BY: JEFFREY C. BRIGHT, ESQ., SAXTON & STUMP LAWYERS AND CONSULTANTS
Since March, all contractors and subcontractors have been addressing the impact of COVID-19 on the industry. Contractors/subcontractors have prepared COVID-19 protocols, revised their employment practices to address the Families First Coronavirus Response Act (FFCRA), evaluated financing options under various stimulus and loan packages, and handled multiple issues arising from government orders.
As construction projects move forward, contractors and subcontractors will also begin to evaluate whether contract clauses or potential claims cover any losses arising from the COVID-19 pandemic. Now is a good time to consider the variety of claims that could exist:
Schedule Impact Claims
Extension of time claims (delay claims) arise when the duration for the critical path exceeds the schedule through no fault of the contractor or subcontractor. Due to the extension of the schedule, it may cost the contractor/subcontractor more money to complete the project. Damages that are generally sought in an extension of time claim include increased labor costs; increased material costs, idle equipment, and storage costs; increased direct overhead costs for the extended time; and increased indirect home office costs for the extended time. Costs for demobilization and remobilization may also be part of a delay claim.
Disruption claims (loss of productivity claims) arise when an interference results in a loss of productivity. Essentially, the contractor is performing the work different from, and less efficient than, originally planned and bid. The actual work may not have changed; it simply takes more time, effort, and burden to complete the work, and the additional time and manpower to complete the work is, therefore, a cost that is sought to be recovered. Resequencing and modified staffing on the project due to COVID-19 could perhaps fall under this category, depending on the contract and the project.
Acceleration claims arise when the owner requires the contractor to accelerate the work by finishing earlier than scheduled. The costs to perform the work more quickly are the amounts sought in an acceleration claim. Typical costs include overtime and additional shifts; additional manpower; and increased costs for expedited procurement of materials.
Constructive acceleration claims are a type of acceleration claim where an event occurs that justifies an extension to the schedule (perhaps COVID-19, depending on the circumstances); however, the owner refuses to grant the extension and instructs the contractor to complete the work as originally scheduled. In effect, the contractor (and subcontractors) must complete the work at a faster pace than originally scheduled, because they have not been afforded the justifiable extension.
Change Order Claims
The preferred method for a change order, whether it be changes to the project schedule or compensation due to COVID-19, or any other change, is a written, stipulated change order identifying any modification to time or compensation. COVID-19 is the elephant in the room on all project schedules and costs right now. A best practice is to address the issue and attempt to agree upon the allocation of risk and costs. For some projects, the original contract may already have a clause that addresses the issue.
It is also possible that due to an increased need for expediency or other indirect issues arising from COVID-19, the project design itself might be modified. In modifying the project, the owner must act timely so as not to interfere, disrupt, or delay the project. And any changes in the design could result in a change order for time or compensation.
Another potential issue is that the COVID-19 pandemic might compound change orders. For example, a project that was supposed to be under roof by fall, or with site work completed before winter, may need to delay the work till next spring. It is important to take account of the compound effect of weather and other potential changes to the project.
Some contracts contain specific “force majeure” clauses that govern changes or additional time and compensation for events arising from “acts of God” such as pandemics. But not all clauses are written the same, and not all use the specific language of “force majeure.” For example, the AIA A201, Article 8 has a section addressing causes outside the contractor’s control, but it does not specifically call itself a “force majeure” clause.
Depending on the contract and circumstances, different rights might be afforded depending on the cause of the interference, delay, or change. Contract terms should be carefully scrutinized, and any notification, change order, or claims process should be followed to preserve claims.
Regardless of the type of claim that may exist, certain principles remain sound and fundamental. Contractors and subcontractors must first identify and document the loss and the cause of the loss. Then, prudent approach is to consult with counsel to review the contract terms and properly notice, preserve, and potentially pursue any claims that cover the loss.
The author, attorney Jeffrey C. Bright, regularly presents at ABC Keystone’s educational seminars. Jeff focuses his practice on the construction industry, advising on general construction matters, project disputes and litigation, employment law, and real estate development and disputes. He represents contractors, subcontractors, owners, construction managers, and design professionals on the preparation, revision, negotiation, and litigation of construction contracts.
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