While contractors move quickly to sanitize their workplaces, seeking to protect their employees, customers, and guests from the Coronavirus, diligently following directives from the CDC, no amount of sanitizing can insulate contracting businesses from potential negative outcomes and costly unprecedented and unpredictable impacts caused by the virus.
So, are contractors helpless in the face of the Coronavirus and doomed to suffer disastrous contract project outcomes? Fortunately, contractors have at least one tool to help mitigate the negative impacts of the Coronavirus on its bottom line. That tool, which is so often underutilized, is the contractor’s contract. While the contract cannot cure the Coronavirus, if properly drafted, the contract may serve to immunize contractors from the worst financial damages the Coronavirus can cause.
A few potentially very costly issues created by the Coronavirus have come to light quite quickly, and are not typically addressed in standard contract documents. These include, for example, what recourse or rights does a contractor have if the Coronavirus causes a significant number of its workforce and/or a key subcontractor’s workforce to be unavailable to work on the Project, thus making it extremely difficult or even impossible to perform in accordance with an agreed upon schedule? What if suppliers of critical material and equipment cannot deliver due to the virus? And, what can a contractor do if one of its subcontractor’s workmen appears on the job site while infected with, or suspected to be infected with, the Coronavirus?
When an epidemic like the Coronavirus occurs, contractors may suffer serious delays in performing their work, and may even, in some instances, find it impossible to complete their contract work. When a contractor suffers the negative impacts of an epidemic, it may or may not be granted extensions of time, depending on whether or not both the contractor and its contracting partner agree that the epidemic presents an excusable delay event. Many form contracts contain clauses under a heading “force majeure” (meaning superior or irresistible force). Others provide similar terms without the specific heading “force majeure.” Regardless, there are typically provisions enumerating excusable causes for delays including acts of God, fires, floods, strikes, and, unusually, severe weather. Most of these provisions, however, do not specifically include a pandemic or epidemic in their list of excusable delays. The consequences of not having a pandemic or epidemic recognized or agreed to as an excusable delay, is that a contractor may suffer liquidated damages (due to a refusal by the owner to grant an extension of time) or worse may be deemed to be in default of its contract requirements. Under Pennsylvania law, in order for a contractor to successfully invoke a force majeure clause as an excuse for nonperformance, the event alleged as an excuse must have been beyond the contractor’s control and not due to any fault or negligence by the contractor. In addition, the non-performing contractor has the burden of proving as well as a duty to show what action was taken to perform the contract, regardless of the occurrence of the purported excuse. It is important to note that the courts have held that a financial hardship is not, in and of itself, grounds for avoiding performance under a contract.
The occurrence of a pandemic or epidemic like the Coronavirus may also delay or halt altogether a supply of key components that a contractor requires to complete its work. In such cases courts have held that contractors bear the burden of showing that they have exhausted all other alternatives to supplying the key equipment and that its performance was commercially impractical. If contractors are currently experiencing delays due to significant illness in its workforce or the workforce of its subcontractors brought about by the Coronavirus, or if they are impacted by shutdowns by suppliers of key equipment or material they, and their legal counsel, should review the contract documents to determine if, and how, they may invoke a force majeure in seeking extensions of time for excusable delay. Whether or not the contract specifically mentions a pandemic or epidemic, contractors should promptly notify its contracting partner in writing that it is suffering unanticipated delays beyond its control and though it will continue to perform its contract work as quickly as possible, it will seek contractual relief for excusable delay.
With respect to workmen of subcontractors appearing on the project site, which workmen are either infected by or suspected to be infected by the Coronavirus, or any other serious contagious disease, contractors should seek to have such workmen removed from the project site, with or without the subcontractor’s assent. While many form contracts provide a contractor with the right to demand the removal of an “unfit” or “unsafe” workman, neither of these terms is defined and leaves open the question whether a workman with a contagious disease is unfit or unsafe. Due to a contractor’s general obligation under the OSHA statute and regulations requiring a contractor/employer to provide a safe workplace, it can certainly be argued that the contractor does not only have the right to remove such workmen, but an obligation to do so. Contractors may wish to add infectious illness as additional grounds for removing a workman.
Thomas O. Williams, Esquire