Is Coronavirus an Excusable or Compensable Delay

by | Mar 21, 2020 | Contracts, Delays

This is a question we often hear from contractors, and the answer is a little complicated.  First, it is important to make the distinction between the virus and other diseases as well as the varied responses to these problems.

The disease

The disease, COVID-19 is caused by the coronavirus.  If several employees miss work because they have contracted the disease, there is probably no basis for a claim for delay.  This situation has occurred in the past, where a contractor was unable to timely deliver products because a flu epidemic caused 30-40% of its workers to be out sick for several weeks.  Based on what we know so far, it’s unlikely that any one company will lose that many employees at once to COVID-19 and so employee illnesses do not look like they will give rise to an excusable delay.

Additionally, COVID-19 is considered an ordinary disease rather than an occupational disease like silicosis or asbestosis, and so it is also unlikely that workers compensation claims will cover the employees.

Responses to the disease

Owner shutdown

An excusable delay claim almost certainly exists if the project owner responds to the disease by shutting down the project and denying access to the work.  Most contracts have a suspension clause that provides for an equitable adjustment in the contract sum and the contract time if an owner decides to suspend operations on a project.

As always, contractors should carefully check their contracts, and subcontractors should check their subcontracts as well as the prime contract.  Be very careful to comply with all of the notice deadlines and requirements in the contract. Keep accurate records and logs and keep a close eye on the costs caused by the suspension.  In some cases, the costs incurred in the suspension may be compensable.

Click here to access our article discussing the various contract terms.

Government mandated shutdown

An excusable delay claim should also exist if local, state or federal government mandates closure of project sites.  If the government directs project owners to close down their projects, then contractors will have recourse to the suspension clauses discussed above.  If the government issues the directive to contractors or simply states that construction must cease, then contractors should look at the force majeure and delay clauses in their contracts.  Such unavoidable and unforeseeable delays are excusable and, depending on the contract, compensable. AIA, ConsensusDocs and federal contracts allow for compensation, EJCDC contracts do not.  Because most contracts are modified from the standard form, check carefully to see that the compensability hasn’t been edited out. Refer to your construction advisor. 

Not quite a shutdown

It is also possible that the project is not completely shut down, but has delays because of slow or unavailable services, supply chain problems, or worker anxiety and rampant absenteeism.  One example of the first item is where a municipality has prohibited its inspectors from performing their work due to infection fears.

Recovery here is entirely dependent on the contractor’s ability to keep comprehensive and accurate records.  The burden is on the contractor or subcontractor to prove that the delay is excusable and, if possible, compensable.

The first step is to keep accurate records of when the delay occurred, how long it lasted, who was affected and what was impacted.  While doing this, the contractor must also show that the impacts are due to COVID-19 or, preferably, to government action related to the disease.  Finally, the contractor must show that it has mitigated the effects of the impact and exhausted all alternative sources and methods.

Mitigation example 1:  County does not allow inspectors to go to job sites.  Possible alternatives: get written approval from County to hire private inspector for the duration; see if inspection can be conducted using a live video link to inspector’s computer; on small jobs, get written approval from County to photograph work to be inspected.

Mitigation example 2:  light fixtures to be shipped from China will not be available for twelve weeks.  Possible alternatives: consider alternate sourcing for same or similar products; if similar, obtain architect approval for substitution; consider use of cheap, temporary fixtures to permit remaining work to go forward and inspections to be conducted.  Track additional costs.

Mitigation example 3:  citing infection fears, subcontractor has required its employees to stay home.  Possible alternatives: seek alternate sources for the same scope of work; evaluate the feasibility of self-performing certain parts of subcontractor’s scope; evaluate the feasibility of performing around subcontractor’s scope of work.

It must be emphasized here that we are not recommending that a contractor try to get workers to come to project sites where the risk of infection is great.  On the contrary, when a contractor needs to prove that it has “tried everything” to mitigate the impacts, it needs to show that it investigated all alternatives, that it weighed the available options and that is made a reasoned decision based on the circumstances.

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