August 29, 2022

Applicability of Force Majeure and Delay Contract Clauses for COVID-19 Impacts in the Construction Industry

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This blog post is the fifth in a series of eight that summarize the potential impacts of the COVID-19 pandemic on the construction industry, including the potential applicability of typical contract clauses to the impacts, best practices for mitigation of the impacts, and recommendations for avoiding claims related to COVID-19 in future contracts.

This blog post summarizes information published in articles and blog posts by various attorneys and law firms, and the intent is to provide a brief summary that may be beneficial to owners and contractors. This post is not written by attorneys and does not constitute legal advice.

Several authors discuss the potential applicability of various contract clauses to COVID-19 impacts in the construction industry. Force majeure clauses, which pertain to delays caused by unforeseeable events outside the control of either contracting party, and delay clauses have been cited as being potentially applicable to COVID-19 impacts as discussed below.

In “COVID-19’s Impact on Construction: Is There a Remedy? – Time Extension, Force Majeure, or More?,” The National Law Review, 3 April 2020, William J. Shaughnessy, William E. Underwood, and Chris Cazenave of Jones Walker LLP write that three key factors will likely determine whether a force majeure clause is applicable to COVID-19 impacts:

  1. whether the force majeure clause specifically references the event as being out of the party’s control;
  2. whether the event was foreseeable; and
  3. whether the event caused the non-performance.

Shaughnessy et al. also state that most force majeure clauses allow for an extension of time but not a corresponding price adjustment. Therefore, they write that while it is critical to meet contractual requirements for providing notice of delays, a contractor should be careful not to react too quickly as to limit itself to only a time extension if clauses other than force majeure may be applicable. Similarly, they write that an owner that denies a time extension without compensation under a force majeure clause may find itself defending against other clauses or legal theories that allow for contractor compensation.

In “Dealing with the Construction Impacts of COVID-19,” American Bar Association Newsletters, Spring 2020, Michael A. Stover, Cynthia E. Rodgers-Waire, and Thomas J. Moran of Wright, Constable & Skeen discuss two primary categories of force majeure delay clauses:

  1. Clauses containing a non-exclusive list of examples of force majeure events with a high-level provision for “anything outside of either party’s control;” and
  2. Clauses that specifically list out every event that would qualify as a force majeure event.

Stover et al. write that once it is determined whether COVD-19 impacts fall within a specific force majeure clause, further assessment is required to determine whether the clause provides only an extension of time or also provides compensation for delay costs.

Additionally, Stover et al. discuss potentially applicable delay clauses of various standard contracts as follows:

  1. The American Institute of Architects (AIA) contract A201-2017 §8.3, which they write is sufficiently broad as to entitle a contractor to the potential recovery of provable delay costs due to COVID-19 impacts;
  2. The ConsensusDocs 200 Standard Agreement §6.3.1, which they state contains a list of excusable delays, including pandemics, and provides for a contractor’s right to cost adjustment; and
  3. The U.S. Federal Acquisition Regulations (FAR 52.249-10 and FAR 52.349-14), which indicate that both epidemics and quarantine restrictions are grounds for excusable delay.

Several additional authors discuss the potential force majeure relief for COVID-19 impacts provided by applicable clauses found in various standard contracts and civil laws, as follows:

  1. In “Tackling the Impacts of COVID-19 on Construction Projects: An Exploration of Contractual Dispute Avoidance Measures Adopted by Construction Firms,” International Journal of Construction Management, 11 August 2021, Babatunde A. Salami, Saheed O. Ajayi, and Adekunle S. Oyegoke discuss force majeure clauses with respect to the International Federation of Consulting Engineers (FIDIC), the Joint Contracts Tribunal (JCT), and the New Engineering Contract (NEC) standard contracts;
  2. In “COVID-19: Legal Impact on Contractual Obligations,” 30 March 2020, Julia Zagonek and Pavel Boulatov of White & Case discuss force majeure with respect to Article 401 clause 3 of the Russian Federation (RF) Civil Code;
  3. In “How Should the Impact of the COVID-19 Outbreak Be Managed on Projects under FIDIC and NEC?,” 31 March 2020, Rebecca Shorter, Charles Nairac, Dr. Markus Burianski, Dr. Dimitar Kondev, and Yasmine El Achkar of White & Case discuss force majeure with respect to the FIDIC and NEC standard contracts;
  4. In “COVID-19’s Impact on Construction Contracts – Will Force Majeure Relief or Other Rights Be Available?,” 11 February 2020, Emma Schaafsma and Michelle Li of Herbert Smith Freehills discuss force majeure with respect to the FIDIC standard contract as well as with respect to English and Chinese law;
  5. In “COVID-19’s Impact on Construction: Is There a Remedy? – Time Extension, Force Majeure, or More?,” The National Law Review, 3 April 2020, William J. Shaughnessy, William E. Underwood, and Chris Cazenave of Jones Walker LLP discuss force majeure and delay with respect to the AIA, ConsensusDocs, FAR, FIDIC, and Design-Build Institute of America (DBIA) standard contracts; and
  6. In “Construction Contracting and COVID-19: Negotiating in Uncertain Times,” 10 August 2021, Karen A. Denys and Rachael E. Stack of Faegre Drinker discuss force majeure and delay with respect to the AIA, ConsensusDocs, and the Engineers Joint Contract Documents Committee (EJCDC) standard contracts. Denys and Stack write that these standard contracts do not provide monetary relief for force majeure events, which conflicts with the interpretation of Stover et al. discussed above.

In “Is the Coronavirus a Force Majeure that Excuses Performance of a Contract?,” American Bar Association, 19 March 2020, David J. Marmins of Arnall Golden Gregory discusses the applicability of force majeure clauses to COVID-19 impacts in detail and notes that any broad force majeure clause should apply to COVID-19 impacts occurring after 11 March 2020, when the World Health Organization declared COVID-19 to be a global pandemic. Marmins writes that many force majeure clauses include “epidemic” or “pandemic” as qualifying events and that even without the specific reference, COVID-19 impacts should still qualify under force majeure clauses due to governmental quarantines and travel bans. Marmins also points out that force majeure clauses typically apply only if the triggering event was unforeseeable.  

Based upon Marmins’ commentary above regarding foreseeability, it may be difficult to argue that force majeure clauses are applicable to COVID-19 delays in the case of contracts that were entered into after the beginning of the pandemic, once the potential impacts of the pandemic were known. In a more recent article, “The Dotted Line: COVID-19 Force Majeure Clauses Are Losing Their Punch,” Construction Dive, 25 January 2022, Joe Bousquin cites several attorneys who indicate that owners are not accepting force majeure clauses that include COVID-19 in new construction contracts.

In “Force Majeure in Construction and Real Estate Claims,” American Bar Association, 17 July 2020, Douglas V. Bartman of Berns, Ockner & Greenberger writes that courts frequently apply ejusdem generis doctrine when determining if an event falls within a force majeure catchall provision and that under this doctrine the catchall provision is narrowly construed. Bartman also notes that the force majeure event must render performance impossible, not just difficult, and that parties may have a duty to attempt other means of performance. Further, Bartman stresses the importance of adherence to contract requirements regarding providing timely notice for all potential force majeure.

In “Covid to Impact Construction Claims ‘Until at Least 2023’,” 17 August 2021, Junaid Banoobhai and Nesreen Osman of Pinsent Masons write that in some jurisdictions, local law may provide for force majeure relief in instances where the contract does not, and cite examples related to Spanish and French civil code. They write that courts in civil law jurisdictions have recognized COVID impacts as force majeure events under contractual definitions of “pandemic” but have not yet considered whether a force majeure event will provide both time and cost relief for contractors. They also write that in common law jurisdictions, contractual extensions of time for COVID-related claims have not been a major issue, but cost entitlement remains an issue.

Other authors discuss the nuances of force majeure clauses with respect to COVID-19 impacts. In “COVID-19 Impacts on Construction Contracts: Legal Arguments For and Against Performance,” JD Supra, 13 September 2021, Laurie Stanziale of Fox Rothschild LLP writes that force majeure clauses are not generally a basis for price increases or loss of profitability claims. In “COVID-19: Impacts and Responses in the Construction Industry,” Baker McKenzie, January 2021, the authors also discuss the application of force majeure clauses to COVID-19 impacts and highlight the differences between application in common law and civil law jurisdictions. In “Navigating Construction Contract Delays Amid COVID-19,” The National Law Review, 13 April 2020, Richard T. Hewlett and Lauren E. Potocsky of Varnum LLP write that typical force majeure clauses relate to delayed time for performance but do not excuse performance altogether, and point out that while some non-standard contracts may contain a clause that allows damages in case of delays, other contracts may contain a no damages for delay clause.

As detailed above, several authors discuss the potential applicability of force majeure and delay clauses to COVID-19 impacts in the construction industry. As always, fully understanding the specifics of the contract and documenting the impacts contemporaneously are key for supporting (or defending against) potential claims.

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