In the current economic climate, due to the pandemic that has enveloped our nation, a contractor needs to make certain that the contractual terms of a construction contract properly address the issues which they might face during this highly unusual situation.
Hopefully the economy and our way life return to normal sooner, rather than later, however, there is much uncertainty at this time. That is why it is important that a contractor pay close attention to the clauses of a proposed construction agreement and make appropriate revisions, if necessary, to protect their company.
While most contracts have force majeure provisions, a review of these provisions often reveals that they do not encompass situations like the pandemic that is occurring. As such, it is suggested that unambiguous language be inserted which qualifies the pandemic as a force majeure event. In the absence of such a revision, a party to the contract could be held accountable for delay in completing the contract, which might subject them to liquidated damages or other penalties provided for under the agreement.
It is also important when setting the construction schedule that close attention is paid to excusable delay outside of the control of the contractor. Obviously, the easiest delay to address is when the state has shut down all construction activities – with the exception of emergency construction activities. On the other hand, the contractor must be aware that there is likely to be significant delay in permitting and inspections once construction resumes. A large number of projects starting up at the same time will likely overwhelm the state or local officials. As such, the contractor should be careful to ensure that the contract provides an appropriate allowance for such delay which is not its fault, nor within its control due to the current situation. This allowance should carry over and result in an amendment to the scheduled completion date in order to avoid any liquidated damages or other damages.
Finally, and perhaps most importantly, the contractor should pay close attention to the financial viability of any company or entity for whom it is performing construction services, either during or after the pandemic. As a contractor, you cannot let the owner get out in front of you, or it may become difficult to collect payment. Further, the tighter control that a contractor maintains over its receivables, the more likely the project is to be profitable when nearing completion. This is especially important during or after this pandemic, as an owner’s finances are likely to be stretched thin and financing could be pulled by a bank while the project is still in process.
This article cites only some of the concerns that a contractor may experience during or after the current pandemic. It is suggested that if the contractor has concerns that they review the appropriate contractual language with their counsel prior to entering into such agreement. Further, if issues arise during the performance of the contract, those issues should be addressed immediately, rather than later, to prevent the project from turning sour.