COVID-19 is interfering with the performance of contracts throughout the economy – and in the construction industry particularly. All Boston construction projects were temporarily suspended effective March 17. New Hampshire is not there yet, but projects in the Granite State are feeling the pinch. Workers are staying home, manufacturers of components and products are slowing production, supply chains are being disrupted (particularly for foreign sources). Even social distancing guidelines play a role in reducing efficiency (are you going to allow two or three people in your job trailer at the same time?). All of this has created a coordination nightmare for project managers – and perhaps some angst over the OSHA requirement that places of employment must be “free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.” 29 U.S.C. § 654(a)(1). (Frequent hand washing on a job site? Good luck with that!)
As project schedules inevitably suffer, the question will arise whether these are excusable delays justifying time extensions and the avoidance of delay damages, liquidated or otherwise. This is where the legal doctrine of force majeure kicks in. Force majeure (pardon my French) literally means “superior force” – what we might refer to colloquially as an “act of God” when natural disasters are in play, but also including an act of Government. Mere economic hardship from unanticipated circumstances is not enough; there must be some exogenous obstacle to performance imposed by events beyond a contractor’s control, trouncing on his ability to perform the contract.
Unfortunately for contractors, force majeure has almost always been invoked as a reason to terminate a contract entirely as opposed to delay performance. Federal contractors, though, have the benefit of the Federal Acquisition Regulations. 48 C.F.R. § 52.249-14 provides that “the Contractor shall not be in default because of any failure to perform this contract under its terms if the failure arises from causes beyond the control and without the fault or negligence of the Contractor. Examples of these causes are . . . (5) epidemics, (6) quarantine restrictions . . . Default includes failure to make progress in the work so as to endanger performance.”
Most private commercial construction contracts have clauses excusing delays occasioned by a variety of supervening events. Section 8.3.1 of the AIA’s popular A201 – General Conditions of the Contract for Construction (2017), for example, authorizes extensions of time for “labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions ... or other causes beyond the Contractor’s control.” Not all such clauses are so broad. When the parties choose particular language to cover force majeure situations, courts usually enforce it literally. See Richard A. Lord, 30 Williston on Contracts § 77:31 (4th ed.) (“What types of events constitute force majeure depend on the specific language included in the clause itself.”); United States v. Panhandle Eastern Corp., 693 F.Supp. 88, 96 (D.Del. 1988), aff’d, 868 F.2d 1363 (3rd Cir. 1989) (“Ordinarily, only when a force majeure clause specifically includes the event alleged to have prevented performance, will a party be excused from performance.”). Few force majeure clauses specifically mention epidemic or outbreak of disease (watch how quickly that changes now!), and if parties are held to their enumeration of force majeure events and did not keep their language broad, this could spell trouble.
Even in contracts lacking any such clause, a variant of force majeure is sometimes applied by the courts under the rubric “impossibility of performance.” But in New Hampshire, “to justify the termination of a contract on account of impossibility of performance, the impossibility must be complete and permanent.” Perry v. Champlain Oil Co., Inc., 99 N.H. 451, 453 (1955). Our Supreme Court has yet to weigh in on the doctrine’s interplay with extensions of time.
We will see how all of this plays out, but my advice to contractors faced with pandemic-related shortages of manpower or materials is to document schedule impacts carefully and seek a change order for schedule relief early on – regardless of what their contract language says, or even if it says nothing at all on point. Prompt communication with owners is key.
As project schedules inevitably suffer, the question will arise whether these are excusable delays justifying time extensions and the avoidance of delay damages, liquidated or otherwise. This is where the legal doctrine of force majeure kicks in. Force majeure (pardon my French) literally means “superior force” – what we might refer to colloquially as an “act of God” when natural disasters are in play, but also including an act of Government. Mere economic hardship from unanticipated circumstances is not enough; there must be some exogenous obstacle to performance imposed by events beyond a contractor’s control, trouncing on his ability to perform the contract.
Unfortunately for contractors, force majeure has almost always been invoked as a reason to terminate a contract entirely as opposed to delay performance. Federal contractors, though, have the benefit of the Federal Acquisition Regulations. 48 C.F.R. § 52.249-14 provides that “the Contractor shall not be in default because of any failure to perform this contract under its terms if the failure arises from causes beyond the control and without the fault or negligence of the Contractor. Examples of these causes are . . . (5) epidemics, (6) quarantine restrictions . . . Default includes failure to make progress in the work so as to endanger performance.”
Most private commercial construction contracts have clauses excusing delays occasioned by a variety of supervening events. Section 8.3.1 of the AIA’s popular A201 – General Conditions of the Contract for Construction (2017), for example, authorizes extensions of time for “labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions ... or other causes beyond the Contractor’s control.” Not all such clauses are so broad. When the parties choose particular language to cover force majeure situations, courts usually enforce it literally. See Richard A. Lord, 30 Williston on Contracts § 77:31 (4th ed.) (“What types of events constitute force majeure depend on the specific language included in the clause itself.”); United States v. Panhandle Eastern Corp., 693 F.Supp. 88, 96 (D.Del. 1988), aff’d, 868 F.2d 1363 (3rd Cir. 1989) (“Ordinarily, only when a force majeure clause specifically includes the event alleged to have prevented performance, will a party be excused from performance.”). Few force majeure clauses specifically mention epidemic or outbreak of disease (watch how quickly that changes now!), and if parties are held to their enumeration of force majeure events and did not keep their language broad, this could spell trouble.
Even in contracts lacking any such clause, a variant of force majeure is sometimes applied by the courts under the rubric “impossibility of performance.” But in New Hampshire, “to justify the termination of a contract on account of impossibility of performance, the impossibility must be complete and permanent.” Perry v. Champlain Oil Co., Inc., 99 N.H. 451, 453 (1955). Our Supreme Court has yet to weigh in on the doctrine’s interplay with extensions of time.
We will see how all of this plays out, but my advice to contractors faced with pandemic-related shortages of manpower or materials is to document schedule impacts carefully and seek a change order for schedule relief early on – regardless of what their contract language says, or even if it says nothing at all on point. Prompt communication with owners is key.
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