What to Contract When You’re Constructing: Contract Language for a Post-COVID-19 World
Reopening for the construction industry recently began in Michigan, with projects resuming on May 7, 2020, and moving forward is top of mind for every owner, general contractor (GC), and subcontractor. This process is repeating itself in many parts of the country where construction was all but stopped. As this “restart” plays out, we know some of what we can expect on existing job sites, but everyone involved in the industry should keep an eye out for the key contract provisions that will govern contractual relationships in the construction industry if we see a resurgence, or even a seasonal cycle, of the novel coronavirus.
A phrase that holds a lot more interest than it may have in the past is force majeure, literally meaning “superior force.” It’s often used interchangeably with the phrase “act of God,” though from a legal perspective the two can have different meanings, with force majeure covering non-natural events such as war or labor strike. State law varies widely in how force majeure language is interpreted in a contract dispute, with some states requiring that any contract which employs a force majeure provision must delineate each and every potential qualifying event. Other states construe the term more broadly under caselaw, and what is and is not a qualifying event may require a detailed review of a given state’s legal perspective.
How do COVID-19-related delays in the construction industry play into force majeure language in contracts you may sign in the months to come? For an event to be considered as a possible force majeure trigger, that event must have been unforeseeable at the time that the contract was made. While six months ago a coronavirus outbreak was almost certainly unforeseeable, nowadays a resurgence of the virus or even any pandemic of this scale is arguably a foreseeable event. This means that if you execute a contract today that’s identical to one you signed in 2019, a court might say that a failure to perform under the 2019 agreement due to COVID-19 could be excused, while a failure to perform for the same reasons under the 2020 contract would not be excused. Your old agreements, even if they were completely sound when you signed them, may no longer be sufficient to protect you from liability for COVID-19 delays, supply chain disruptions, or other pandemic-related issues such as increased cost of performance in order to ensure worksite safety in light of the virus.
To ensure that new agreements encompass the risks associated with the “new COVID reality,” some in the construction industry are considering new phrases that specifically address healthcare emergencies. Some new contracts are choosing to specifically excuse performance or allow for extensions in time or costs where there is a “declaration of public health emergency” or where there is “public disorder.” However, this new language is still untested in courts, and time will tell whether or not this will provide the coverage that owners, GCs, and subcontractors are seeking. Anyone entering into a new construction contract should give their language a detailed review to ensure that they’re protected in our new, post-virus reality.
Corinne S. Rockoff
Associate and member of the firm’s Financial Services and Real Property Litigation Group.
Phone: (248) 827-1881
Fax: (248) 827-1882