Your CGL Policy May Cover More Than You Think – Damages “because of’ Property Damage or Bodily Injury for Construction Projects

Stella Szantova Giordano | Saxe Doernberger & Vita

Construction projects are susceptible to injuries and property damage – which is why the stakeholders involved rely heavily on commercial general liability (“CGL”) insurance policies when such losses occur. While many insureds are familiar with pursuing insurance coverage for bodily injury and property damage, a CGL policy can also cover certain consequential damages if they can be characterized as damages “because of” property damage or bodily injury.

Imagine the following scenario: An employee falls from scaffolding at the project site. OSHA shuts down the site for investigation of safety issues, and no trades are allowed to return to work for a month. Because of this, the project schedule falls behind, and the owner and the GC suffer extensive delay damages. The question is: can these (and similar) consequential damages be covered as “because of” damages under a CGL policy.

How does “because of” coverage work?

The key language to access the “because of” damages coverage is in the insuring agreement of every CGL policy written on the post-1973 ISO coverage form CG 00 01. Section I.A(1) reads:

(a) We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.2

Because the highlighted phrase can be interpreted very broadly, many courts have concluded that a CGL policy covers certain damages flowing from a bodily injury and property damage if the following is true: 1) there is a bodily injury or property damage for which the CGL policy provides coverage; 2) the sought damages were incurred “because of” such bodily injury or property damage; and 3) the connection between the bodily injury or property damage and the “because of” damages sought is not too attenuated.3

As for the third element, any degree of “but for” causation can be construed to provide coverage, since “because of” damages can (and very often are) far broader than property damage or bodily injury itself. Exactly how closely related the losses for which coverage is sought must be related to the underlying bodily injury or property damage will vary from case to case, but a good rule of thumb is the closer related to the underlying bodily injury or property damage, the better.

What types of damages can be covered?

Theoretically, any damages which can be described as damages “because of” bodily injury or property damage could be covered. However, case law on this type of coverage is limited so a creative argument, matching your particular circumstances, may be needed. Courts found “because of” coverage for these types of damages stemming from underlying property damage: 1) delay costs (California, Illinois, Michigan, Texas, Washington and Wisconsin); 2) liquidated damages (Texas and Pennsylvania); and 3) diminution of value (Missouri and Texas).

Delay Costs. If construction is halted and delayed “because of” property damage, associated costs can be very expensive. Examples of covered losses include: a 131-day delay in completion of a California residential project because of water intrusion property damage4; and delay costs associated with re-engineering and rip-and-tear damages stemming from a subcontractor’s failure to construct concrete piles to their required strength in Washington.5

Liquidated Damages. Because liquidated damages are considered to be contract-based, obtaining coverage for them under the “because of” theory can be more difficult. The key distinction is whether the damages are a result of the insured’s negligence (in which case they are covered), or whether the damages arise from a contractual obligation (in which case they are not). A federal court applying Texas law allowed coverage for liquidated damages of $5,400 per day resulting from damage to an oil pipeline.6 A court in Pennsylvania found that liquidated damages “because of” a subcontractor accidentally cutting structural parts of a bridge were covered.7 Finally, a Tennessee court explained that if the insurers wanted to protect themselves from coverage for liquidated damages as “because of” damages, they could specifically endorse their policies to exclude liquidated damages.8

Diminution of Value. In and of itself, diminution in value is a purely economic loss not considered property damage. However, if it stems from underlying property damage, “because of” coverage is available. One court, applying Missouri law, allowed “because of” coverage to a supermarket for diminution in value to its building because of improperly installed and cracking terrazzo floor.9 Another court in Texas allowed coverage for diminution in value caused by water leakage from developer-made lakes to individual homes.10

NOTE: Many states also allow coverage for ensuing damage arising out of defective construction. While some cases characterize this as “because of” coverage, seeking defective construction coverage usually involves a different analysis which is beyond the scope of this article.11

Damages “because of” bodily inury may be more limited

Very few cases address coverage for consequential damages “because of” bodily injury on a construction project, but the argument should be the same as with damages flowing from property damage. One notable New York case allowed “because of” damages coverage for a project owner whose employees slipped and fell on water which came from an improperly installed (and leaking) roof.12 In addition, cases from non-construction settings can be used as guidance when seeking damages “because of” bodily injury. For example, a Maryland case allowed compensatory damages (including purchase of a cell phone head set) to individuals injured by cell phones emitting dangerous levels of radiation.13 In any case, the argument that damages “because of” bodily injury (such as the delay costs in the hypothetical scenario mentioned earlier) should be covered by a CGL policy is often worth making.

Conclusion

If you find yourself faced with consequential damages on a construction project caused by property damage or bodily injury, you should consider whether the “because of” argument could get you additional recovery under a CGL policy. Coverage counsel can help you evaluate whether damages such as delay in completion, repair costs, liquidated damages or diminution in value could be covered.

A201 Playbook For COVID-19: Avoiding Pitfalls And Mitigating Risk On Construction Projects

David A. Blake and Michael E. Wagner, Jr. | Seyfarth Shaw

The 2019 novel coronavirus and the disease it causes (“COVID-19”) is changing the landscape of construction projects across the country. COVID-19 orders from governors and other public officials are impacting projects by requiring new health initiatives, such as social distancing and the use of personal protective equipment, requiring residents to stay at home and self-quarantine if they cross state lines, and in some regions shutting down projects completely. The pandemic is squeezing supply chains, creating the possibility of late deliveries and price escalation as buyers compete for diminishing resources. As the economy hibernates while individuals shelter in place, funding sources for construction financing are diminishing, posing risks to new and ongoing projects. These issues create risks of delay, labor inefficiency, price escalation, nonpayment, and construction workers and on-site owner personnel becoming sick, among others. This COVID-19 Playbook discusses rights, remedies and steps to consider under AIA® Document A201″ – 2017 (“A201”) so you can put yourself in the best position to shape the outcome you need in light of the pandemic. 

Pertinent A201 Sections

Section 2.2: Proof of Financing

  1. Clause1

§ 2.2.1 Prior to commencement of the Work and upon written request by the Contractor, the Owner shall furnish … reasonable evidence that the Owner has made financial arrangements to fulfill the Owner’s obligations …

§ 2.2.2 Following commencement of the Work … the Owner shall furnish … reasonable evidence that the Owner has made financial arrangements to fulfill the Owner’s obligations … if … (2) the Contractor identifies in writing a reasonable concern … If the Owner fails to provide such evidence … Contractor may … stop the Work … the Contract Time shall be extended appropriately and the Contract Sum shall be increased …

  1. Commentary and Practice Pointers

Contractors are entitled to obtain from owners proof of financing before commencing construction. Additionally, if the contractor has reasonable concerns during the course of construction, it can require the owner to provide proof of financing for its remaining financial obligations. For this and other reasons, owners should confirm financing before executing the contract. Construction lending could evaporate due to COVID-19.

Owners should also consider measuring commencement from a notice to proceed instead of the date of the contract. That way, if financing is delayed, the owner can postpone issuing the notice to proceed and protect the pricing agreed to in the contract. In that regard, contractors may want to include an outside date for the notice to proceed due to pricing, which with the passage of time could escalate due to supply chain disruptions due to COVID-19.

Similarly, for new contracts, the parties may want to consider a guaranteed maximum price with a contingency instead of a lump sum pricing model. While owners may be tempted to lock contractors into a lump sum, doing so in this environment may not be to their advantage because those contracts could include significant dollars for pandemic risks that may not materialize.

Lending concerns due to COVID-19 may provide grounds for contractors to request evidence of financing during the course of performance. Failure to provide that evidence could support work stoppages, time extensions and additional compensation. Owners should expect these requests and be prepared to respond.1

Section 3.7.2: Compliance with Laws and Orders

  1. Clause

§ 3.7.2 The Contractor shall comply with and give notices required by applicable laws, statutes, ordinances, codes, rules and regulations, and lawful orders of public authorities applicable to performance of the Work.

  1. Commentary and Practice Pointers

This Section obligates the Contractor to comply with lawful orders of public authorities applicable to the performance of the work. That includes governmental health orders pertaining to COVID-19, such as those requiring social distancing. Owners might assert no-additional compensation is owed for inefficiencies and other costs associated with complying with those orders because doing so is a contract requirement. On the other hand, language is sometimes added to the general conditions allowing the contractor to recover additional time and compensation for complying with new laws or orders that are enacted after the contract is executed. Contractors might find relief in that type of provision.

Section 3.8.2: Allowances

  1. Clause

§ 3.8.2 Unless otherwise provided in the Contract Documents,

  1. whenever costs are more than or less than allowances, the Contract Sum shall be adjusted accordingly by Change Order. The amount of the Change Order shall reflect (1) the difference between actual costs and the allowances under Section 3.8.2.1 and (2) changes in Contractor’s costs under Section 3.8.2.2.
  1. Commentary and Practice Pointers

Allowances are open check books. Generally speaking, if an allowance item costs more than the allowance amount included in the contract sum, the owner needs to pay the contractor the difference. Given the potential for price escalation due to COVID-19, allowances are particularly risky for owners, as the actual price may be significantly more than anyone expected when the allowance amounts were set. Owners may want to have a discussion with their contractors to see if open allowances can be bought out quickly before prices escalate, and avoid or minimize allowances in new contracts for items that seem prone to price escalation due to COVID-19.

Section 3.18.1: Indemnification

  1. Clause

§ 3.18.1 To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants … from and against claims, damages, losses … provided that such claim, damage, loss, or expense is attributable to bodily injury, sickness, disease or death … but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them …

  1. Commentary and Practice Pointers

The contractor is required to indemnify the owner for sickness, disease and death caused by the negligence of the contractor or its subcontractors. If an employee of the contractor or subcontractor has COVID-19, comes to the site and infects the owner’s employees, this indemnity clause may be triggered. The owner needs to establish the contractor acted negligently. Allowing a worker on site that is known, or perhaps even reasonably suspected, to be infected with COVID-19 could constitute negligence on the part of the contractor or a subcontractor. Negligence might also be established if the workers are not abiding by social distancing guidelines, not using personal protective equipment, or otherwise not following applicable state or local health orders.

This type of issue may be more prevalent on tenant improvement and rehabilitation work where there is the likelihood of increased interaction between the owner and construction workforce.

To view the full article, please click here.

Footnote

1. For all clauses, bold and underlining was added by the authors. Clauses have been abbreviated to focus on key points addressed in this Playbook.

For Developers and Owners: How COVID-19 Is Affecting Construction Projects and Actions You Should Consider

Robert C. Epstein, David C. Jensen, Zackary D. Knaub, Steven C. Russo and John L. Mascialino | GreenbergTraurig

The global spread of Coronavirus Disease 2019 (COVID-19) is generating unprecedented delays, disruptions and uncertainty on construction projects. Travel restrictions, social distancing and quarantines are increasingly disrupting supply chains, contractor workforces and the availability of governmental personnel for project inspections, with resulting delays and increased costs. This article offers guidance to developers and owners dealing with projects affected by COVID-19 and highlights actions they should consider to mitigate the project impacts.

Impact of COVID-19 on Construction Projects

COVID-19’s impact on construction projects is mixed and varies by state. Many states consider construction an “essential” service, following guidance from the federal Department of Homeland Security, which issued a non-binding list of 16 “critical infrastructure sectors.” Other states and some local municipalities take a narrower view, requiring virtually all construction to cease.

New York initially exempted most construction from state-mandated restrictions, but as of March 27, 2020 narrowed the definition of “essential” to shut down all projects other than the construction of roads, bridges, transit facilities, utilities, hospitals or health care facilities, affordable housing and homeless shelters, and allowing necessary work to safely secure and shut-down construction sites. In New York, determinations as to “essential” projects have been delegated to the Empire State Development Corporation and a process has been established for seeking this classification, which will provide further guidance on the boundaries of the current restrictions. The New York State Department of Environmental Conservation issued guidance on essential construction in support of cleanup activities, which is helpful to determine when a remedial construction activity can go forward, as covered in a GT Alert, New York Environmental Regulator Issues Guidance on Essential Construction in Support of Cleanup Activities.

While California has issued no orders specifically limiting construction activities, adopting the federal guidelines, many counties and cities within California have adopted much more restrictive guidelines limiting ongoing construction to housing (especially affordable housing), projects immediately necessary to the maintenance, operation, or repair of Essential Infrastructure, healthcare facilities, etc. and requiring all worksites observe strict construction site COVID-19 protocols.

Stay-at-home orders in Ohio, Illinois, Indiana, Minnesota and Wisconsin presently also generally exempt construction.

New Jersey initially exempted construction without specific limits, but on April 8, 2020 prohibited all “non-essential” construction, allowing only projects at hospitals and schools, in transportation and utility sectors, affordable housing, emergency repairs and other limited instances.

Pennsylvania’s mandate to close all “non-life sustaining businesses” effectively stops all construction, with exemptions available to construction supporting health care providers and for emergency repairs.

Boston, Cambridge and other Massachusetts cities halted all construction, but the governor overrode the local orders and deemed all construction “essential,” allowing all projects to continue provided workers follow social distancing, washing hands and other corona protocols. Later, the governor modified that stance, designating construction of office buildings, retail and hotels as non-essential.

In all cases, there may be evolving developments that may further define or change the restrictions and permitted exceptions.

ACTIONS OWNERS AND DEVELOPERS SHOULD CONSIDER

Whether totally shut-down or only delayed and disrupted, many construction projects are being impacted by the pandemic. The owner should consider the following actions to address and mitigate the project impacts.

Action #1: Identify and Assess Relevant Local and State Restrictions on Construction Activities

Initially, the owner should consult appropriate legal counsel and carefully examine the state and local government shut-down orders to identify restrictions on construction activities and only proceed accordingly.

Action #2: Identify and Assess Relevant Contractual Provisions

The owner should carefully examine the construction contract to identify key provisions implicated by the pandemic. Although this article discusses the commonly-used American Institute of Architects (AIA) form contract (A201-2017 edition), a critical caveat is that each situation is fact-specific and contract-specific. While standard contract forms are widely used, the forms often are modified and standard terms and conditions frequently are changed based upon negotiations. Crucial provisions such as those addressing force majeure, notice time limits, compensable costs resulting from delays, risk allocation and damages limitations may be significantly different from the AIA standard forms and therefore each contract should be carefully reviewed and analyzed.

Action #3: Communicate and Work with the Contractor to Identify, Assess, and Mitigate Project Impacts

The owner should communicate with critical contractors, designers, and suppliers to assess the actual and potential impacts on contract performance and discuss how to potentially mitigate project disruptions, in an effort to achieve the overriding objective – complete the project as soon as possible within or as close as possible to the budgeted costs. COVID-19 may impact design and construction contracts in a variety of ways, including impacts to supply chains, contractor workforces, designer personnel, and the availability of government inspectors.

The owner should consider directing its project management team to confirm that the contractor is taking appropriate site health and safety measures, including adhering to federal, state, and local guidelines as to distancing, cleansing, disinfecting, etc., and that sites are being properly manned and managed considering current circumstances.

The owner should request updated schedules from the contractor and consider setting flexible contract completion dates.

The owner should consider, with the contractor, possibly prioritizing and/or accelerating certain work areas and delaying others, as well as planning to recover delays once the COVID-19-based restrictions are lifted.

Action #4: Consider Contract Notice Requirements and Respond to Notices from the Contractor

Delay Notices from the Contractor

The standard contract requires the contractor to provide notice of delay claims “…within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later.”

In responding to delay notices, the owner should consider whether the notice qualifies as a “claim” or merely is an advance warning of potential delays, to which no formal response may be necessary and perhaps should not be given. The owner should not respond unnecessarily in a manner that portrays it as unsympathetic or which could be misconstrued as directing activity that puts anyone at risk or acknowledging a delay claim that has been neither properly submitted nor supported. The contractor bears the burden to establish how a delay has impacted the work and should be regularly informing the owner of project impacts as information becomes available.

Notices from the Owner to the Contractor

When sending notices to the contractor, the owner should consider the need for the notice, how it will be received, and how it may impact the future of the project.

Where concurrent delays exist, the owner should consider putting the contractor on notice of such delays at the earliest possible time.

A timely response by the owner to schedule updates that identify delays may avoid the appearance that the owner accepts the delay or has engaged in a “course of dealing” that modifies the express contract. 

The owner should consider putting the contractor on notice of observed safety violations, including deviations from governmental or trade association guidelines for maintaining a safe construction site during the pandemic. Under the standard contract, the contractor is responsible for site safety, compliance with all applicable laws and dealing with emergencies on the site “to prevent threatened damage, injury, or loss.” However, the owner also may be liable for dangerous conditions, at times under statutory or common law, or possibly where it exerts control over the construction site, directs the contractor’s means and methods, or otherwise contributes to an injury. In those instances, the owner may be liable for failing to maintain a safe site, irrespective of contract terms placing primary responsibility on the contractor.

Action #5: Consider Project Suspension and Termination Options

Suspension or Termination by the Owner

Depending upon a construction project’s specific circumstances, the owner may wish to consider suspending and/or terminating the project due to the impact of COVID-19. Each situation is different and must be considered individually.

The standard contract allows the owner to suspend the contract “for convenience…for such period of time as the owner may determine.” In a convenience suspension, the owner may be responsible for the “cost and time” caused by the suspension, delay or interruption including the contractor’s profit unless the contractor’s performance “…is, was, or would have been, so suspended, delayed, or interrupted, by another cause for which the contractor is responsible…”.  The standard contract also allows the owner to terminate the contract for convenience.

The owner should consider that a convenience suspension or termination may require it to pay the contractor’s resulting costs, which typically include demobilization costs and may include payment for goods and materials ordered or in fabrication, as well as lost deposits and termination fees, so the contract terms must be carefully considered. Further, the owner may need to consider the potential ability to quickly restart if the project is suspended or terminated with the intention of restarting later. It also will be critical to consider impacts on performed work, as a convenience termination may invalidate warranties and the owner’s ability to pursue the contractor for defective work.

Termination by the Contractor

Under standard AIA contract forms, the contractor may terminate the contract if the work is stopped for 30 consecutive days by government order or national emergency. In such circumstances, the contractor is entitled to recover “…payment for Work executed, as well as reasonable overhead and profit on Work not executed, and costs incurred by reason of such termination.” These provisions may incentivize the contractor to terminate the contract after a government-ordered 30-day shutdown by allowing recovery from the owner not just for work performed and termination costs, but also anticipated profit on work not performed, particularly where the contractor otherwise would be entitled only to a time extension due to COVID-19-based delays. 

Action #6: Consider Contractor Claims for Time Extensions and Delay Damages

The pandemic likely will unleash floods of contractor claims for time extensions, delay damages, project disruptions and labor inefficiencies.

The delays directly caused by COVID-19 may be “excusable” under the contract because the pandemic is a “cause[] beyond the contractor’s control,” A201 Art. 8.3, or under common law theories of frustration of purpose or impossibility/impracticability, see GT Alert “Risk Allocation for Economic Losses from Coronavirus Disease 2019,” entitling the contractor to a time extension to perform the work and potentially to delay and disruption damages.

“No damages for delay” (NDFD) clauses commonly found in construction contracts may or may not protect the owner from the contractor’s delay damage claims. Generally, these clauses are designed to protect the owner from a contractor’s delay damage claim by allowing a time extension, but no additional compensation, in the event of project delays. Courts generally enforce unambiguous NDFD clauses, but there are exceptions, one of which is for “delays not contemplated” by the parties.

Whether a NDFD clause protects the owner from pandemic-based delay damage claims will depend upon the clause’s exact language and is fact-dependent. In some instances, the delays may be deemed uncontemplated, rendering the NDFD clause entirely ineffective. However, a limited NDFD clause (e.g., allowing delay damages after the first 30 or 60 days of delay) might be enforced. Also, where the contract specifically allocates the risk of delays caused by a pandemic, those clauses may be upheld, although such provisions are uncommon.

The owner should consider the following steps to address contractor delay and disruption claims.  First, the owner should assemble key project documents, including daily reports, meeting minutes, RFI and change order logs, progress reports, etc.  These documents will be crucial in evaluating the contractor’s claims.

Second, the owner should consider whether concurrent delays affect the contractor’s claims for project impacts. Under standard contract forms, where a contractor suffers a compensable delay such as that caused by the pandemic, but the contractor is responsible for a concurrent delay, the net effect may be that the delay is excusable but non-compensable, entitling the contractor only to a time extension.

Third, the owner should determine whether the contractor’s delay damage claim is properly documented and limited only to permissible damages. Under standard contract forms, the contractor bears the burden to prove how the delay impacted its work and the steps it took to mitigate damages. Also, the contract may limit the contractor’s delay damages, such as by allowing payment for extended general conditions costs but not increased labor and material costs, or by waiving all “consequential damages” such as office, financing or personnel expenses or claims for lost profit.

Conclusion

These recommendations are offered as general guidance. The facts and circumstances of each project, including considerations such as financing documents, leasing, joint venture partnerships, market conditions and contract terms, may warrant deviations from the general guidance offered herein.

Ongoing Impacts of the Coronavirus Pandemic on Construction Projects in Major Markets

Niel Franzese | Construction Law Zone

As we began to describe on March 18, the economic impacts of the ongoing coronavirus/COVID-19 pandemic on the construction industry are becoming more severe as the pandemic continues on and spreads. Substantial uncertainty remains, however – as of the date of this post, the “peak” of the pandemic in New York, Connecticut, and Massachusetts is expected to occur (depending on which reports you read) in mid-April, late-April or May, respectively. It appears increasingly likely that proactive, protective measures in these states, along with their restrictive effects on the economy and construction activity, will continue through the end of April and into May.

More forceful stop-work orders in major markets like New York and Boston, along with narrower definitions of “essential construction” have led to fewer projects being permitted to continue on-site operations. In New York, as of March 27, all “non-essential construction” except “emergency construction” is shut down, as we covered previously. These restrictions are currently expected to last until 11:59 p.m. on April 29, 2020, unless later extended by a future Executive Order.

In Massachusetts, thus far certain construction activities have been exempted from the statewide shutdown of “nonessential” businesses through at least May 4, although local construction moratoriums exist in places such as Boston, Cambridge and Somerville. Except to the extent that they may be prohibited by local orders, many categories of construction professionals are deemed to be providing “essential services” as of the latest list issued by the Governor’s office on March 31, 2020. These construction professionals include, among others, “plumbers, electricians, exterminators, builders, contractors, HVAC Technicians, landscapers, inspectors and other service providers who provide services that are necessary to maintaining the safety, sanitation, and essential operation of residences, businesses and buildings such as hospitals, health care facilities, senior living facilities, and any temporary construction required to support COVID-19 response.”

Luckily, even in localities where non-exempt on-site construction activities have been prohibited, most construction projects have not ground to a total halt. Although many public and private owners are ordering suspensions of on-site work in accordance with these restrictions, or of their own accord, on many projects off-site activities are proceeding to the extent possible, including design and engineering work, preconstruction services such as budgeting, the preparation of bid packages, scheduling adjustments, and the procurement of materials or furniture, fixtures and equipment.

Many construction project participants are working tirelessly to determine which of these types of off-site activities can continue under the current circumstances in order to keep projects moving, keep revenue coming in, and keep their workers employed. Although negative economic impacts from the pandemic now seem unavoidable, those who are able to continue certain aspects of their projects while remaining in compliance with governmental restrictions and effective healthy and safety precautions, should be best positioned to hit the ground running when the industry inevitably returns to “business as usual.” We will provide additional updates as changes to these restrictions and their ultimate durations become more clear.

Construction Project Shutdowns: Know Your General Contract Terms for Force Majeure, Suspension, and Termination

John P. Martin | McCarter & English

As state and local governments shut down construction projects in response to the COVID-19 pandemic, project owners and contractors should review closely the general contracts for their projects to determine what consequences shutdown orders will have on those projects. While every contract is unique, the terms negotiated for important contract provisions such as the force majeure, suspension, and termination provisions can be critical to assessing next steps and potential responses.

Using the American Institute of Architects (AIA) standard form A201—2017 General Conditions of the Contract for Construction (Form A201) as an illustrative baseline, we discuss best practices for negotiating the language of such terms and outline potential solutions if the parties did not follow those practices in negotiations. It should be noted that executing a general contract with an unedited Form A201 included in the contract documents is not a best practice.

Termination by the owner for convenience provision

Form A201’s unedited “termination by the owner for convenience” provision entitles a contractor to, among other things, “costs attributable to termination of Subcontracts.” This broad and open-ended language is often revised in negotiations. For example, owners may push at a minimum for additional language added to the clause, such as “provided that such costs shall not include overhead and profit on Work not executed or termination fees required by such Subcontracts.”

Force majeure provision

While Form A201 does not contain the term “force majeure,” its Section 8.3.1 provides that a contractor is entitled to a time extension when any one of five types of delay events occurs. These delays include force majeure-like events such as labor disputes, fire, unavoidable casualties, abnormal weather conditions (properly documented), and the catch-all “causes beyond the Contractor’s control.” This catch-all phrase would likely encompass epidemics and pandemics, which are often specifically included in force majeure provisions. While Section 8.3.1 is designed to shield the contractor from a delay claim by the owner when an event beyond a contractor’s control occurs, it does not provide protection for the owner. This provision may not raise eyebrows in negotiations because force majeure provisions are common and generally not controversial.

Suspension by the owner for convenience provision

Form A201 includes a “suspension by the owner for convenience” provision that allows an owner to “suspend, delay or interrupt the Work, in whole or in part for such period of time as the Owner may determine.” While this provision gives the owner significant discretion in suspending a project, it also obligates the owner to adjust the contract time and price for any increases in time and cost incurred by the contractor as a result of the suspension. In addition, the contractor is entitled to its profit on those increased costs. Consequently, this is a provision that the parties may revise in negotiations because an owner may not want to take on such expenses.

Termination by the contractor provision

Form A201 has a “termination by the contractor” provision which provides that if work is stopped as a result of a government order for 30 days, the contractor can terminate the contract on seven days’ notice. For context, as part of the COVID-19 pandemic response, the City of Boston shut down all construction projects as of March 23, 2020, until further notice. If maintained, the work stoppage will hit 30 days on April 21, 2020. If on April 21, 2020, a contractor decided to invoke the termination provision, the unedited Form A201 version would allow the contractor to recover payment for the work it performed but also would entitle the contractor to “reasonable overhead and profit on Work not executed” (emphasis added). This “work not executed” language could lead to unintended results. Contractors may decide that it makes financial sense during a pandemic to terminate projects for the purpose of collecting its remaining overhead and profit while avoiding further outlay of work on the project, particularly as a project’s future becomes stalled or uncertain. Owners frequently push hard in negotiations to delete this provision from the Form A201 model.

Next steps

If, however, the “work not executed” language was not deleted from the final executed contract, the owner may have little recourse beyond a preemptive termination of the contract for convenience—a move that could be problematic depending, as discussed earlier, on the language of the provision and the business objectives of the owner. One possible solution is for the owner and contractor to negotiate an amendment to the contract documents providing for the owner to forgo its right to terminate for convenience for the duration of a government shutdown order in return for the contractor forgoing its right to suspend. The precise details of such an amendment would be subject to negotiation. What is imperative is that owners and contractors review their contract documents, determine their rights and potential exposure, and plan a response.