Are These Protections in Your Construction Contracts?

by | Mar 9, 2021 | Contracts

The Coronavirus changed our world in so many ways.  Everyone in every industry has been impacted, including construction.  And the one place where contractors have immediately made some changes has been with those previously ignored clauses in fine print within their contracts – clauses dealing with force majeure, delivery delays, price protections and government policies.

Force Majeure

Those force majeure clauses must now be more precise. Parties to a construction contract should give more thought to force majeure definitions. When seeking to limit exposure, contractors must be specific and clear in the language they select when defining the scope and effect of a force majeure event so as to protect themselves from unexpected liabilities.

Before signing any new contract, consider several questions: What events are considered force majeure? Who is responsible for suspending performance? Who can invoke the clause? Which contractual obligations are covered by the clause? How should the parties determine whether the event creates an inability to perform? What happens if the force majeure event continues for more than a specified period?

An effective force majeure clause should specifically include any delay, disruption or suspension of the work due to illness, quarantines, closures, government stay at home orders and other restrictions, and include both owner and contractor directives as well as municipal and governmental orders.  And the result should not only be an extension of time but an equitable adjustment to the contract price.  Finally, such measures should preclude or forgive the assessment of any damages, including liquidated damages.

Supply Chains

The virus has brought into focus the problems caused by interruptions and delays in the delivery of materials caused by the pandemic. As a practical matter, contractors now realize they must develop some flexibility both in their expected completion dates as well as in their supply chains to reduce the potential liability associated with delay.  Notice and regular communication is imperative.  Write into any purchase order or request that a supplier shall notify a customer in writing ten (10) days in advance of any expected delay in delivery and shall thereafter regularly communicate scheduled delivery dates, available product substitutes or replacements, and intended efforts to mitigate the effects of such interruption.  Then have clearly written escape and relief clauses within your contracts to adjust completion times adversely impacted by unforeseen events.

Price Protection

Documentation supporting any cost increases, typically limited to materials, needs to be kept and presented as evidence of any price increases caused by disruptions or delays in the contractor’s supply chain. Include a termination clause as an escape from contracts where the “cost of materials has increased exponentially or the materials themselves have become difficult or impossible to find.”

Government Policies

During the current pandemic, we have seen a variety of inconsistent approaches by local governments. Policies have differed substantially depending on the industry involved and the particular government issuing the directive. The determination of what work is “essential” and what is not affects every industry, including construction. In drafting future contracts, what constitutes a “change in law” is a term to be discussed.

Being more versus less specific is the key.  Add those words and phrases which better define the unforeseen, now that the virus has brought so much into focus.  And take the time to have your legal advisor review any contract before signing it.

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