Coronavirus and Construction
Commentary: How to Limit COVID-19 Related Legal Claims
We are 10 months into the global pandemic. Given the magnitude of additional costs and upended expectations and risk-allocation, we foresee a wave of disputes coming soon. Whether it is large or small depends heavily on how well project team members handle the COVID-19 project impacts now.
While there are still many unknowns, the knowns have also come into sharper focus over the last several months. What we have learned points to sustained challenges and cost and time impacts, but also opportunities to mitigate the deleterious effects of COVID-19 and reduce the possibility of large-scale disputes down the road.
At the beginning of the pandemic, governments around the world instituted both full and partial travel bans, border closures and, in some jurisdictions, stay-at-home orders and work site shutdowns to combat the virus spread. Initially, we saw a raft of force majeure notices raised in response to these measures.
In short order, however, many contractors pivoted to submitting notices of claims under change in law and other provisions, particularly when they realized that most traditional force majeure regimes provide only time relief and not compensation for the additional costs incurred due to interruptions in supply chains, workforce unavailability and delays to work due to government requirements. Owners likewise grappled with how best to respond to COVID-related disruptions, including through re-sequencing and suspensions.
“Today, despite the first vaccines being available, we know that there will continue to be closures and changes, many implemented on short notice, that affect the availability of materials, labor and work sites around the world until the virus is under control.”
Today, despite the first vaccines being available, we know that there will continue to be closures and changes—many implemented on short notice—that affect the availability of materials, labor and work sites around the world until the virus is under control. Additionally, safe work on construction sites now includes new environmental, health and safety requirements, including additional personal protective equipment, cleaning, maintenance and social distancing.
As a result of the continuing pandemic, project teams must increasingly plan for COVID-related disruptions and be prepared to implement mitigation measures to minimize their effects.
We also know that many project participants are strained. For some, especially public-private partnership (P3) projects involving public transportation, the financials have changed radically. Where several months ago the parties and team members on such a project might have been able to accommodate certain disruptions, some may no longer have the financial ability to do so.
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What can be done? Collaborate and plan for the impacts of government safety measures. On many projects, we have recommended that task forces be formed consisting of owners, contractors and project and construction management teams to identify and address COVID-19 impacts going forward. With the experience of nine months in dealing with effects of government measures on their supply chains and work performance, it may be easier to agree about what to do.
Next, be diligent in making initial claim notices and updates. These are vital to giving the parties the information necessary to better mitigate the project impacts while also assuring that, if a dispute becomes inevitable, the parties are well-positioned to resolve it in a cost-effective and ultimately successful way.
Also, carefully and thoroughly document extra costs, delays and disruptions. In most scenarios, whether by agreement or ultimately via judgment or arbitral award, the only costs that can be recovered are proven costs. It is much easier to identify, capture and ultimately recover costs if they are contemporaneously tracked.
Now for the hardest part: Project members should evaluate whether existing contract mechanisms are suited to the current situation; some existing contracts are up to the task, but others are not.
We have, for example, drafted new contract provisions to define when COVID-19 events impacting performance do and do not give rise to entitlement for time and compensation, thus taking them out of force majeure and change in law regimes that did not adequately address the risk allocations the parties preferred. Similarly, there may be times when separate, fast-track claims notice and resolution processes may be appropriate to assure that relief for meritorious claims for impacts comes quickly to support mitigation and performance.
Ultimately, we urge everyone, as much as possible, to stay creative and flexible.
These remain extraordinary times. Effective claims management and disputes avoidance will require a high level of constructive engagement with other project team members, and where possible, creativity and flexibility from all stakeholders, especially given the changes in the financial calculus for some project participants. No options should be taken off the table, including one-off agreements or wholesale renegotiations to assist project teams in navigating the continuing challenges COVID-19 has brought.
Meagan T. Bachman and Joshua M. Lindsay are, respectively, partner and counsel at Crowell & Moring, the law practice based in Washington, D.C. They can be reached at mbachman@crowell.com and joshlindsay@crowell.com.
