The Importance of Force Majeure Clauses in the Age of COVID-19
By: Kendall E. Woods
The global coronavirus (COVID-19) pandemic has disrupted almost all aspects of life and work including the construction industry. COVID-19, and the lockdowns and safety protocols that come with it, has interrupted countless construction projects leaving industry players scrambling to determine who bears the financial responsibility for delays caused by an infectious disease. This article focuses on the impact of “force majeure” clauses to understand which party will likely bear the impact of the delay and how best to ensure COVID-19 considerations are addressed on future projects.
Many construction contracts contain some form of a “force majeure” clause. Force majeure refers to an unexpected event that prevents a party from meeting its contractual obligations. Force majeure clauses in construction contracts are provisions written into the contracts to allocate risk and limit liability for delays to construction projects arising from unexpected or unforeseen events outside the control of the parties. Force majeure clauses generally excuse delays caused by forces outside of the control of the contractor but do not provide for additional compensation for such delays.
Though the concept of “force majeure” is widely recognized, in and of itself the term has no specific legal definition. Because of that, courts look to the language contained in specific contract clauses to determine what events fall under the “force majeure” clause of the contract. Historically, construction contracts have included clauses that contain force majeure language but the specific language used in those contracts varies and can directly impact whether COVID-19 falls under that provision. Typically, force majeure clauses encompass such events as “acts of God,” war, fire, national emergencies, labor strikes, diseases, pandemics, epidemics, natural disasters, governmental acts or regulations, and other “acts beyond the control” of the parties.
Since the ability to rely on force majeure for an excusable delay is governed by the specific contract, review of the specific contract language is the critical first step. Most of the construction industry standard forms, including the American Institute of Architects (“AIA”) forms and ConsensusDocs, include force majeure language in their standard delay clauses. The AIA includes its force majeure language in section 8.3.1 of the AIA A201-2017. The AIA’s provision states, in relevant part:
§ 8.3 Delays and Extensions of Time
§ 8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work . . . (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 220.127.116.11, or other causes beyond the Contractor’s control; . . . or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.
Similarly, ConsensusDocs A200 Standard Agreement and General Conditions between Owner and Contractor (2017) contains “force majeure” language in section 6.3.1 “Delays and Extensions of Time”. Section 6.3.1 states, in relevant part:
Article 6.3.1 If Constructor is delayed at any time in the commencement or progress of the Work by any cause beyond the control of Constructor, Constructor shall be entitled to an equitable extension of the Contract Time. Examples of causes beyond the control of Constructor include, but are not limited to, the following: . . . (e) transportation delays not reasonably foreseeable; . . . (j) epidemics; (k) adverse governmental actions; (l) unavoidable accidents or circumstances; . . . Constructor shall submit any requests for equitable extensions of Contract Time in accordance with ARTICLE 8. ConsensusDocs 200 (2011, revised 2017).
As seen from the two examples above, the specificity and breadth of the language varies. One form contract explicitly identifies “epidemics” while the other uses more general language of “causes beyond the Contractor’s control” or causes that the Architect determines justify delay. As noted, the difference in contract language can be a critical aspect when determining whether a contractor is entitled to an excusable delay for COVID-19 schedule impacts. Having more specific language in the force majeure clause in the contract, e.g. language that specifically identifies “epidemics” or “pandemics” or “natural disasters” will provide a stronger argument that a delay due to COVID-19 will be excused.
Given the unique COVID-19 pandemic and its exceptional fallout, there is little case law directly on point to help guide how force majeure clauses will be used to provide excusable delay in construction contexts. With respect to construction-related force majeure issues, the majority of cases address weather-related delay or other non-disease related problems. However, in non-construction contexts there are several recent cases that have discussed the applicability of force majeure clauses to COVID-19 issues and have found that COVID-19 constitutes a “natural disaster” or a “circumstance” beyond the parties’ control, which reasoning may be instructive in construction disputes.
In JN Contemporary Art LLC v. Phillips Auctioneers LLC, No. 20CV4370 (DLC), 2020 WL 7405262, at *1 (S.D.N.Y. Dec. 16, 2020), the Court analyzed a force majeure clause in a contract for the auction of a painting that included a guaranteed minimum payment to the seller of $5,000,000 and determined that the COVID-19 pandemic qualified as a “natural disaster” or a “circumstance beyond the parties’ control” as contemplated in that contract’s force majeure clause. In JN Contemporary Art, the force majeure language was in the termination clause and provided that termination of the contract was allowable if the auction was “postponed for circumstances beyond our or your reasonable control, including, without limitation, as a result of natural disaster, fire, flood, general strike, war, armed conflict, terrorist attack or nuclear or chemical contamination . . .”. Id. at *2. After the onset of the pandemic, the auction house terminated the contract for the sale of the painting. Id. *3-4. The court noted that the parties’ rights with respect to force majeure are determined by their contracts:
Force majeure clauses are to be interpreted in accord with their purpose, which is to limit damages in a case where the reasonable expectation of the parties and the performance of the contract have been frustrated by circumstances beyond the control of the parties. Therefore, “when the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure.” Although force majeure clauses “are not to be given expansive meaning,” they nevertheless encompass “things of the same kind or nature as the particular matters mentioned.” Id. at *6 (internal citations omitted.)
The court analyzed the specific force majeure language in the termination clause and found that the COVID-19 pandemic constituted a “natural disaster” and fell under that language of the clause. Id. *7. The court also determined that “a pandemic requiring the cessation of normal business activity is the type of ‘circumstance’ beyond the parties’ control that was envisioned by the [contract]” Id. at *8. Other jurisdictions have also determined that COVID-19 is a “natural disaster” in varying contexts. See, e.g., AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, No. 20-CV-0310, 2020 WL 7024929, at *58 (Del. Ch. Nov. 30, 2020) (“The COVID-19 pandemic arguably fits this definition [of natural disaster]”); Pa. Democratic Party v. Boockvar, 238 A.3d 345, 370 (Pa. 2020) (“We have no hesitation in concluding that the ongoing COVID-19 pandemic equates to a natural disaster”); Friends of Danny DeVito v. Wolf, 227 A.3d 872, 889 (Pa. 2020) (“The COVID-19 pandemic is, by all definitions, a natural disaster”).
Whether the contract language is sufficiently broad to excuse delays caused by COVID-19 related issues is only the first step in the analysis. Once a party establishes that its force majeure clause covers COVID-19 delays, the party will then have the burden to establish that the delay for which it is seeking an extension is directly related to COVID-19 and not due to other, unexcused causes. See Rudolph v. United Airlines Holdings, Inc., No. 20 C 2142, 2021 WL 534669, at *7 (N.D. Ill. Feb. 12, 2021) citing Glen Hollow P’ship v. Wal-Mart Stores, Inc., 139 F.3d 901, 1998 WL 84144, at *3 (7th Cir. 1998) (for force majeure provision to excuse nonperformance, the nonperformance “must be both directly and proximately caused by” the allegedly triggering condition). For example, a contractor who was already behind schedule on a project prior to the onset of the COVID-19 pandemic will have a harder time convincing an owner or a court that the delay was COVID-19-related such that the contractor is entitled to excused delay. Additionally, even if the contractor is able to establish a legitimate COVID-19 delay, if that delay is not on the critical path or if there are other concurrent unexcused causes for delay, there could be a question as to whether the contractor is entitled to be excused for the delay or a portion thereof.
If you experience a job site delay that you believe to be a COVID-19-related delay, the first step is to look at your contract and determine if the force majeure language is sufficiently broad to cover pandemic-caused delays. If the language is sufficient to support a claim that COVID-19 delays are excusable, the next step is to establish that COVID-19 is in fact the direct cause of the delay.
Moving forward, the best way to protect against uncertainty relating to COVID-19 delays or other pandemic or epidemic events is to explicitly address it in the contract. Consider adding a clause to the contract that specifically addresses COVID-19 and/or a pandemic or epidemic event and identifies: (1) if the contractor is entitled to an excusable delay due to pandemic or epidemic events; (2) under what circumstances the contractor is entitled to an excusable delay (e.g., did the delay impact the critical path, were there other factors that caused and/or contributed to the delay); (3) what the contractor has to provide to the owner to establish that it is entitled to an excusable delay; and (4) whether the contractor receives an adjustment to its contract sum for a pandemic or epidemic event. Since most standard force majeure clauses do not provide for additional compensation, including this in a specific contract clause will expand rights for COVID-19 delays.
Of course, the force majeure clause is only one avenue of potential relief or even potential damages. In conjunction with the analysis of the force majeure clause in your contract, there are other contractual provisions that should be reviewed and analyzed to determine if there are any other avenues through which to either avoid the negative impacts of delay, recoup damages due to the delay, or obtain other relief.
Article Content is Not Legal Advice. This article is for informational purposes only. The content in this article is not legal advice and should not be construed nor relied upon as such. This is not a substitute for personal legal advice.
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