Contracting In The Time of COVID-19 – PART II

Leonard KlingenContracts, Covid-19 Coronavirus, Work Stoppages and Terminations

COVID-19 PART-II

Although Florida construction sites have not yet seen extensive closures, we must prepare for such a possibility.  A project shutdown can come in a number of forms: government-mandated closure, owner-directed shutdown, contractor-initiated shutdown or absenteeism so increased that a subcontractor is no longer able to operate.

How COVID-19 Can Affect Your Project

Even without a complete shutdown of a project site, debilitating slowdowns can also be caused by a number of other factors.  Among the most concerning are anticipated interruptions in the supply chain. Although tariffs have already caused some companies to look to other countries, Chinese goods still make up about 30% of the construction products used in the U.S.  Additionally, clients and lenders have become more circumspect, particularly in view of the effects Covid-19 fears are having on the broader financial markets. Although ongoing projects may not be affected by client reluctance, commercial clients are expected to postpone or abandon some projects.  At a more personal level, widespread school closures have forced parents to scramble to find affordable day care facilities. Because these may also be subject to mandated closures, many construction workers may have to stay home themselves to look after their children. Although OSHA has stated that the risk of transmission for most workers is low[1], employee anxiety ranks as the number one issue brought on by the virus[2].  Such anxiety is so widespread that it has prompted the World Health Organization (“WHO”) to issue guidelines on how to cope.[3]  WHO estimates that anxiety costs the global economy one trillion dollars each year.[4]

How to respond to a project shutdown

To recap, even if a project is not shut down by owner suspension or government mandate, it may suffer material shortages, substantial absenteeism and diminished productivity.  How can a contractor address these issues in the most cost-effective manner?

Look at the contract.  Now. Do not wait for a shutdown event.  Look for a force majeure clause, an owner suspension clause or other clauses that provide relief for delays that are beyond the control of the contractor.  Subcontractors should look at both their subcontracts and also the prime contract. Suppliers should carefully examine the terms and conditions of their purchase orders regarding delivery delays and material shortages.

Also check your insurance policies, although the communicable disease exclusion implemented after the 2003 SARS epidemic is likely to preclude coverage.


[1] https://www.osha.gov/SLTC/covid-19/controlprevention.html

[2] https://www.constructiondive.com/news/6-ways-the-coronavirus-outbreak-will-affect-construction/574042/

[3] https://www.who.int/docs/default-source/coronaviruse/mental-health-considerations.pdf?sfvrsn=6d3578af_2

[4] https://www.who.int/mental_health/in_the_workplace/en/