The coronavirus disease (COVID-19) continues to dominate global headlines and markets. In the U.S., COVID-19 has prompted two governors to declare states of emergency; tragically claimed the lives of multiple U.S. residents; and has been reported in 10 states and counting. Due to the growing impact of the coronavirus, commercial contractors would be wise to establish a multidisciplinary task force to update their contingency planning for the coronavirus threat. Such a task force might consider, at a minimum, the following issues:
Safety/Risk Mitigation Protocol
The task force could evaluate creating a protocol for preventative measures to ensure the health and safety of its workers. This protocol might address quarantine procedures, implementing business-travel restrictions, and limiting visitor access to the jobsite or home office. The task force may also establish guidelines to determine if its employees or its subcontractors’ employees have visited areas affected by the outbreak and take the appropriate precautions recommended by the CDC.
It would be prudent to include human resources personnel on the task force to remind employees about the company’s sick and emergency leave policies, as well as accommodations for working remotely. Such personnel can evaluate what protections may apply for employees that must take extended leave, such as short-term disability benefits, or even workers’ compensation in limited circumstances.
Lastly, the task force should consider dedicating resources to educate its employees about proper hygiene techniques and provide sufficient supplies for handwashing and disinfecting frequently used work areas.
Impacts on Materials, Supplies, and Equipment
Government efforts to contain the coronavirus may impact contractors that rely on foreign materials and supplies. Government-mandated factory slowdowns and shutdowns have created labor and materials shortages in multiple countries that may cause contractors to experience higher prices and longer lead times for materials. Additionally, transportation or travel embargoes, government confiscation of property, and other government actions may make it extremely difficult, if not impossible, to complete the contract on time and in compliance with the project specifications.
The task force could evaluate which of its jobsite supplies and materials (or components thereof) are made abroad or affected by foreign labor and distribution. Even contractors that do not directly buy foreign materials should be prepared for the possibility of increased prices or inventory shortages from local suppliers that are forced to alter their operations. The task force might consider directing project teams to send notices to all subcontractors and vendors requesting status updates and immediate reporting of any foreseeable delays on the delivery of supplies, materials, and equipment. Open lines of communication with owners and developers about efforts to mitigate anticipated issues is also key. Proactive adjustments to project schedules and work sequencing may allow contractors and owners to lessen potential impacts from COVID-19.
The task force would be wise to review each of the contractor’s active contracts and not assume that such contracts automatically have a force majeure clause to address this type of outbreak. Multiple standard contracts, such as the AIA forms, do not even mention the term “epidemic.” For contracts still being negotiated, the contractor might consider defining the term epidemic and including a provision to cover resultant delays and costs increases. However, contractors should be careful of claiming a force majeure event prior to experiencing an actual delay. Contracts do not usually recognize force majeure events that may occur. A premature force majeure notice therefore may do little more than trigger a contractor’s duty to mitigate rather than relieve it of performance.
The task force could also ensure that its project teams are aware of all the applicable notice provisions under pertinent contracts and subcontracts. Of particular importance is compliance with any notice provisions relating to change orders to ensure timely notice to the owner. Otherwise, the contractor may waive claims for cost increases, excusable delay, or other damages. The task force may also want to evaluate whether legal theories such as cardinal change, frustration of purpose, constructive change, constructive suspension, and the duty to cooperate may be relevant in asserting claims arising from a coronavirus disruption.
Lastly, the contractor’s task force might discuss potential impacts and coverage concerns with its insurance advisors. There are many factors that determine whether a loss is covered, including the policy language and the type of loss. However, the task force would be wise to have these conversations with insurance advisors now and provide immediate notice and documentation of any potential exposures or losses. Topics for discussion may include:
- Coverage for the treatment of infected employees
- Coverage for lawsuits filed by employees or other parties relating to COVID-19 exposure
- Coverage for loss of revenue associated with disease, governmental shutdown, or limitation of access to an insured’s business
- Loss of earnings caused by delays or foreign government actions
Benjamin Franklin famously quipped, “By failing to prepare, you are preparing to fail.” Contractors should not panic but rather prepare by investing the necessary resources to be ready for the potential consequences of the coronavirus outbreak. Please contact any of the authors to discuss the creation and implementation of COVID-19 mitigation measures.