As families and businesses grapple with the Corona Virus Pandemic’s affect the economy, contractors, subcontractors, owners and suppliers must review their current projects, contracts and/or purchase orders and begin preparations.

OWNERS:

• Review your contractual rights under the termination provisions and/or the suspension of work provisions in your contracts.
• Many contracts include “Termination for Convenience” or “Suspension” clauses that would likely be applicable to the current Pandemic.
  • Such clauses may give Owners the right to suspend or even terminate a contract as follows:
    • For any reason at all;
    • If a government directive is issued that prevents continuance of a Project; and/or
    • Acts of God, such as the Corona Virus Pandemic
  • Owners should communicate with their banks/lenders as to possible disruptions to normal financing arrangements.
  • Owners should immediately communicate with their general contractors and consultants to determine how they will handle a potential work stoppage due to the Corona Virus Pandemic.
  • If financially possible, plans should be put in place to address the concerns of the project itself, but all those who may be affected such as employees, individual consultants, and contractors/suppliers in the chain of construction.

CONTRACTORS AND SUBCONTRACTORS:

• Of crucial importance will be how Contractors and Subcontractors should be compensated in the event of a termination, suspension or other delay.
  • Many contracts that allow for “Termination for Convenience” call for some form of reimbursement to the Contractor, such as payment for work in place, and/or reasonable overhead and profit for work not yet performed.
  • A suspension of the contract may not result in payment of overhead/profit for uncompleted work, but may allow for immediate compensation of all work completed.
  • In addition, the contract may indicate that a suspension will result in termination if the suspension of work exceeds a certain number of days/months.
• NOTICE AND DELAY: If a contractor/subcontractor is going to be delayed in completing any aspect of its work either due to an Owner’s decision, act or omission, labor shortage, and/or specifically related to the Corona Virus Pandemic, the contractor/subcontractor should give notice to its contracting party immediately.
  • Said notice should describe the length of anticipated delay if known, the reasons for the delay, any strategy for schedule recovery, and the amount of compensation that may be due to the contractor/subcontractor in the event of said delay
• LIQUIDATED DAMAGES: Many contracts allow an Owner to recover liquidated damages for each day of delay on a Project. In the event the project is delayed due to the Pandemic, contractors should immediately notify their contracting party/owner that in such event, you will not be responsible for liquidated damages.
  • Many clauses dealing with delay carve out exceptions for “Acts of God”, and this Pandemic should clearly qualify under this exception.
  • Notify your contracting partners immediately if you anticipate a project delay due to the Pandemic

SUPPLIERS:

• Suppliers must immediately notify their customers of any interruptions in the manufacture of and/or receipt of materials and/or total unavailability due to the Pandemic’s impact on supply lines.
• Suppliers should take caution in accepting large bulk orders and consider agreeing to a phased ordering approach. This would allow more flexibility in the event of a complete supply line disruption, and lessen the potential order backlog and/or inability to complete large orders.

In sum, Owners, Contractors, Subcontractors, and Suppliers should now be in constant communication with each other to lessen the impact of the Pandemic’s disruption to the construction industry. Where appropriate, notices of delays should be issued and suspensions and/or terminations of contracts should be negotiated in such a manner as to fairly reduce the financial losses of the Owners, Contractors, Subcontractors, Vendors, and perhaps most importantly, the lower level employees, staffers and laborers who may suffer the harshest financial consequences of the Pandemic’s impact on the economy.

In addition, in the event of a termination and/or suspension of a project, steps should be taken to protect the work itself and address any potential safety and/or property damage concerns that could arise if work is left incomplete for a lengthy period of time. The prospect that construction projects could sit idle for a substantial period of time is becoming very real, and steps should be taken to reduce any safety hazards and provide protective coverings to avoid property damage that might result from water infiltration or weather events.

Tesser & Cohen is available to assist with handling of this very unique and unpredictable situation, and review your contractual rights, obligations, and options if/when the Pandemic impacts your construction projects.

TESSER & COHEN
946 Main Street
Hackensack, NJ 07601
201-343-1100
https://www.tessercohen.com/