CORONAVIRUS IN THE COURSE OF CONSTRUCTION – PREPARING FOR THE WORST
The COVID-19 “Coronavirus” pandemic will weigh heavily on the Canadian construction industry in the coming months. Project delays due to worker sickness, supply chain disruptions and travel restrictions (among other things) appear inevitable. As infection rates continue to rise, complete shutdowns of construction projects may not be far off. To prepare for these eventualities, it is imperative that owners and contractors understand their rights, responsibilities and options. Below are a few key considerations to keep in mind as the outbreak unfolds.
Owner-Invoked Projected Suspensions
Construction contracts often include provisions that enable owners to temporarily suspend the contractor’s performance of services without incurring an increase in the contract price. Owners may want to take advantage of a temporary suspension to re-evaluate the course of construction and implement infection control measures to protect workers against potential jobsite outbreaks. Any prospective decision to suspend must be made with sufficient notice to the contractor.
Protections from Non-Performance and Breach of Contract
Force Majeure or ‘Act of God’ clauses provide protection when supervening events (like a pandemic) prevent, hinder or make it impossible for parties to meet their performance obligations. As always, the type of event, and extent of protection afforded will depend on the clause’s wording. In the context of COVID-19, language providing coverage would include disease, pandemic, epidemic and – possibly, in the event of a shutdown – governmental action. Even if it does not, the outbreak could still be captured under the clause’s boilerplate wording. It is important to keep in mind that most force majeure clauses trigger a suspension (rather than a termination) of the contract. Before invoking the force majeure clause, parties must first exhaust all commercial reasonable efforts to perform their obligations.
Common Law Protection
If a contract does not include a force majeure clause, the common law doctrine of frustration may afford protection from non-performance. Courts will deem a contract “frustrated” when a supervening event renders the performance of the contract fundamentally different from what the parties had agreed to upon entering it. Unlike force majeure, a finding that a contract is frustrated effectively terminates the contract and stops both parties from performing their contractual obligations. Like force majeure, the party relying on it must show that they exhausted all reasonable options to perform their obligations before being able to do so.
Insurance Coverage for Construction Delays
Builder’s Risk Insurance may provide coverage for income loss, soft costs and expediting expenses resulting from construction delays caused by the outbreak. To be certain, Builder’s Risk typically only provides coverage in the event of direct physical loss or damage to the construction project. However, depending on the policy’s wording, there may be a basis to claim that COVID-19 contamination of the jobsite constitutes physical damage.
COVID-19 will have a longstanding and wholesale impact on the Canadian construction sector. To prevent losses from the outbreak, owners and contractors must carefully review their contracts to understand their rights and obligations. In doing so, close consideration must be given to all applicable notice requirements, records establishing proof of loss or reason for delay, and ways to mitigate against losses and non-performance. Communication with affected parties should be open and frequent to ensure all parties are able to meet their obligations.
Should you have any questions about your specific circumstances, please do not hesitate to contact any of our Construction group lawyers.