COVID-19 IMPACT: PROJECT DELAYS AND THE PIVOTAL CONSTRUCTION CONTRACT PROVISIONS YOU NEED TO UNDERSTAND

This article was written by Mike Gray  Esq. Partner

Covid-19 is having significant impacts on the construction industry ranging from project delays to complete project shutdowns and termination. All of which come with substantial repercussions for the contractor. This article will focus on the first issue: Project Delays.

So what if a project is delayed, but there is no shutdown or termination as of yet? It seems like this might be the lesser of all evils, right? Maybe, maybe not. Depending on the specifics of the delay, and especially the contract language, a contractor may be entitled to an extension of time and other relief or, alternatively, could face a liquidated damages assessment. It’s time to carefully review all of your contracts, and understand all delay-related terms/provisions, along with the risks and protections associated with each. If there is a delay on a project, you need to get out in front of it by managing your risks, and enforcing your contractual rights. Do not wait for a liquidated damages claim. At that point, it might be too late.

Some of the more common delay-related contract terms and provisions to understand:

  • Force Majeure – A force majeure event is one that is outside the control of a party and prevents it from performing its contractual obligations. Some Force Majeure provisions are very broad and excuse performance for anything out of a contractor’s control.  Others may be limited to certain types/severity of events. Whether or not the Covid-19 Pandemic is a force majeure event entitling the contractor to relief may depend largely on the contract language. Read it and understand it.
  • Excusable Delays – delays caused by factors beyond the control of both the owner and the contractor. In cases of excusable delays, the contractor is generally entitled to an extension of time. Evaluate the plausibility of invoking excusable delay provisions in conjunction with force majeure to seek relief for delays attributable to Covid-19.
  • Inexcusable Delays – delays caused by, or for which, the contractor is deemed responsible. Inexcusable delays may expose the contractor to liquidated damages (discussed below). Carefully review your contract to determine if it includes “inexcusable delays” and, if so, how are they defined.
  • Liquidated Damages – contracts often contain liquidated damages provisions that could be triggered if there is delay. Liquidated damages provisions specify a pre-determined amount of monetary damages generally calculated on a “per diem” basis. If the contractor is deemed to be the sole cause of the delay, then the liquidated damages are calculated by multiplying the number of days of delay by the “per diem.”

A contractor has a few key considerations in challenging liquidated damages:

  • Was the delay the result of a force majeure event / Covid-19? If so, was the delay, therefore, excusable?
  • Were there any actual damages caused by the delay?
  • Were there any acts or omissions of the owner which prevented timely performance?

The Bottom Line: The Covid-19 world is ever-changing, and brings with it a very real possibility that a contractor will experience project delays. It is critical that you take the time now to carefully review your contract and understand it in the context of delays.