Can You Recover for Construction Delays Related to Covid-19 Shelter-in-Place Orders?
It is common to experience delays during construction projects. With the counties of San Francisco, San Mateo, Alameda, Contra Costa, Marin and Santa Clara, along with the City of Berkeley issuing an updated Shelter-in-Place Order on March 31, 2020, it is clear that most construction projects will be forced to shut down, and will experience construction delays. Will contractors be entitled to compensation when such delays? Generally, four tests must be satisfied before recovery for delay costs will be allowed, a contractor must prove that the delay was (1) excusable, (2) compensable, (3) critical, and (4) non-concurrent.
Is the Delay Excusable or Non-Excusable?
Delays that excuse a contractor from performing within the contract period and justify an extension of time to perform are excusable. Generally, whether delays are excusable depends on contract provisions. Force majeure, acts of God, unexpected weather, labor disputes, owner design problems, government and owner-initiated cessations of labor, and similar factors may cause excusable delays. The main consideration is whether the factors were beyond the contractor’s ability to control or foresee. Put another way, delays are generally excusable when another party caused but could have avoided them, or when they were due to environmental factors, or governmental actions, beyond the control or foresight of anyone.
If an excusable delay is encountered, it is most important to meet contractual requirements that notice be given. Most contracts require written notification of the other party when a delay occurs. A delay claim may be barred if timely written notice was not given when the delay occurred.
An “inexcusable delay” is one which the delaying contractor could have foreseen or prevented but failed to do so. In such cases, the delaying contractor must assume the costs and results of delay for both himself and any other parties impacted by the delay. An unexcused delay may be considered a breach of contract.
There are numerous types of inexcusable delays. If weather conditions, labor problems, or subcontractors or suppliers late delivery could and should have been anticipated, then the delay may be inexcusable. Failure to provide adequate staff or tools, inexperience, or cash-flow problems can also result in unexcused delays. Thus, contractors need to emphasize in their delay notices that the delays caused by the Covid-19 epidemic were unanticipated and beyond the contractor’s control.
Is the Delay Compensable or Non-Compensable?
Typically, whether delays are compensable or non-compensable are determined by the contract, and you should review the specific clauses related to delay in your contracts.
One common type of contractual clause that attempts to limit delay claims is a “no damages for delay” clause. Essentially, four theories limit the applicability of such a clause: If the delay is (1) due to other parties action or inaction; (2) not governed by the contract; (3) unreasonably long; or (4) was one whose possibility the parties did not contemplate, it may not be possible to collect damages. Since there are many exceptions to the applicability of contractual limitations on delay claims, contractors should review such clauses with competent legal counsel.
Another common type of contractual clause that attempts to limit delay claims are clauses that provide that extensions of time for completion shall be the sole remedy of the contractor. However, these clauses typically also provide that in the event that additional compensation is acquired from the owner on account of such delays, the additional compensation so received shall be distributed amongst the contractors and subcontractors as is equitable under all of the circumstances.
Is the Delay Critical?
Did the delay have an impact on the time for completion of the project as a whole? A delay may not impact the overall project completion date. If it does not, the delayed party may not be able to recover. The contractor must therefore establish that the delay was excusable, compensable, and on the critical path.
Comparison of as-planned and as-built schedules is the key method for determining if a delay is critical. Such a comparison allows the contractor or owner to determine which activities are critical to the earliest completion of the project. With all work stopped on contracts, due to the Shelter-in-Place orders, it is likely that the delay will be on the critical path as all work has been stopped and the delays impact the overall project completion dates.
Is the Delay Concurrent?
Two or more independent delays during the same period are known as concurrent delays. The courts have rendered inconsistent decisions as to delayed parties’ rights to recover damages for concurrent, but independent delays. Some have attempted to apportion the damages from such delays among the delaying parties. Apportionment does not have to be exact and can be complicated by criticality, excusability, and compensability factors. In some cases, the courts have denied recovery to either party, reasoning that such claims were similar to liquidated damage claims.
If your projects are shut down due to the Covid-19 Shelter-in-Place orders, or other actions taken by the government or project owners in response to the Covid-19 epidemic, it is important that you immediately begin documenting the claim, notify the other party to the contract, review your contract for pertinent clauses. As you review the contract you should consider preparing a checklist of what is required under each clause and the time deadlines for satisfying those requirements. After you prepare the checklist in preparation for taking the actions that are on the list you should put in place a method and means for tracking the covid-19 time impacts, cost impacts, and any other critical documents and occurrences, such as establishing cost codes and separate files related to the impacts. Contractors should also immediately send out their Notices of Delay as required by their contracts. Contractors should also reach out to legal counsel with any questions they may have regarding recovery of damages related to the delay in the project.
This article, ©2020, was written by William C. Last, Jr. and Patrick J. Whitehorn. Mr. Last is an attorney who has been specializing in Construction Law for over 40 years. In addition to belonging to a number of construction trade associations, Mr. Last holds a California “A” and “B” license. Mr Last has been designated as a Super Lawyer and a Fellow, Construction Lawyers Society of America. Mr. Whitehorn has been practicing construction, and commercial litigation for over fifteen years. Both can be contacted at 866-904-4725 or 650-425-7679. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.