government-mandated quarantines, and the like.

Our Construction Industry Group is continuing to monitor these developments and is available to answer your questions related to matters affected by COVID-19.

Link to COVID-19 Resources page

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