Contracting In The Time of COVID-19 – PART IV

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

What to do when the Owner shuts down the project

As mentioned above, review the contract, particularly with regard to the notice and claim deadlines required to preserve compensation rights.  Make absolutely sure that the Owner issues the suspension order in writing, and double check that the reasons the Owner gives are accurate. Confirm that you have received the suspension order in writing, and be sure to state that the shutdown will cause additional costs and delays in the project.  Contracts may provide for equitable adjustments for suspensions, so it is important that costs associated with the delay are carefully and accurately noted and that they are kept segregated. Also, even if the next pay application is not yet due, submit one that captures all of the work performed up to the date of suspension.  Advise subcontractors and suppliers and the surety.

When the owner stops or suspends the work, a contractor should look to suspension or stop work clauses in the contract.  When the project is stopped for other reasons that are beyond the contractor’s control, the contractor should look to the force majeure and delay clauses in the contract.

Contract clauses – Suspension and Stop Work Clauses

AIA Contract Documents

Section 14.3 of the AIA A201 General Conditions to the AIA contracts allows owners to suspend the work for whatever length of time the owner decides, but requires that the suspension be in writing and that the Contract Sum and Contract Time be adjusted for increases in the cost and time caused by the suspension, including profit.  Be careful, however, as the AIA contracts are often heavily edited and the relief provided under §14.3 may have been edited out.

ConsensusDocs 200

ConsensusDocs also permits an owner to suspend the project for the owner’s convenience.  Section 11.1.1 of ConsensusDocs 200 provides that the suspension must be in writing and that the contractor is entitled to an equitable adjustment in the contract price and the contract time.  The subsection does not impose time limitations on claims for the equitable adjustment, but a contractor would be well advised to make such claims sooner rather than later.

Federal Contracts

Federal contracts contain two types of project suspension clauses, FAR 52.242-14 (suspension) and FAR 52.242-15 (stop work).  Although similar in purpose, there are some differences between them that contractors should be aware of.  Suspension may last indefinitely, but stop work orders are for 90 days, extendable upon agreement of the parties.  Profit is not recoverable on a suspended contract, but may be recoverable on a stopped project. Claims must be made after the suspension or stoppage are finished, as soon as practicable after termination of the suspension or within 30 days after the end of the work stoppage.  Cost recovery on suspensions is limited to suspensions that continue for an unreasonable period of time, but work stoppages entitle a contractor to an equitable adjustment if the stop-work order results in an increase in contract time or cost, the stop-work order is not canceled and the work covered is terminated for the convenience of the Government, or if the stop-work order is not canceled and the work is terminated for default.

EJCDC General Conditions

The General Conditions of the Engineers Joint Contract Documents Committee contracts allows the owner to suspend the work for up to 90 days.  Suspension entitles the contractor to an adjustment in the Contract Price or an extension of the Contract Times, or both, directly attributable to any such suspension if Contractor makes a Claim within 30 days of the start of the suspension.

What to do when someone other than the owner shuts down the project

Projects may be shut down by official decree, as has just happened in Boston.  It is unclear whether the decree was directed to owners, in which case the contract’s suspension clause would kick in, or to the contractors, in which case the contractor would look to the force majeure and delay clauses of the contract.

Force majeure clause are clauses that excuse delays for reasons beyond the control of the party claiming the delay and often come into play where a project has been damaged by a hurricane, washed away in a flood or was destroyed in a civil uprising.  These clauses are very contract specific as some contracts limit their scope and others are much more open-ended.

Again, and we cannot stress this enough, find out what the claim deadlines are and be sure to comply with them.  If anything, err on the side of too much notice.

Contract clauses – Force Majeure & Delay

AIA Contract Documents

Section 8.3 of the AIA A201 General Conditions to the AIA contracts considers a delay excusable if it arises from labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 15.1.6.2, or other causes beyond the Contractor’s control.  A contractor must timely make a claim, but the section does not preclude recovery of damages for delay by either party.

ConsensusDocs 200

ConsensusDocs 200 provides that the contractor is to obtain an equitable adjustment in the contract price if the delay is caused by acts or omissions of the owner or the architect or others, and is made specifically subject to the waiver of consequential damages provision.  Timely notice is required. Contract extensions are to negotiated between the owner and contractor.  See, ¶¶ 6.3, 6.4 and 8.4.

Federal Contracts

Federal contracts have a terrific excusable delay clause.  Among the reasons for an excusable delay, 48 CFR § 52.249-14 includes acts of the Government in either its sovereign or contractual capacity, epidemics, quarantine restrictions and freight embargoes.  Equitable adjustments are available.

EJCDC General Conditions

The EJCDC contracts offer the least generous remedy for force majeure events, providing no more than an equitable adjustment in the contract time and expressly precluding the recovery of any delay costs, even where the delay is beyond the control of the contractor.

UCC

Suppliers may also be victims of supply chain anomalies arising from coronavirus-related decrees and issues.  Florida Statutes, § 672.615 provides that a supplier is not in breach for non-delivery where if the supplier’s performance has been made “impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order.

Although this language does not provide monetary compensation for those suppliers whose foreign products cannot reach our shores, it does protect them from liability for non-delivery.

 


SAMPLE NOTICE OF DELAY

John Q. Public
3454 Green Street, Suite 300
Catalina Island, FL 86753-09

RE: Project No.: TDO-09876 Catalina Wine Mixer Building

Dear Mr. Public:

Pursuant to the express terms of the above-referenced Contract, this letter shall serve as Notice of a delay in the above-referenced project.  The Governor of Puerto Rico, Hon. Wanda Vázquez Garced, issued an Executive Order intended to combat the effects of the coronavirus (COVID-19) and control the risk of contagion in Puerto Rico.  The Order includes several important quarantine and social distancing measures aimed at protecting the health and welfare of Puerto Rican citizens, including implementation of a curfew and the shutdown of non-essential commercial activity.  

The Order closed government operations, as well as all commercial activity in Puerto Rico, with the exception of essential government services or private establishments engaged in the retail sale of food through the “drive-thru”, “carry-out” or delivery model, including prepared foods or wholesale, medicines or medical equipment, pharmacies, supermarkets, gas stations, banking or financial institutions, nursing homes, or those related the distribution chains of food, medicines, medical items or fuel.

The scheduled work that cannot be performed falls along the critical path of our work, and our inability to perform work as scheduled and sequenced will necessarily affect completion of the project.  We understand that access will be impaired for at least the next ten (10) days, however, the exact number of days is not known at this time. When we have additional information and full knowledge of the extent of the delay, we will submit a request for time extension and additional compensation relating to the disruption, rescheduling, acceleration, overtime, overmanning, stacking of trades, dilution of supervision, and any other impact costs as well as extended overhead and equipment costs for this delay.

Be advised that we remain committed to efficiently minimizing costs and the necessary contract time extension.  Please feel free to contact us at any time, if you have any questions or if we can be of any assistance in resolving this issue.

Respectfully submitted,

Contractor B. Ware,
Prestige Worldwide Construction Corp.