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Responding to Possible Construction Shutdowns Due to COVID-19 Responding to Possible Construction Shutdowns Due to COVID-19

Responding to Possible Construction Shutdowns Due to COVID-19

On March 17, construction in Boston was suspended as a result of COVID-19. Across the country, contractors are concerned about similar shutdowns or restrictions on construction projects in their states and cities. While contractors’ rights and remedies are generally limited to the terms of their contracts, here are a few key considerations in the event that construction is suspended:

Understand the Suspension

To determine your rights and remedies in the event of a project suspension, it is important to understand who issued the suspension and what the nature of the suspension is.

If the project owner suspends construction, then the prime contract clause relevant to suspension of work would control. For federal contractors, the FAR 52.242-14 Suspension of Work clause allows the contractor to request an adjustment of the “cost(s) of performance of this contract (excluding profit) necessarily caused by the unreasonable suspension, delay, or interruption, and the contract modified in writing” by the Contracting Officer. Contracts for state or private work may have similar suspension of work clauses. Some contracts permit contractors to seek adjustments for time and money, while others limit recovery to time.

If a government (federal, state, or local) suspends construction, then contractors should first understand the scope of the order. In some circumstances, the government and owner can be the same. For construction projects with the federal government, “a government agent who lacks contracting authority may nonetheless have authority to bind the government in emergency situations.”[1] In any event, contractors should consult with the owner or contracting officer for federal work to understand and document their interpretation of the government’s order. This conversation will provide contractors with the owner’s intent and, possibly, directive.
 
Consider Submitting the Right Notices to the Right Parties

Once work is suspended, contractors should notify certain contractual parties to ensure personnel safety, project continuity, and, possibly, preserve claims.
 
  • Notice to Owner of Request for Adjustment in Time and Cost Terms: If the owner suspends the work, then some contracts provide contractors with rights to adjustments in time and cost terms of the contract. Some contracts, however, limit adjustment rights to time and exclude money. In any event, contractors should immediately notify owners that they reserve the right to additional time and money as a result of the suspension. In preparation, contractors should consider the time required and the cost incurred by the contractor as a result of the suspension. Contractors should also establish a plan to mitigate any of these costs and notify the owner, generally, of the plan to mitigate.
  • Notice to Subcontractors of Suspension: Prime contractors should notify subcontractors of the suspension. As with the owner, the prime contractors should discuss the suspension with subcontractors to establish an understanding of the suspension and how each party will secure the work site.  
  • Notice to Insurer of Business Interruption Policy Claim: Contractors should consider filing notices of business interruption loss claims to their insurers for business interrupted as result of the COVID-19 pandemic. As Ice Miller’s Nick Reuhs previously wrote about,[2] filing a notice preserves your claim and the possibly of coverage even after an initial denial. While insurers will likely deny coverage initially based on the argument that business interruptions caused by contagious or communicable diseases are not generally considered to result from direct physical loss or damage as required for coverage, litigation over this will likely ensue and you may benefit from another insured’s favorable judgment if you timely filed your own claim.
Secure the Site

Based on a contractor’s responsibilities under its contracts, contractors should take reasonable steps under the circumstances to secure a job site and protect stored materials, equipment, and work-in-place. Contractors should also consider if there is compensable work that can be done off-site. These measures should be taken in accordance with, among other things, your responsibilities under (1) your relevant contracts, (2) your property insurance contracts, and (3) the mitigation plan you submit to the owner. These measures may diminish future work-in-place restoration costs, reduce project reboot time, and protect potential future insurance and warranty claims.

Document

It is imperative that contractors document all actions taken in response to work suspension. Conversations with each of the project stakeholders should be documented in writing. Oral communications should be followed up with letters or emails memorializing the contractor’s understanding. Contractors should account for and document in detail the time and money spent as a result of the suspension. Additionally, contractors should consider photographing or videotaping material and equipment stored and work-in-place.  

Conclusion

Ice Miller attorneys are happy to review your contracts, draft notices, and assist you with responses to construction project developments. Contact Hansel Rhee, Eric Singer, Patrick Devine, Joseph Guenther, or Christian Robertson with any questions.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
 
[1] See Baistar Mech., Inc. v. United States, 128 Fed. Cl. 504, 520-21 (2016) (finding terms of contract did not require CO’s approval to bind government and noting this emergency exception’s limited application and narrow construction).
[2] Reuhs, Nick, Why Everyone Should Tender a COVID-19 Business Interruption Claim to Their Insurers, available at: https://www.icemiller.com/ice-on-fire-insights/publications/why-everyone-should-tender-a-covid-19-business-int/.
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