Revise Construction Contracts for Post COVID-19 ERA

The future of construction contracts is changing in the post-COVID-19 world. Obscure terms normally buried in the fine print, like “force majeure”, have now become very important to builders and their trade partners when looking to mitigate the risk of unforeseen increases in construction costs or schedule delays as a result of the COVID-19 pandemic.

Force Majeure

Generic force majeure clauses, or “Acts of God”, are no longer adequate to protect your construction company from unforeseen circumstances derived from the COVID-19 pandemic. Force majeure protection generally requires that the event in question was unforeseeable at the time of contracting. Given current awareness of the global nature and current and potential scale of the COVID-19 pandemic, a COVID-19 related claim for force majeure may not satisfy the standard of unforeseeability.

COVID-19 Price Protection

Supply chain issues, slowdowns, interruptions, and changes to government mandated Health and Safety guidelines usually result in added costs for contractors. Price acceleration provisions should be included in contracts. Documentation supporting any cost increases, typically limited to materials only, would need to be presented as evidence. Construction companies should also include a termination clause as an escape from contracts where the, “cost of materials has increased exponentially or the materials themselves have become difficult or impossible to find.”

Such clauses may be difficult to negotiate, however, since owners typically prefer fixed-price contracts. As a possible solution, parties may want to consider alternative procurement methods based on sharing of risk and collaboration, such as contract alliancing, for example, to minimize possible claims and disputes and to ensure that projects are completed within budget and according to schedule.

COVID-19 Clauses

When seeking to limit exposure, construction companies must be specific and clear in their contract language when defining the scope and effect of COVID-19 clauses designed to protect themselves from unexpected liabilities. The following questions need to be addressed:

1. Who is allowed to invoke the COVID-19 clause?

2. Which contractual obligations are covered by the COVID-19 clauses?

3. How should the parties determine whether the COVID-19 event creates an inability to perform?

4. What happens if the COVID-19 event continues for more than a specified period of time?

Note that the above is provided to identify new contract risks associated to the COVID-19 pandemic and does not constitute legal advice. We recommend reviewing the topic with your legal advisor before making changes to your standard contract.