Your Contract Can Handle COVID-19

Uncertainty and risk are not new or novel to contractors.  Contracts reduce uncertainty and share the risk of doing or providing something.  COVID-19 may have contributed to, but it has not single-handedly created, uncertainty and risk.  Your contract toolbox may already be equipped to handle labor shortages, supply-chain disruptions, restrictive government action, and the like.

Many contracts already include some type of clause providing relief for unlikely delays to the project: Force Majeure, Acts of God, Acts of Government, or more generically, Delays and Extensions of Time.  Under the AIA’s A-201 (2017), Section 8.3.1, the contractor is entitled to additional time for “unusual delay in deliveries” or “other causes beyond the Contractor’s control.”  Under ConsensusDocs 200 (Rev. May 2017), Section 6.3.1, additional time may be afforded for delays “by any cause beyond the control of the Constructor . . . [including] epidemics.”

To preserve your rights and seek relief, contractors must effectively be doing three things: Notice, Mitigate, and Prove.

First, give timely and proper written notice under the contract terms.  If notice must be written, send it to the proper person (e.g., Contracting Officer) using the proper means (e.g., regular mail may be required although e-mail is ubiquitous).  Timely notice is probably required within a certain number of days of the event(s) giving rise to the claim condition.  Repeated notice may be necessary for sub-events that, although they are related to the greatest event (i.e., COVID-19), they may be construed as unique events requiring unique notice.  Do not assume that later-occurring events will automatically be covered by an earlier, blanket notice.

Second, reasonably mitigate the delays and damages arising from the event(s).  Contractors will not be excused if they could have overcome difficulties posed by COVID-19 and completed work on time by reasonable alternatives.  For example, if the supply chain is cut off or delayed, diligently try to find another supply chain and seek suitable substitutes that can be timely and economically acquired.  Even if the contracting parties disagree over the cause, extent, or price of a change or delay, contractors must continue performance pending resolution of the change.

Third, prove the delays and damages were caused by the claimed event(s).  The mere existence of a pandemic or quarantine, even one with world-wide effect, does not automatically excuse contractors from delay or default.  Contractors must still prove the default was actually caused by the claimed event(s).  Proof is a concurrent, not successor, activity to notice and mitigation.  Start now, if you haven’t already, by maintaining adequate documentation.  There is no later substitute for failing to document now.  Sufficient documentation should include enough detail that disinterested decision-makers can objectively understand and agree with your situation and find your actions were reasonable in light of all the circumstances, without your additional oral explanation.

A future post will address: (1) issues facing contractors without such clauses and (2) suggestions for creating new contracts in the midst of COVID-19.

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