6 Legal Issues for COVID and Construction

By Stuart Eisler and Donnelly Gillen

Country-wide, construction projects of every kind are being impacted by COVID-19. The situation and governmental response continue to evolve, requiring contractors to stay informed of changes to ensure they wisely manage their projects. There are a litany of issues, legal and practical, that contractors face. Our aim in this article is to shed some light on six of the key legal and practical issues MEP contractors may find themselves facing.

My state and county issued "shelter-in-place" orders affecting construction. What should I do?

First, figure out which orders apply to your projects, analyze them, and obtain assistance from legal counsel or government authorities in interpreting them, if necessary. Some county and city governments have published their own health orders that differ from their state’s order, so you may have to follow more stringent local requirements. Some localities are also publishing construction-specific guidelines that permitted construction projects must follow.

Next, check the orders regularly. Government orders are evolving as the pandemic and response to it develops. Consider assigning someone in your company to regularly review government websites and the local news for any changes.

Lastly, thoroughly review your contracts. Assess each project’s contractual provisions for all parties, including termination and suspension rights, force majeure, notice requirements, change request requirements, entitlement to time extensions and cost increases, the effect of refused extensions, liability limitations including exclusion or waiver of delay and consequential damages, escalation clauses, changes in law clauses, flow down provisions, and clauses related to emergencies and safety. Often, your contracts will require prompt notice of any potential or actual impacts of governmental shut downs.

 My project is in the early stages of design. Should I continue the design process?

Design-build or design-assist contractors on projects in design development should attempt to continue working (assuming none of your contract clauses put them at a disadvantage in doing so). Ask your clients to confirm what work may progress. If your projects utilize BIM and other collaborative tools, your team may be able to continue to work remotely which will mitigate schedule impacts. Also consider early and/or bulk materials orders – you may be able to avoid some supply chain impacts with early procurement if your client will authorize it.

 If your project is not utilizing BIM and other digital tools, outline any design-related work you can conduct onsite in conformance with government orders. For example, you may be able to send a skeleton crew to the site to assess the progress of interdependent trades and perform any necessary field verifications.

My jobs involve a lot of prefabrication. My employees want to work but I am concerned for their wellbeing. I am also concerned about keeping my business afloat. What should I do?

This is a tough issue the entire industry is grappling with. Continuing prefabrication may be a way to maintain progress on a project during governmental shut downs (you must confirm work in your shop is permitted even if construction sites are closed). It may mitigate schedule impacts and permit construction to resume efficiently if materials are ready for installation. However, the social impacts are potentially great. Currently, the liability contractors may face for employee infections is unknown. Workers' Compensation may cover some illnesses, but employees will have to prove they became infected on the job, which is a high burden. Employees may attempt to sue, claiming they become infected on your projects due to your acts or omissions.

If you decide to proceed, with the support of your clients and employees, carefully craft and implement controls in your shop. Publish social distancing, hygiene, PPE, and illness reporting protocols. Provide PPE if feasible. And, consider employee and union input closely. As mentioned earlier, your state or local government may already have published guidelines you can follow.

My contract allows me to terminate a job if it is suspended for a specific amount of consecutive days. Is this a good idea?

This is another difficult decision facing contractors and owners. Due to the costs associated with maintaining your labor force, it may be economically necessary for your company to trim its workforce, focus resources on specific lucrative projects, and terminate others to remain liquid. Conversely, the implementation of social distancing protocols on projects post-suspension may thin the workforce permitted on your projects, which means you can keep more jobs than initially forecast.

Also consider your client's needs and resources and communicate with them about your situation. Some clients may be willing to pay your general conditions during a period of suspension to keep you committed to their projects and avoid termination.

 What do I need to prepare for moving forward?

The short answer is that you need to be flexible and fair. Understand that COVID-19 has impacted everyone on a personal level and at their bottom line. Of course social distancing measures must be implemented, but the firms that emerge in the best shape will be those that remain adaptable, effectively collaborate with their partners, openly communicate with their clients, and support industry-wide recovery. Plan to adopt new technology – products related to project documents, information exchange and meetings, health and safety, status review, and turnover will likely be utilized first. Actively manage your procurement plan and identify where changes are necessary. Realize that construction coordination efforts may now be more difficult but critical for project success when, for example, only one trade can occupy an area at a time or shifts are added and meetings are split and conducted remotely. Each project put into service increases the likelihood of a strong sector rebound; some decisions must be made with the big picture in mind.

These claims and change requests require meticulous attention to detail to attribute added cost or time to COVID-19 and avoid denial. Create and track separate cost codes for COVID-19 impacts. Expect heavy scrutiny of when you claim an impact began, the duration of the event, the specific personnel and activities affected, how an absence contributed to the impact, and efforts to mitigate delay and added costs. Prepare to demonstrate you acted reasonably in limiting damages and performing the work. You must collect the evidence establishing that the situation was beyond your control, and that you did not cause or contribute to the problem.

Founded in 1958, Hanson Bridgett LLP has more than 175 attorneys located in offices in San Francisco, Sacramento, the North Bay, the East Bay, and Los Angeles.

Stuart Eisler has extensive experience representing award-winning heavy civil, industrial, commercial, and residential developers and general contractors in complex construction disputes. His expertise includes contract issues, products liability, project delay and disruption, loss of use, deficient quality, redevelopment matters, LEED green building construction complications, personal injury, and negligent supervision claims.

Donnelly Gillen is an experienced construction attorney adept at both litigation and transactional matters. She represents a wide range of industry players including private owners, public agencies, developers, general contractors, subcontractors, and product manufacturers in residential, commercial, and heavy civil construction disputes, leasing disputes, fraud claims, strict liability claims, and personal injury claims.