{"id":3304,"date":"2020-03-19T07:33:22","date_gmt":"2020-03-19T07:33:22","guid":{"rendered":"http:\/\/fwhtlaw.com\/?post_type=briefing-papers&p=3304"},"modified":"2023-01-11T20:36:35","modified_gmt":"2023-01-11T20:36:35","slug":"covid-19-coronavirus-briefing-paper","status":"publish","type":"post","link":"https:\/\/www.fwhtlaw.com\/blog\/2020\/03\/19\/covid-19-coronavirus-briefing-paper\/","title":{"rendered":"Covid-19\/Coronavirus Briefing Paper"},"content":{"rendered":"

Rob, Dean, Elise and Thomas are members in the firm\u2019s Construction Law Department. Rob can be reached at 612.359.7648 or rsmith@fwhtlaw.com. Dean can be reached at 612.359.7624 or dthomson@fwhtlaw.com. Elise can be reached at 612.359.7670 or eradaj@fwhtlaw.com. Thomas can be reached at 612,359.7669 or tschram@fwhtlaw.com.<\/span> <\/span><\/p>\n

            As we all know from news reports, the novel coronavirus, COVID-19, is causing widespread disruption in the construction industry.  The World Health Organization declared COVID-19 to be a pandemic on March 11th<\/sup>, and the federal government, various states, and local governments are issuing orders in an effort to contain or mitigate the spread of the virus.  Website links at the end of this paper to the CDC, the Minnesota Department of Health, and the University of Minnesota provide guidance on how best to keep safe from the threat.  The rest of this Briefing Paper describes how contractors, subcontractors, designers, and owners can best manage and respond to the industry disruption that COVID-19 is causing. We begin by listing some of the negative project impacts that the virus and actions to combat it are causing, and then follow in outline form how to mitigate and recover monetary losses due to these impacts.<\/p>\n

 <\/p>\n

    \n
  1. \n
      \n
    1. Potential Impacts to Contractors and Construction Projects<\/b>\n
        \n
      1. Schedule Delays<\/span><\/li>\n
      2. Supply Chain Disruption<\/span>\n
          \n
        1. Products from China and Europe<\/span><\/li>\n
        2. Long-Lead Procurement Delays<\/span><\/li>\n<\/ol>\n<\/li>\n
        3. Cost Increases<\/span>\n
            \n
          1. Inefficiency, Acceleration, and Disruption Costs<\/span><\/li>\n
          2. Material Cost Escalation<\/span><\/li>\n<\/ol>\n<\/li>\n
          3. Labor Shortages <\/span><\/li>\n
          4. Governmental Action\/Work Restrictions<\/span><\/li>\n
          5. Financial Uncertainty<\/span><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n
              \n
            1. \n
                \n
              1. <\/li>\n
              2. Schedule and Delay<\/b>\n
                  \n
                1. Contractual Basis for Schedule Relief<\/span>\n
                    \n
                  1. Force Majeure <\/span>\n
                      \n
                    1. Concept of Force Majeure<\/span>\n
                        \n
                      1. The effect of a force majeure clause is to excuse performance in the event an unforeseen circumstance occurs.  Whether and to what extent performance is excused will depend on the specific language of the clause, and the party seeking relief must establish that the force majeure clause applies. <\/span><\/li>\n
                      2. Several keys to force majeure relief are:<\/span>\n
                          \n
                        1. Providing adequate and timely notice that the claimed force majeure event has impacted performance;<\/span><\/li>\n
                        2. Connecting the effects of the force majeure event to the performance impacts experienced;<\/span><\/li>\n
                        3. Documenting delays and costs experienced due to the force majeure event; and<\/span><\/li>\n
                        4. Taking reasonable steps to mitigate impacts.<\/span><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<\/li>\n
                        5. Example Clauses<\/span>\n
                            \n
                          1. AIA \u2013 Section 8.3.1 of A201 General Conditions provides relief for \u201cunusual delay in deliveries . . . or other causes beyond Contractor\u2019s control.\u201d  <\/span><\/li>\n
                          2. ConsensusDocs \u2013 ConsensusDocs 200 provides schedule relief for \u201cany cause beyond the control of the Constructor.\u201d  Further, Section 6.3.1(j) refers to epidemics and 6.3.1(k) refers to adverse governmental actions.   <\/span><\/li>\n
                          3. EJCDC \u2013 Article 4.05(C) of the EJCDC Standard General Conditions provides for an equitable adjustment in Contract Times (as the exclusive remedy) for delays, disruption and interference caused by \u201cunanticipated causes not the fault of and beyond the control\u201d of the parties, including \u201cepidemics.\u201d <\/span><\/li>\n
                          4. FAR 52.249.14 is the default clause for excusable delays in federal construction contracts. In paragraph (a), it lists excusable delays and specifically includes epidemics and quarantine restrictions. <\/span><\/li>\n
                          5. MnDOT Contracts \u2013 Section 1806.2.A of the 2018 Standard Specifications defines \u201cExcusable, Non-Compensable Delays\u201d as any delay that is \u201cnot the Contractor\u2019s or the Department\u2019s fault or responsibility, and that could not have been foreseen by the Contractor.\u201d  The definition specifically includes epidemics.<\/span><\/li>\n<\/ol>\n<\/li>\n
                          6. Subcontracts<\/span>\n
                              \n
                            1. Most subcontracts contain a \u201cflow down\u201d clause allowing subcontractors to take advantage of whatever rights the general or prime contractor has in regard to the owner, including rights related to force majeure.  <\/span><\/li>\n
                            2. The MN-AGC Form Subcontract \u2013 Paragraph 12 provides \u201c[n]either Party shall be in default hereunder for any delay up to forty-five (45) days of any duty caused by an act of God, war, embargo, civil disturbance, strike, or other occurrence beyond the Parties\u2019 control.\u201d<\/span><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<\/li>\n
                            3. Material Adverse Change \u2013 Some contracts have clauses that provide relief in the face of material adverse changes.<\/span><\/li>\n
                            4. Impossibility and Frustration of Purpose<\/span>\n
                                \n
                              1. Concept of Impossibility: <\/span>\n
                                  \n
                                1. Minnesota recognizes that performance of a contractual duty may be excused when performance becomes impossible due to the existence of a fact or circumstance which was unknown by the performing party at the time the contract was signed.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                2. Concept of Frustration of Purpose:<\/span>\n
                                    \n
                                  1. Performance can also be excused when a party\u2019s principal purpose in making a contract is frustrated, without that party\u2019s fault, by the occurrence on an event which both parties to the contract assumed would not happen.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                  2. Keys:<\/span>\n
                                      \n
                                    1. These are high legal standards.  While it is not necessary that performance is <\/span>literally<\/span> impossible, it still must be shown that the burden on performance was significant, and the risk was not allocated to either party.  <\/span><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<\/li>\n
                                    2. Commercial Impracticability under Section 2-615 of the Uniform Commercial Code <\/span>\n
                                        \n
                                      1. Concept of Commercial Impracticability:<\/span>\n
                                          \n
                                        1. Lesser standard than impossibility, and excuses delays or failures in the delivery of materials or goods if those delays or failure are caused by an unanticipated event, or by compliance with a government order.  <\/span><\/li>\n
                                        2. Keys:<\/span>\n
                                            \n
                                          1. Applies to the sale of goods and materials.<\/span><\/li>\n
                                          2. Can be specifically modified by the parties\u2019 agreements.<\/span><\/li>\n
                                          3. Supplier must provide notice of delays to buyers.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                          4. If Supplier may still make some deliveries, Supplier must allocate delivery of supplies among multiple buyers in a fair and reasonable manner.<\/span><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<\/li>\n
                                          5. Costs Increases<\/b>\n
                                              \n
                                            1. Force majeure clause likely does not give relief for cost increases, but some non-standard clauses might.  <\/span><\/li>\n
                                            2. Escalation Clauses<\/span>\n
                                                \n
                                              1. Perhaps specific contracts have language addressing possible tariffs that is broad enough to apply.<\/span><\/li>\n
                                              2. In addition, if your contract includes the ConsensusDocs 200.1 Amendment, which was put in place to address tariffs and other circumstances where prices could fluctuate, that may provide relief for escalation, delay and additional money for extended general conditions, but only if the product at issue was identified in the Amendment. <\/span><\/li>\n<\/ol>\n<\/li>\n
                                              3. Change in Law provisions may provide relief if virus-related laws are passed affecting construction.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                              4. Suspension and Termination<\/b>\n
                                                  \n
                                                1. Owners may choose to suspend or terminate for convenience.<\/span><\/li>\n
                                                2. Contractors should evaluate what their contract allows and what notice must be given in the fact of a suspension or termination for convenience.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                3. Acceleration and Constructive Acceleration<\/b>\n
                                                    \n
                                                  1. Owners may expressly accelerate a contractor\u2019s performance coming out of impacted time period; make sure compensation terms for the acceleration effort are negotiated and memorialized before acceleration begins.<\/span><\/li>\n
                                                  2. Owners may not provide schedule relief to which contractors are entitled, which can give rise to \u2018constructive\u2019 or implied acceleration\u2019 claims.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                  3. Notice<\/b>\n
                                                      \n
                                                    1. Timing \u2013 Make sure to read your contract and give timely notice.<\/span><\/li>\n
                                                    2. Contents \u2013 Be as detailed as required or as is possible.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                    3. Documenting Claims<\/b>\n
                                                        \n
                                                      1. Keep accurate, contemporaneous records of schedule and cost impacts.<\/span><\/li>\n
                                                      2. The more detailed, the better.<\/span><\/li>\n
                                                      3. Photograph the current and periodic status of the site.<\/span><\/li>\n
                                                      4. Ensure compliance with \u201cTime Impact Analysis\u201d or similar specified scheduling requirements.<\/span>\n
                                                          \n
                                                        1. Address any arguable concurrent delays in your schedule analysis.  If you would have been late irrespective of the impacts from the virus, you may not be entitled to (or be able to prove) a critical path delay.<\/span><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<\/li>\n
                                                        2. Mitigation<\/b>\n
                                                            \n
                                                          1. Contractors may have an obligation to mitigate their damages and the damages to others in face of delay and increased costs.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                          2. Protecting Statutory Payment Rights<\/b>\n
                                                              \n
                                                            1. Depending on the type of project, contractors may have available statutory lien, bond, and prompt payment remedies.  In order to protect those rights, contractors should ensure they have provided all necessary notices, and have determined where claims need to be filed in the event payment is delayed.  This includes providing pre-lien notice, and serving and filing mechanic\u2019s lien statements within 120 days of the contractor\u2019s last day of work on a project. <\/span><\/li>\n<\/ol>\n<\/li>\n
                                                            2. Insurance<\/b>\n
                                                                \n
                                                              1. Business Interruption (BI) Insurance<\/span>\n
                                                                  \n
                                                                1. Can be stand-alone, but is typically part of a company\u2019s property policy.<\/span><\/li>\n
                                                                2. This insurance is intended to protect a business against loss of income related to disasters and other emergencies.<\/span>\n
                                                                    \n
                                                                  1. Contingent business interruption (CBI) provides coverage due to disruptions to a contractor\u2019s customers or suppliers, and given the amount of product manufactured by countries affected by the virus, such as China, this could become important coverage.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                                  2. Often requires the interruption to flow from a \u201cdirect physical loss or damage\u201d to insured property.<\/span><\/li>\n
                                                                  3. Whether business interruption insurance might provide coverage for loss of income related to COVID-19 will depend upon the terms and conditions of the applicable policy.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                                  4. Builder\u2019s Risk and Property Policies<\/span>\n
                                                                      \n
                                                                    1. Property policies are sometimes known as \u201call risk\u201d policies and are structured to cover all risk of loss or damage to insured property, except to the extent those losses are excluded by those policies\u2019 many express exclusions. The trigger for most property insurance policies will be physical damage to insured property.  Further, most traditional property policies exclude losses resulting from a virus or disease. However, following past virus outbreaks (SARS, Ebola, etc.), a few carriers introduced coverage for disease. In addition, many policies contain a \u201cCivil or Military Authority\u201d clause, which provides coverage when an action by a civil authority, such as a government, prohibits access to property.  Recently, the City of Boston shut down construction projects in the city, and given such a directive, coverage may be available. Given the increasing likelihood of such directives by state and local governments, businesses should review their policies to determine whether they contain such coverage and whether physical damage to the property is necessary for coverage.<\/span><\/li>\n
                                                                    2. Be mindful of potential coverage exclusions present in every type of policy.  Policies often have what they call an \u201cabsolute\u201d pollution exclusion, but it is debatable whether or not a virus is considered a pollutant, and there are cases holding that it is not. <\/span><\/li>\n
                                                                    3. Delayed Completion Coverage\/Delay in Start-Up Insurance \u2013 This coverage can be added by endorsement to a builder\u2019s risk policy.  It is recommended that contractor\u2019s review applicable builder\u2019s risk policies to determine if this coverage was added. <\/span><\/li>\n<\/ol>\n<\/li>\n
                                                                    4. Commercial General Liability <\/span>\n
                                                                        \n
                                                                      1. May provide coverage if customers or others claim bodily injury or property damage, including loss of use resulting from that damage, arising from COVID-19.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                                      2. Workers\u2019 Compensation Insurance<\/span>\n
                                                                          \n
                                                                        1. Workers\u2019 Compensation usually covers injuries \u201carising out of or in the course of employment.\u201d  Those injuries can include an illness, but the worker typically has to prove the illness was caused by his or her employment, and with COVID-19, it may be difficult to prove that the job caused the virus as opposed to an outbreak in the city in which the job was located.  On the other hand, if an employee on a job tests positive for the virus, an employee may be able to prove causation if the employer does not take appropriate subsequent job-site precautions to limit the risk of transmission.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                                        2. Specialized insurance products such as trade disruption insurance or supply chain risk insurance may also provide coverage.  <\/span><\/li>\n
                                                                        3. Give notice and keep records to support insurance claims, just as with contract claims.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                                        4. Labor and Employment Issues<\/b>.  <\/span>\n
                                                                            \n
                                                                          1. According to CDC\u2019s Interim Guidance for Businesses and Employers regarding Coronavirus 2019, employers should:<\/span>\n
                                                                              \n
                                                                            1. Actively encourage sick employees to stay home;<\/span><\/li>\n
                                                                            2. Separate and send sick employees home;<\/span><\/li>\n
                                                                            3. Emphasize respiratory etiquette and hand hygiene by all employees;<\/span><\/li>\n
                                                                            4. Perform routine environmental cleaning; and<\/span><\/li>\n
                                                                            5. Limit non-essential travel.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                                            6. Employers should also pay attention to federal, state and local leave laws.<\/span><\/li>\n
                                                                            7. Safety and OSHA regulations \u2013 Keep in mind that OSHA\u2019s general duty clause requires employers to furnish workers with place of employment that is free from recognized hazards or are likely to cause death or serious physical harm.<\/span><\/li>\n<\/ol>\n<\/li>\n
                                                                            8. Federal, State and Local Legislation and Executive Orders<\/b>\n
                                                                                \n
                                                                              1. National Legislation<\/span>\n
                                                                                  \n
                                                                                1. The U.S. House of Representatives passed the \u201cFamilies First Coronavirus Response Act\u201d (H.R. 6201) on March 14, 2020, and a technical corrections bill on March 16, 2020.  The bill may still change as it moves through both chambers of Congress.  <\/span><\/li>\n
                                                                                2. The bill impacts employers in the following ways:<\/span><\/li>\n<\/ol>\n