91视频

The ongoing COVID-19 outbreak represents an unprecedented challenge to the construction industry 鈥� not just the immediate impact of labor shortages and adaptation to social-distancing guidelines, but also the long-term impact on productivity and supply-chain disruption.

As project managers address the immediate and ever-evolving day-to-day impact, they should not forget to prepare for the long-term impact. Now is the appropriate time for all parties involved in the construction industry to reassess their risks of supply-chain disruptions, labor shortages and governmental restrictions on their projects now under construction or on tap to begin soon. By taking the following steps, businesses may be able to soften the coming blow.

Review contracts

Downstream, upstream and financing agreements may contain provisions addressing the risk of this unprecedented challenge. While legal doctrines fill in the gaps, express contract provisions control.

One important contract provision that must be considered is the force majeure clause. This clause excuses contract nonperformance caused by unforeseen events beyond either party鈥檚 control that make performance impracticable or frustrate the purpose of the performance. When reviewing a force majeure clause, pay particular attention to the following:

• Does it list events constituting force majeure to the exclusion of other events, or is there a catchall provision?
• What are the notice or documentation requirements to trigger force majeure rights?
• What are the limits of a force majeure claim? Are you limited to just an extension of time, or can you also recover cost impacts?

Another equally relevant provision is the contractor鈥檚 right to terminate if work is stopped for an extended time, typically 30 consecutive days, because of an act of government. Upon proper notice, the contractor can terminate the contract and recover payment for work performed, as well as reasonable overhead and profit on work not executed, and costs incurred by reason of the termination.

Other potentially relevant provisions include 鈥渃hanged conditions鈥� and 鈥渟uspension of work.鈥� This is certainly not an exhaustive list of potentially relevant contract terms. Every contract is different. Thus, the first step is ascertaining the relevant contract provisions to determine what protections are available under the contract in response to the COVID-19 outbreak.

Monitor outbreak areas

We know the local situation 鈥� but the construction industry relies on a national supply chain, if not a global one. Key trades and material suppliers are facing similar supply-chain disruptions, labor impacts or governmental actions (such as quarantines or travel restrictions) that affect projects. Understanding the virus鈥檚 impact on suppliers assists in developing a claim.

Review insurance policies

Insurance for large projects is highly customized and could include coverage for 鈥渟oft costs,鈥� including 鈥渢ime element鈥� or delay. Coverage, however, is typically triggered by physical damage to the project itself. Nevertheless, 鈥渟oft costs鈥� coverage may be written in such a manner that it could be triggered by a 鈥渃ivil authority鈥� directive to shut down the project untethered to specific physical damage. Moreover, for projects in the pipeline, talk with an insurance professional about available insurance products for future projects. Review the insurance portfolio to determine whether there is coverage that can mitigate the impact of a construction delay or COVID-19-related shutdown of a project.

Keep detailed records

Accurate contemporaneous documentation is critical for multiple reasons. First, the contract likely requires documentation and notice contemporaneous with the event giving rise to the claim. Second, contemporaneous documents have much more credibility with a fact finder than after-the-fact re-creations based on memory and assumptions. Third, contemporaneous documentation shows the cause-and-effect relationship between the event and the delay.

360-degree project review

Reevaluate the construction budget and construction schedule in light of the virus鈥檚 impact on workforce availability, material cost, and supply-chain impacts. To do this, open a dialogue with the project team, the owner, the design professionals, the lenders, the general contractor, the subcontractors, and the key material suppliers regarding the impact of this virus on the budget and schedule and the team鈥檚 efforts to mitigate the impact on the project. Verify in writing the team鈥檚 ability to perform and pass the verification, or lack thereof, upstream. No one will be alone or unaffected by the virus. A proactive dialogue up front may go a long way toward avoiding expensive disputes down the road.

Finally, owners, designers, lenders and contractors alike should bring in experienced counsel to assist them through this unprecedented event. Experienced counsel can assist in reviewing the insurance portfolio, developing contemporaneous records, and guiding resolution before the litigation battle lines are drawn.聽And when parties disagree, experienced counsel can make sure that rights are preserved while the project continues to completion.

Jacob Zahniser, a Miller Nash Graham & Dunn partner, focuses on construction and real estate litigation, as well as insurance coverage disputes arising from construction defects. He represents clients including contractors, suppliers, and insurance policyholders and assignees to commercial property owners, landlords and homeowners associations. Contact him at 503-205-2352 or [email protected].

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91视频 guarantees the accuracy or completeness of any information published herein.