COVID-19 and Construction Industry Challenges
March 18, 2020 • Garth A. Schlemlein
With each passing day the effects of the Coronavirus are increasingly impacting our daily lives. In addition to closing restaurants, retail outlets, sporting events, etc. the construction industry is likewise feeling the impact due to supply chain disruption, lack of personal due to illness, caring for out of school children or sick family members as well as the potential of building inspectors not being available to inspect ongoing projects.
These issues will most certainly delay, if they haven’t done do already, many construction projects. As a result, you need to carefully review your contract or subcontract for the Force Majeure or time extension provision. If there is such a provision, one needs to determine a) how broad or narrow is the provision and b) if the provision is applicable, the notice provision necessary to secure a time extension.
For example the most widely used general conditions are the AIA A 201. Article 8.3.1 of AIA 201 provides:
§ 8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by an act or neglect of the Owner or Architect, or of an employee of either, or of a separate contractor employed by the Owner; or by changes ordered in the Work; or by labor disputes, fire, unusual delay in deliveries, unavoidable casualties or other causes beyond the Contractor’s control; or by delay authorized by the Owner pending mediation and arbitration; or by other causes that the Architect determines may justify delay, then the Contract Time shall be extended by Change Order for such reasonable time as the Architect may determine.
There are several events referenced above that would provide a basis for seeking a time extension under this provision.
First, the impact to the supply chain would fall under “unusual delay in deliveries”. As practical matter, this may be more of a subcontractor issue, though general contractors often times have supply contacts that may be affected.
Second, the general directive that people avoid any crowds, people who are ill, taking care of a significant others, etc. affecting the labor pool or the fact that certain municipalities may quit inspecting projects, would fall under the “other causes beyond the Contractor’s control” of “other causes that the Architect determines may justify delay”.
There is a question on how the courts would interpret the catch all type provisions such as Section 8.3.1 (“other causes”). Given the severity of coronavirus impacts and the fact we are far from the end of this crisis, we believe it as a fair assume that a judge or arbitrator would conclude that the catch all provision would be applicable under the present circumstances, particularly as they get worse.
To preserve your right for a time extension due to the Coronavirus, you need to provide the contractually required notice such as sections 8.3.2 and 188.8.131.52 of the AIA A201.
As to Subcontractors, you need to check the incorporation by reference provision in your subcontract. The AGC Subcontract form provides as follows:
It is agreed that Subcontractor will assume toward Contractor all obligations and responsibilities which Contractor has assumed under the Main Contract to the extent of the Work herein subcontracted, and Subcontractor shall be entitled to all privileges and protections granted Contractor under the Main Contract. In case of conflict between the terms of this Subcontract and the Main Contract, this Subcontract shall control.
Under this form a subcontractor would have the same right to a time extension under the AIA 201 provisions for a force majeure event as would the general contractor. The critical inquiry is whether the Subcontract contains a provision the conflicts with the Main Contract on this issue.
Interestingly, the AIA 102 & 201 are silent on the issue of whether the impacts from a coronavirus like event is a compensable delay. Given the fact that neither party to the contract is at fault, it is unlikely a court or arbitrator would deem this events compensable.
Bottom-line, it is critical to review your contact provisions, prime or subcontract, to ensure that you timely give notice of a force majeure event and tailor the notice to the specific contact provision and the event under which you are seeking relief.
If you have any questions on this topic, please contract Garth Schlemlein at (206) 650-3388 or Jesse Franklin at (206) 779-5670. Schlemlein Fick & Franklin. PLLC has closed its office during this period but its attorneys and staff continue to work remotely.
Mr. Schlemlein obtained his undergraduate degree from the University of Washington with a Bachelor of Science in Building Construction in 1979. Prior to obtaining his law degree, Mr. Schlemlein worked in the construction industry and owned his own construction firm. Mr. Schlemlein's practice has focused on construction law, and includes the representation of prime contractors, subcontractors, design professionals, fabricators, suppliers, and ...