4-13-20 As Seen in The Rochester Business Journal -Sean Jensen interviewed for "Pandemic’s impact on construction projects depends on contract."
Posted on April 13, 2020
By: Kevin Oklobzija April 10, 2020
Binge-watching a season or five of a Netflix series has been a popular way for many to pass time while stuck at home during the coronavirus pandemic.
Contractors and building owners may be choosing a different way to stay busy: by reading clauses in construction contracts.
Whether a contract contains a “force majeure” stipulation or similar wording may determine how this public health crisis impacts delays, shutdowns or penalty payments.
“I’ve seen a lot of contractors and owners opening up contracts and looking to see what type of notice they have to provide,” said Sean Jensen, partner at Woods Oviatt Gilman LLP.
An executive order issued by Gov. Andrew Cuomo on March 27 declared that all non-essential construction must stop. What that means going forward all depends on how contracts were written.
“One party could terminate a contract after a certain period of time if a project is shelved because of the governor’s executive order,” Jensen said. “Does this order trigger any clause that would give either client or contract the right to terminate it?”
That answer may very well rest in how two popular standardized industry contracts refer to force majeure, aka unforeseeable circumstances. The ConsensusDocs 200 standard agreement includes the words “epidemics” and “adverse governmental actions” as allowable reasons for a time extension.
The other popular standard form, the American Institute of Architects A201, doesn’t use the word epidemic or pandemic, but rather includes the catch-all “other causes beyond the Contractor’s control.”
While it certainly could be argued that the impact of the coronavirus was beyond anyone’s control, Jensen warns that “New York courts are pretty strict. If it’s not included in that clause, then they’ll take a very strict approach.”
The longer New York remains on pause, the more some projects could be jeopardized. Businesses may not have the funding to continue a project. Expansion may no longer be necessary for manufacturing facilities or warehouse space due to loss of business.
Even with a signed contract, the client may have the right to delay the start of a project or terminate all together with a penalty fee, depending on what was negotiated in the contract, Jensen said.
“You have to pick up each contract and look at the wording,” he said.
Contractors also may have the right to extend the project schedule, or even ask for more money, based on increased costs.
But a building owner or construction firm should think long and hard about drawing a line in the sand. Being empathetic to the other party’s plight could go a long way in future business.
“If you can negotiate an amendment to these contracts, it’s often better for everyone,” Jensen said. “What does it do for your reputation if, during a pandemic like this, you take a hard stand?”
There is one question that will never need to be addressed with future contracts: whether there is specific pandemic wording.
“After 2020 it will be hard to say you didn’t foresee something like this,” Jensen said.