COVID-19 AND CONSTRUCTION DELAYS
Either expressly or by reference to a schedule, most construction contracts set out a date by which substantial performance of the work is to be achieved. Subject to adjustment of that date because of extra work or delay arising from circumstances beyond the contractor’s control, failure by the contractor to complete on time will be breach of contract. Delay claims seek extension of time and additional compensation in the circumstances, and according to procedures, provided for in the contract.
As the effects of the COVID-19 virus started to manifest themselves, parties on either side of construction contracts began sending notices concerning delay. Owners wrote to contractors complaining of decreasing attendance and production on site. Contractors wrote to owners providing general notice of anticipated delays. The first of those types of notice could have little practical effect, since contractors could not do the impossible by forcing sick, quarantined or simply worried workers to site or quickly finding other labour elsewhere, and since owners were unlikely in the circumstances to find their own replacement forces to carry out the threatened takeover of the work.
As the pandemic developed, public health authorities requested compliance with recommended practices for social interaction, and later declared public health and provincial states of emergency and ordered certain types of businesses to close. However, construction work; construction firms, skilled trades and professionals; and construction and light industrial machinery and equipment rental were identified as essential services that were encouraged to remain open, under guidelines developed by Emergency Management BC and subject to their continued operations following the orders and guidance provided by the Public Health Officer and Worksafe BC to ensure safe operations and reduce the risk of transmission of COVID-19.
At the time of writing, it is unknown whether the response to the pandemic will further develop to the point of a full shutdown of the construction industry.
In due course, the pandemic will result in many claims for delay under, and for delay-related termination of, construction contracts. The resolution of such claims will involve the interpretation of ordinary contractual terms in the context of an extraordinary situation and the possible application of principles of the common law of contract such as force majeure and frustration.
While there will be no question that delay was caused by the pandemic and beyond the control of either party to a construction contract, there will as always be reason to analyze closely the specific circumstances of each claim. This is particularly so in view of the possibility that some delay claimants may seek to attribute solely to the effects of the pandemic pre-existing delay or delay occurring concurrently with causes for which they are contractually responsible.
Delay claims generally
The pandemic is likely to complicate the perennial issue of the sufficiency of a contractor’s provision of notice of a claimed delay.
Standard form and other construction contracts require that delay claims be both properly submitted and justified on their merits. Procedurally, contracts usually include provisions intended to exclude a contractor’s entitlement to pursue relief for delay if timely written notice of a potential claim is not provided. The notice period is often quite short after the “commencement of delay”. This places the onus on a contractor to identify whether a potentially-delaying event or factor is sufficiently significant as to warrant giving notice.
The requirement for the provision of timely notice of delay is intended to afford to an owner the ability to consider mitigating options. However, judges and arbitrators are generally disposed to deal leniently with alleged late provision of notice of delay, as long as notice is provided within a reasonable time after the commencement of the delay and prior to completion of the construction.
From the viewpoint of an owner, delay by a contractor, particularly in the absence of notice of a delay claim, usually leads to its characterization as default, in the nature of neglect to prosecute the work properly or other failure to comply with the requirements of the contract to a substantial degree.
The interplay among a contractor’s responsibility for the construction means and methods, the occurrence of delays and the requirement for notice will be more complicated in the circumstances of the pandemic, in view of the several stages of the approach and proliferation of the virus and of the escalating official responses to it.
For general comparison, the following are the delay-related provisions of the standard form CCDC 2 2008 Stipulated Price Contract that potentially apply to the special circumstances of the pandemic:
GC 3.1 CONTROL OF THE WORK
The Contractor’s obligation to effectively direct and supervise the Work (GC 3.1.1).
The Contractor’s sole responsibility for construction means and methods and for coordinating the various parts of the Work (GC 3.1.2).
GC 3.7 SUBCONTRACTORS AND SUPPLIERS
The Contractor’s obligation to preserve and protect the Owner with respect to work to be performed under subcontract (GC 3.7.1).
GC 3.8 LABOUR AND PRODUCTS
The Contractor’s obligation to provide labour and materials necessary for the performance of the Work (GC 3.8.1).
GC 6.5 DELAYS
Entitlement of the Contractor to time extension and reasonable costs for delay in the performance of the Work by a stop work order issued by a court or other public authority (GC 6.5.2).
Entitlement of the Contractor to time extension, but not costs, for delay in the performance of the Work by a cause beyond the Contractor’s control (GC 6.5.3).
GC 7.2 CONTRACTOR’S RIGHT TO SUSPEND THE WORK OR TERMINATE THE CONTRACT
Entitlement of the Contractor to terminate the Contract for suspension or other delay of the Work under an order of a court or other public authority for a period of 20 Working Days or more (GC 7.2.2).
GC 10.2 LAWS, NOTICES, PERMITS AND FEES
The Contractor’s obligation to comply with laws and regulations which are or become in force during the performance of the Work and which relate to the Work, to the preservation of the public health, and to construction safety (GC 10.2.4).
The common law
The following are aspects of the common law of contract that have potential application to unexpected factors that affect the performance of contracts:
Force majeure relates to the suspension of performance of contractual obligations when an extraordinary event beyond the control of the parties prevents performance by one or both of them. It does not automatically apply to a construction contract unless expressly set out in its provisions.
Frustration is the doctrine by which a contract will be set aside when an unforeseen event renders the performance of contractual obligations impossible. Excessive delay that affects the intended purpose of a contract can be a ground for concluding that the contract has been frustrated.
Application to COVID-19 delays
There is reason to conclude that despite the unique nature of the pandemic event, neither force majeure nor frustration will be applicable to the resolution of COVID-19-based delay claims.
If, as in the unamended CCDC 2 Contract, there is no express force majeure provision, the contracting parties will be limited to the provisions that are in the contract to determine their rights and responsibilities in dealing with delay caused by any type of unexpected event, including the pandemic, while the contract persists.
Further, since it applies to delay that is so significant that it preempts performance of the balance of a contract, frustration should have no application to the resolution of delay claims under contracts that resume and proceed to completion after the pandemic is over. In any event, there is no need for a Contractor under a CCDC 2 to seek to be relieved of the continued operation of the Contract by operation of the doctrine of frustration, when GC 7.2.2 already entitles the Contractor to terminate if the Contract is suspended for 20 Working Days or more under the effect of a shutdown order of the public-health authorities.
The starting point for assessing delay claims will be to consider during which phase of the crisis the periods of claimed delay can be identified as having occurred.
Those phases were:
- Before the first announcements by British Columbia authorities of generally recommended prevention practices such as social distancing and self-isolation;
- The period of requested voluntary compliance with the recommended general prevention practices;
- After the announcements by British Columbia authorities of states of public health and provincial emergency, the designation of construction as an essential service and the imposition of required COVID-19 safety practices; and
- After any mandatory shutdown of construction operations province-wide.
While construction remained underway during the first three phases, the causes of delay included unavailability of material; workers staying home, whether sick or not; and less efficient construction on-site due to the implementation of the safety practices such as minimizing close contact between workers and increased cleaning activity.
Before any public announcements
Early problems in sourcing material presumably remained at the risk of a contractor or subcontractor during this phase. Exceptions might be in the case of material specified to be sourced in China or only available from China (or other similarly affected country, if any). Otherwise, as would always have been the case, a contractor would have remained at risk for the extra cost of sourcing elsewhere material that was not contractually specified so as to require that it be obtained in China, but was cheaper there.
More generally, it does not appear that the special but uncertain circumstance of the approaching pandemic would necessarily be seen to have superseded the above-cited general obligations of the Contractor to supply not only specified materials, but also sufficient labour and subtrade work, particularly since that circumstance did not yet fall under the specific situations addressed by GC 6.5.2 and predated directions emanating from government authorities so as to fall under GC 10.2.4.
After the announcements of generally recommended prevention practices
This phase is more complicated, since the announcements were made by public health authorities, but the recommended practices were not mandatory. The question is who in a period of recommended but voluntary compliance bears the risk of resulting delays. The contractual issue is that such recommendations, while they were made by authorities, did not amount to a stop work order under GC 6.5.2 nor a law or regulation under GC 10.2.4.
However, GC 6.5.3 appears to be applicable to this second phase of the public health reaction to COVID-19, since a contractor’s compliance with recommendations of public health authorities would surely be deemed to be reasonable and related delays would presumably occur beyond a contractor’s control. A contractor would therefore likely be entitled to more time, but not more money, for delay incurred during this phase.
After the announcements of states of emergency
The situation is obviously simpler for delay during this phase, because the mandatory nature of the prescribed safety practices clearly brought them within the scope of GC 10.2.4 and therefore certainly within the entitlement of GC 6.5.3, although still not within GC 6.5.2.
After a shutdown
A contractor would be entitled to more time and more money for delay incurred during this phase, because it clearly falls within the ambit of GC 10.2.4 and both the delay and termination scenarios anticipated in GCs 6.5.2 and 7.2.2, respectively.
Contracts with no defined Contract Time
Some construction contracts do not identify by specified date or reference to schedule an agreed time limit for completion. In such cases, the common law of contract implies a term of completion within a reasonable time.
Under such a contract, it should be less complicated for a contractor to establish delay claim entitlement, because presumably no test of reasonableness would require a contractor to maintain the supply of labour or otherwise continue performing work at any stage that it can be shown that the pandemic made that simply impossible.
Under GC 7.2.2, termination was only justified in the case of the full shutdown of construction, and not as a function of any of the first, second or third phases of the reaction to the pandemic referred to above.
Despite the novelty and seriousness of the pandemic, not all delays allegedly resulting from COVID-19 will translate into contractual entitlement of a contractor to additional time and/or money. However, at least in the case of standard form construction contracts, COVID-19-related delay claims are likely to hit owners hard. This is because even though owners were no more responsible for this unique event than their contractors, such contracts generally allocate to owners construction risks that do not specifically arise from a contractor’s operations.
This is fair from a contractor’s viewpoint, but may not seem so to an owner that wishes to reallocate to its contractor much of the risk that standard form contracts would not. As in all construction disputes, the assessment and resolution of COVID-19-related delay claims will be affected by the specific provisions of custom or other non-standard form contracts and of supplementary conditions added to standard form documents.