This time of year is typically a little slower in the construction industry in terms of field work. For this reason, many companies are focused on cleaning up old projects and getting ready for the busy season after the weather turns. Two important and connected tasks are at the core of those objectives: chasing old accounts receivable and getting contracts ready for 2021. Unfortunately, many construction companies miss out on an opportunity to capture more revenue down the line by failing to link them.
Now is the time to link two important objectives
I foresee a number of pandemic-related issues leading to litigation over balances owed and delay-related claims in the next 12 months. As in many other areas of life, the challenges metal construction contractors are currently facing because of the pandemic should be used as motivation to learn how to prevent them from recurring through adjustments to their post-pandemic contracts. Linking the two in this way is a strategic approach that allows companies to better manage the risks by setting out how they will be addressed before they arrive instead of at the time of crisis. Here, at a high level, are several clauses to pay a little closer attention to in 2021:
1. Force majeure clauses. This part of the contract was traditionally glossed over by both contractors and their lawyers as unimportant. The COVID-19 pandemic—and more specifically, governmental orders shutting down construction for periods of time in more than one jurisdiction— now make this clause much more relevant. Force majeure, which is French in origin, refers to a “superior force” causing an outcome none of the parties could control. The clauses typically identify what constitutes a force majeure event (think “acts of God”) and how it will be handled. Pandemics and public health crises don’t normally appear in those clauses. Since the pandemic is not likely to disappear before the start of the busy season, contractors should include language in the force majeure clause identifying COVID-19 as a force majeure event and identifying how it will be addressed.
2. Scheduling clauses. The pandemic has resulted in countless project delays that are linked to any number of issues. They range from governmental shutdowns to manpower issues to supply chain delays. The question then becomes who pays for those delays. Clauses dealing with consequential damages, delay damages and liquidated damages all address who is responsible financially when the schedule is not met. Make sure the schedule is realistic considering the current environment, build in float and assign responsibility in the contract for COVID-related delays in a responsible, even handed way. Neither the owner nor the contractor should be 100% responsible since pandemic-related delays are not the fault of either one of them. It’s a cost of doing business in the current setting; but it has to be covered. So be fair about it.
3. Insurance and indemnity clauses. Most insurance policies have force majeure language that can work both independent of the force majeure clause in the contract or be an overlay to such a clause. Good lawyers can sometimes find workarounds when carriers try to disclaim coverage for “force majeure” events; but new products will inevitably arrive on the insurance market to cover losses related to COVID and pandemics. Consider whether getting that coverage is worth it and think about whether it should be mandated by contract. On the parallel path of indemnity, the analysis centers on who should be responsible for bringing COVID onto a job site. This is tricky because it’s often hard to determine the source and there can be multiple points of entry. Indemnity language should, as a result, require someone else to cover damages if it can be determined that you were not the source of the COVID outbreak on the job. Pay close attention to this issue, as damages can mount quickly if an entire job site is shut down due to an outbreak and the corresponding need to sanitize it.
These are among the most prevalent issues that have come up in construction law as a result of the COVID-19 pandemic. There are certainly other COVID-related things to consider as you prepare your next contract. The key is to think strategically. Contract formation is an exercise in risk allocation. Analyze the risks COVID presents on your particular project and assign them in a way that makes sense to the parties—and if you’re not sure how to do it, ask your friendly construction lawyer for some guidance. It’s better to spend a little more time and money up front to limit possible exposures than to avoid it the discussion, end up in litigation and spend much more to undo the problem.
Josh Quinter is a commercial litigation attorney, with a focus on construction law. He is also a member of the Board of Directors and a Department Chair at his law firm Offit Kurman. Active in a number of construction trade and business organizations, he presently serves as the president of the Mid-Atlantic Chapter of the Metal Building Contractors & Erectors Association (MBCEA), serves on the MBCEA national board and is the organization’s general counsel. Contact him at jquinter@offitkurman. com or for more information go to www.offitkurman.com/attorney/joshua-quinter/
