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What Can You Do When COVID-19 Impacts Your Construction Site?

04/01/2020

Many are wondering whether they can terminate construction contracts or seek additional time to perform due to delays and disruptions caused by COVID-19 and the governmental response to the outbreak. Some have turned to force majeure clauses in their contracts in hopes of justifying termination or relief from project schedules. Force Majeure clauses allow this kind of relief when an act or event outside the contractor’s control prevents the contractor’s continued performance under the terms of the contract. Force Majeure clauses, and similar “delay” clauses in standard AIA and AGC forms (e.g., AIA A201-2017 §8.3 and 14.1, AGC 235 §14.3, AGC 200 §6.3), may be triggered by events including governmental action, labor and material shortages, and other events making continued performance impossible or impracticable.

Before attempting to invoke a force majeure or “delays” clause (or if facing another party’s attempt to invoke that clause to your detriment), you should look at your contract’s actual language to determine if the triggering events/criteria have occurred or been met. For example:

  1. Must work cease entirely before termination is allowed, and if so, for how long?
  2. What level of effort do you need to make before you can claim that continued performance is impossible under the applicable clause in your contract? Or is your contract silent on this issue?

Consider your basis for invoking the clause (or the basis for an owner invoking the clause against you). Will you point to a governmental order restricting your business? If so, has the government provided exemptions for construction? Those exemptions may prevent contractors from invoking force majeure clauses absent an actual jobsite outbreak. See our related post on state and local Stay at Home orders here. Ask yourself:

  • Can my company feasibly comply with governmental orders while continuing to perform our construction contracts?
  • Even if we can legally perform, do we have an outbreak affecting our labor or supply chain that makes performance impossible or unreasonably costly or difficult?

If an outbreak-related incident (or the cost and burden of complying with federal, state, and local rules in connection with the outbreak) alters your project so fundamentally that it destroys the essential purpose of your contract, you can find relief under Colorado law. However, this is a very high bar to clear. 

In Colorado, excusing one’s performance due to impossibility hinges on whether “an unanticipated circumstance has made performance of the promise vitally different from what should reasonably have been within the contemplation of both parties when they entered into a contract….” Even if continued performance is possible, one can be excused from performance if continued performance would be “impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved….” In short, impracticability - as opposed to absolute impossibility - is enough. However, a change in economic circumstances alone is almost always insufficient to prove impracticability.

Knowing whether you can invoke a force majeure or “delays” clause, or if you can invoke the doctrine of impossibility, will depend on an analysis of your particular circumstances. Evaluating those circumstances early and taking proper action could help you avoid liquidated damages, avoid other losses, and potentially recoup added costs on a project impacted by an outbreak or by federal, state, or local government actions. Review our list of suggested practices to limit loss and liability here related to an outbreak or governmental prosecution, and review your contracts to determine your rights so you can make an informed decision on how and whether to proceed.

For more information about force majeure, contact Dan Wennogle, Co-chair of the Construction Group. This blog was co-authored by Bobby Dishell, Law Student Intern at Moye White.

ABOUT THE AUTHOR

Daniel C. Wennogle

Attorney

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