Force Majeure may not be the only answer
We’ve all seen information on force majeure clauses in response to COVID-19 and related government action, and there’s no question that the scope and magnitude of force majeure rights in existing contracts is significant in that context. That said, the analysis of contractual rights – as either the owner or a contractor – should not stop with the force majeure clause. At a minimum, one should review the changes clause, suspension and termination clauses, and escalation clauses:
- Changes: Depending on the scope of the changes clause, it may also provide some recovery if you’re a contractor and a way of managing your site as an owner. Many projects in Florida are not shut down – but the way the work is being done (or needs to be done) is quite different. Small spaces that might have had multiple crews working in them may only be large enough for one or two people in a world where everyone tries to be six feet apart. Access to job sites may be restricted to limited areas to try to help ensure handwashing and other safety precautions can be implemented. Work may need to be re-sequenced to continue making progress in some areas where others are stopped waiting for inspections. Even when not shut down, projects are being impacted in many ways. Some contracts may have provisions that allow recovery of some of the related costs – for example, contracts that place the risk of changing government requirements on one party or another. One should carefully evaluate the nature of the costs and the specific cause to determine whether there is a basis to consider any of those costs as resulting from a change. As an owner, the changes clause provides a potential way to require heightened safety measures, specific sanitation requirements, or resequencing that aligns with your priorities. It may also allow descoping of the project to focus efforts or avoid work that may be more expensive.
- Suspension: Sometimes moving forward at significantly reduced efficiency may not be the best path forward. Suspension clauses provide a defined mechanism to shut down a project (or potentially parts of a project) until the work can again be done more efficiently. While there may be limitations on the extent of time that a suspension may last, this may be a good avenue to “push pause” on a project or a portion of it.
- Termination: While no one may like to consider it, termination can be an important tool. A project that is suspended for too long may be eligible for termination, which may help manage costs that continue to accrue. Termination and stop work rights may help manage risk relating to payment – a concern to consider given the impacts being suffered by our economy.
- Escalation: Some contracts address who bears the risk of escalating costs – whether that be labor rates or materials. As the supply chain is impacted, the timing and cost of goods may become an issue. One needs to understand how that risk is allocated in the contract.
Even this might not be the end. Notice provisions need to be considered – and each contract may have other provisions to consider. As this situation and its impacts continue to evolve, contracts need to be carefully evaluated to help manage and mitigate these risks.