What is force majeure and how does it relate to COVID?
What happens if a tornado strikes or a flood occurs causing the construction work to be destroyed and causing delays in the construction project?
In contracts, there is a force majeure clause that protects against such unforeseen events, commonly referred to as acts of God. Force majeure removes the contractor’s liability to complete the project based on the previous contract timeline in an unforeseeable event that is outside the contractor’s control.
When COVID struck the United States and completely decimated the construction industry, and all businesses and people’s daily lives for that matter, it was considered a force majeure event, one that no one predicted nor could prepare for. Yet, that was a year ago and we have now have been living with the realities and impacts of COVID for a year. This leads to the question, does COVID and the consequences still fall under the force majeure clause?
Is the contractor liable for COVID-influenced project setbacks?
First, let’s consider a different situation dealing with snowstorms. In Minnesota, there have been court rulings favoring the customer’s allegation that the contractor did not complete the project within the timeline or cost outlined in the contract even when the contractor encountered a large snowstorm that interfered with the work. While the force majeure clause covers events outside of the contractor’s control, the courts have ruled that it is presumed that if you are doing construction work in Minnesota during January or February a contractor should expect they will encounter a heavy snowfall that will impede progress thus should be included in the original contract. In summary, courts have ruled that if there are common circumstances, even though they can’t be predicted, they should be accounted for in the contract and predetermined schedule. Therefore, the force majeure clause no longer applies to such predictable events and does not protect the contractor’s liability.
In a similar scenario, since we have been dealing with COVID for a year, should contractors be able to understand the circumstances of working in a COVID environment and be able to foresee setbacks?
We’ve encountered reoccurring shutdowns, differing social distancing rules, changing government regulations, and developing CDC guidelines that have caused delays in construction projects in a variety of ways. From employees getting sick to unreliable material supply to parents needing to stay home with their children because of school closures to customers feeling uncomfortable with workers entering their building or home, there are numerous COVID-influenced setbacks.
Since we all have encountered these circumstances throughout the past year and understand the common challenges associated with running businesses during COVID, should a contractor be expected to assume these events and therefore plan for them ahead of time? If so, then a contractor should be responsible for completing the project on time and budget even during COVID. The force majeure clause would no longer eliminate the liability of the contractor which could cause courts to rule in favor of the customer.
What to expect going forward?
Unfortunately, there is no definite answer.
Since there is not an existing legal precedent, or no previous court ruling that regulates future similar cases, there is no way of predicting how the courts will rule and what actions contractors need to take to protect themselves. Yet, it is a concern that needs to be considered when drafting contracts and conducting construction work during COVID.
We recommend contacting your legal advisor for questions or concerns regarding if your force majeure clause will cover COVID construction delays or what precautionary measures you should take now. For legal guidance, get in touch with the MNCLS team and we work with you to determine the best course of action to safeguard your business.