Protect Your Construction Project: Top 10 Insurance Provisions to Know

Jonathan Cass | Cohen Seglias Pallas Greenhall & Furman

Construction projects are dangerous places—people get hurt and property gets damaged. Whether you are a general contractor, a construction manager, or a subcontractor, it is imperative that you understand the importance of insurance requirements and what they actually mean. Construction contracts often include poorly written insurance stipulations, and identifying and understanding such language is crucial to protecting your business and avoiding a breach of contract claims or worse.

In this webinar, construction attorney Jonathan Cass reviews and explains the construction contract insurance requirements that have the potential to cause trouble for contractors, in particular those that fall under general liability policies.

https://www.jdsupra.com/videoembed/?fid=955b977c-3ce7-4a76-a763-e4f270c7b300

You’ve Gotta Fight For Your Right To Get Paid: The Right To Stop Work

Amy Elizabeth Garber and Eric A. Frechtel | Buildsmart

A contractor is halfway through the (timely) completion of a project and the owner’s payment is late. Days, weeks go by, and now the contractor is incurring all the costs of the work without any compensation. It might be tempting to simply walk off the job, but bear in mind that legally speaking, that might constitute the “first breach,” even if the owner is late on payment. Enter: the stop work clause.

The optimal stop work clause clearly provides the contractor the right to suspend its work if the owner fails to pay after a certain amount of time, and then get a time extension for any delays resulting from the suspension. The standard AIA language has it all and can be easily tailored to a contract’s payment mechanisms:

If the Architect does not issue a Certificate for Payment, through no fault of the Contractor, within seven days after receipt of the Contractor’s Application for Payment, or if the Owner does not pay the Contractor within seven days after the date established in the Contract Documents, the amount certified by the Architect or awarded by binding dispute resolution, then the Contractor may, upon seven additional days’ notice to the Owner and Architect, stop the Work until payment of the amount owing has been received. The Contract Time shall be extended appropriately and the Contract Sum shall be increased by the amount of the Contractor’s reasonable costs of shutdown, delay and start-up, plus interest as provided for in the Contract Documents.

Remember, the more details the parties include upfront in the contract, the less there is to argue over later.

Note that there are arguments a contractor can make to justify walking off the job: it was impossible to continue working without payment for labor and materials; the owner’s nonpayment was such an egregious breach that it nullified the contract; or, major subcontractors walked off, too. While some of these may win the day, without clear contract language justifying stopping work, doing so is a gamble.

The Force Majeure Doctrine And Standard Construction Form Contract Provisions: Revisiting An Old Contract Provision During These New Uncertain Times

Matthew S.C. Moore and Cornelius Banta, Jr. | Peckar & Abramson

I. INTRODUCTION

As we approach the first anniversary of the World Health Organization’s declaration of COVID-19 as a global pandemic, its impact on local and global economies and our way of life cannot be ignored. The effects of COVID-19 to
the construction industry are wide-reaching. Consequences on a project site include quarantines or other governmental restrictions resulting in impacts to the project workforce. Offsite impacts can cover a much broader scope of
issues implicating the various links of the supply chain relied upon by the construction industry. For instance, labor shortages at manufacturing factories or fabrication facilities resulting in production delays or material price increases, transportation embargoes causing project supply issues, or governmental actions inhibit manufacturing and production by causing temporarily artificial inabilities to service existing demands. Due to these impacts, project participants are turning to the force majeure provision in
their contract as a pathway for equitable relief.

This article will discuss the origins of the force majeure provision and relevant Texas case law. The article will conclude with an examination of key provisions found within certain standard form contracts published by
The American Institute of Architects (AIA), AGC ConsensusDocs, Engineer Joint Contract Documents Committee (EJCDC), and Design-Build Institute of
America (DBIA) through a COVID-19 lens and propose modifications to balance the risks and exposures caused by COVID-19 or other pandemics.

II. HISTORICAL BACKGROUND

The force majeure doctrine has its historical underpinnings in the British common law doctrine associated with frustration of purpose and impossibility of performance.2 As one may recall from their 1L Contracts class, early British common law imposed absolute liability on parties
that failed to satisfy unconditional contractual promises.3 Unsurprisingly, parties sought to avoid the strict application of this rule, and courts over time softened the rule to allow a party to assert the defense of physical impossibility as an excuse to nonperformance.4

Such a narrow defense did not provide much comfort, prompting parties to include contractual provisions related to excusable nonperformance.5
Borrowed from the Code Napoleon, the term “force majeure” came into
use in British contracts to characterize these contractual carveouts.6
This French civil law concept represented the codification of a legal doctrine harkening back to Roman law and the legal principle impossibilium nulla obligatio est (“there is no obligation to perform impossible things”).7

For this reason, force majeure provisions are sometimes referred to by the Latin phrase “vis major”.8

Commentators have observed that British lawyers likely relied on the civil law concept and the corresponding body of law as a way to include by contract what the common law failed to provide.9 However, British courts were wary of relying on a singular term to incorporate by reference
an entire civil law doctrine that had no equivalence in common law.10 Thus, efforts to contract around the harsh applications of the common law appeared to require parties to explicitly define the events that constituted
force majeure.

Later, American courts largely followed the British common law’s general principal of absolute liability for nonperformance along with the limited exception of “frustration.” The latter doctrine is often referred to as
“impossibility” in the U.S.11 A “freedom of contract” state such as Texas has not departed from this legal tradition.12

For well over a century, Texas courts have recognized that force majeure is not so much a common law doctrineas it is a creature of contract.13 Texas case law holds that supervening events preventing performance (e.g., Acts
of God) do not relieve a party from performance unless the express terms of the contract provide otherwise.14 Courts are also not inclined to bail out a party by reading a force majeure provision into a poorly drafted contract,
particularly when the more typical force majeure events affecting performance could be anticipated by the parties during contract negotiations.15 Hence, Texas jurisprudence has not departed in any appreciable degree from the old British common law rule on contract performance.

Though excusable force majeure events are defined by contract, Texas does recognize the common law doctrine of impossibility.16 The Texas Supreme Court adopted the Restatement (Second) of Contracts’ formulation, which
excuses a party’s performance of a contractual obligation “made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made.”17 As the Eleventh Court of Appeals observed, impossibility of
performance “read[s] into a contract an escape clause that does not otherwise exist.”18

However, courts are cautious to apply this common law exception. For one, a party seeking to invoke the excuse of nonperformance due to legal prohibition must make reasonable effo ts to avoid the application of the regulation, including appealing a regulatory agency ruling even if the party believes it will be unsuccessful.19 Additionally, courts often find that a temporary legal restriction against the purpose of the contract does not give rise to impossibility.20 This is particularly true when the terms of the contract in question contemplate the possibility of delayed performance in connection with compliance with applicable legal requirements.21 The efore, the doctrine of impossibility operates as an “escape clause” in only limited circumstances. The best line of defense remains a welldrafted force majeure provision.

III. SPECIFIC APPLICATIONS OF THE FORCE MAJEURE DOCTRINE

Due to the emphasis Texas courts place on the specific language in the force majeure provisions in determining whether a specific instance constitutes excusable nonperformance, it is worth considering some of the typical force majeure provisions and how they are interpreted by the courts.

Texas case law continues the theme developed by British common law that magic words alone (e.g., “force majeure”) will not excuse a party’s failure to perform if there is no further effo t to clarify.

A. Acts of God

A common force majeure event that comes to mind is the familiar “Act of God.” Courts have defined the phrase as being “an act occasioned exclusively by forces of nature” that “could not have been prevented or escaped by any amount or foresight or prudence, or by any reasonable
degree of care or diligence, or by the aid of any appliances which the situation of the party might reasonably require him to use.”22 Courts have found that even natural disasters that occur infrequently can still be “reasonably anticipated” by the contracting parties.23

The case of Metrocon Construction Company v. Gregory Construction Company is instructive. The general contractor sued the masonry subcontractor for breach of contract and negligence seeking to recover additional sums spent to repair the masonry walls for a shopping center project that fell over during a high wind weather event.24 The subcontractor argued the breach was excusable because it was caused by an Act of God.25 The Fifth Court of Appeals disagreed, noting that the
subcontract agreement did not contain a force majeure provision that excused performance due to an Act of God, and that high winds were the type of risk that could be anticipated when the subcontract was drafted.26 Thecourt further noted that the Act of God did not actually prevent
performance of the subcontract, but merely made it more burdensome than originally anticipated, which is not a legally justifiable e cuse for failure to perform.27

Furthermore, a party should be wary about invoking an “Act of God” clause in a force majeure provision if the force of nature occurred after anticipated performance. Long ago, the Texas Supreme Court held that a force majeure event is not an excuse for nonperformance when a prior material breach has occurred.28 Thus, in the construction industry context, a contractor seeking to claim a pandemic as an “Act of God” force majeure excuse for its failure to meet a specific turnover date would have to demonstrate that no concurrent delays existed.

B. “Catch-All” Language

One should also be cautious about relying on a “catchall” clause in a force majeure provision. The following is example of such a clause: “[A]ny other cause not enumerated herein but which is beyond the reasonable control of the [p]arty whose performance is affected . . . .”29 Typically preceding a laundry list of specifically identified events,30 a contractor whose work was impacted by COVID-19 may be tempted to use this open-ended clause given that pandemics were not often one of the specifically enumerated force majeure events in contracts drafted prior to March 2020.

Faced with this creative contract interpretation argument, Texas courts would likely apply the familiar doctrine of ejusdem generis in order to determine if this unspecified event, which the party claims excused performance, is of the same kind as the events specifically listed in the force
majeure provision. The specific list of events, and how a court characterizes them, will determine the outcome.

For instance, in R & B Falcon Corp. v. American Exploration Company, the United States District Court for the Southern District of Texas was asked to decide whether a seabed anomaly affecting the structural integrity of an
under-construction offsho e oil rig fell within the “catch all” language of the force majeure provision in the parties’ drilling contract.31 The p ovision reads, in relevant part:

[E]ach party to this Contract shall be excused from complying with the
terms of this Contract . . . if and for so long as such compliance is hindered
or prevented by riots, strikes, wars . . . , insurrection, rebellions, terrorist acts,
civil disturbances, dispositions or order of governmental authority . . . , acts of God . . . , inability to obtain equipment, supplies or fuel, or by any act or cause (other than financial distress or inability to pay debts when due) which is reasonably beyond the control of such party . . . .32

Applying ejusdem generis, the district court interpreted the list as being essentially comprised of “governmental instability and supply-chain related events . . . ,” which the court categorized as being “external to the actual
performance of the contract.”33 The event in question (a seabed anomaly), though, related to the set-up and operation of the rig, which pertained to the core subject matter of the drilling contract. As such an event could be
contemplated by the parties, it did not come within the scope of the force majeure provision.34

The Texas First Court of Appeals reached a similar conclusion for a less tangible event—changing market conditions. In TEC Olmos, LLC v. ConocoPhillips Company, a drilling company sought to invoke the force
majeure provision in the parties’ farmout agreement when a market downturn in oil and gas made it difficul to obtain the project financing necessary to test-drill land owned by the lessee.35 The provision contained a list of events like those discussed in the R & B Falcon opinion,36 which the Houston appellate court characterized as being natural or man-made disasters, governmental actions, or labor disputes.37 Although foreseeable, the events were irregular, thus making it difficul for the parties to plan
for and allocate the risk associated with such events.38 On the other hand, changing commodity prices that made a mineral rights lease less profitable were more predictable and went to the heart of the farmout agreement.39

This pair of cases suggest that a pandemic may fall into a “catch-all” provision. Under the R & B Falcon court’s characterization, a contagious disease such as COVID-19 can be viewed as a “supply-chain related event,” external to the subject-matter construction contract. While the manpower shortages and material delays caused by the pandemic may facially be similar to the complained-of declining market conditions that were the focus in TEC Olmos, the root cause is distinguishable. The economic
impacts of a pandemic—arguably a natural or man-made disaster—are irregular and distinct from the typical labor and material fluctuations complained of in the TEC Olmos opinion.

C. Specifically dentified Comme cial Events

Reliance on “Acts of God” or “catch all” clauses may be avoided if the force majeure provision identifies certain commercial events as excuses for non-performance.40 As the construction industry has learned, a major ramification of the COVID-19 pandemic has been the disruption of labor markets and material supply chains. However, Texas courts are quick to scrutinize the specific language in assessing whether the event in question falls within the force majeure provision.

The case of Sherwin Alumina L.P. v. AluChem, Inc. provides a useful illustration. AluChem contracted with Sherwin Alumina to manufacture a ceramics chemical compound.41 Sherwin Alumina began producing
the compound on a specific kiln at its Texas plant, which was initially operated under a temporary Texas Commission on Environmental Quality (TCEQ) permit before a permanent permit could be obtained.42 During
production, Sherwin Alumina had to report several dust emissions events to the TCEQ. Thoughno formal actions were taken by the TCEQ, Sherwin Alumina eventually sent a letter to AluChem declaring a force majeure event due to environmental concerns, and simultaneously filed a declaratory judgment action seeking to adjudicate its contractual right to suspend performance.43

The federal district court subsequently granted AluChem’s motion for summary judgment, finding that the economic impact of anticipated costs of environmental regulation compliance did not constitute a force majeure event under the parties’ supply agreement.44 Specificall , the court rejected Sherwin Alumina’s argument that the extremely high cost of upgrading the kiln fell within the applicable force majeure provision, which read, in relevant part:

Seller shall not be liable for failure or delay in performance under this Order
due . . . to causes such as an act of God, strike, lockout . . . , [or] inability to
obtain or delay in obtaining necessary equipment or governmental approvals,
permits, licenses or allocations . . . .45

The court noted that a party could not avoid contract performance merely because the costs of regulatory compliance were higher than preferred or anticipated.46 Sherwin Alumina was able to upgrade the kiln and continue performing under the contract, but instead sought to avoid the expense as it would make the contract unprofitable. 47

The Sherwin Alumina opinion cautions construction contract parties to determine if supply chain disruptions make performance impossible as opposed to simply expensive.

D. Government Regulations

A final clause often found in a parties’ force majeure provision implicated by pandemics is nonperformance caused by government regulations. On this point, Texas case law mirrors that of the related common law
doctrine of impossibility.48 As a party must prove efforts
to avoid the effect of government regulations when declaring impossibility of performance, a party claiming force majeure must demonstrate that the governmental actions preventing performance were beyond the party’s
reasonable control.

For instance, in Hydrocarbon Management., Inc. v. Tracker Exploration, Inc., the parties’ mineral rights lease agreement excused nonproduction from a well due to government regulations.49 Thewell operator sought to invoke the force majeure provision when the Railroad Commission shut
in the well due to the operator exceeding the production quotas.50 The Seventh Court of Appeals held that the force majeure provision did not apply because compliance with state-mandated production quotas was within the operator’s reasonable control, and the shut in resulted from the operator’s violation of an existing regulation.51

Additionally, the governmental action prohibiting performance under the contract must actually occur. Returning to the Sherwin Alumina opinion,52 the federal district court noted that force majeure provisions do not typically provide for hypothetical or possible events that affect a party’s future performance.53 Thus, the potential or actual threat that the TCEQ may require a chemical manufacturer to suspend operations for multiple
violations of emissions regulations was insufficient. 54

In the context of pandemic-related government regulations, the more stringent state or local government stay-at-home orders that did not exempt construction activities could arguably be the type of regulation constituting an excusable event under an applicable force majeure provision. On the other hand, rumors of a general lockdown, or the temporary closure of a project site for repeat violations of personal protective health regulations,
would likely be inadequate.

The survey of Texas case law provides the reader with the current attitudes by the courts. However, seeing as how the analysis of force majeure provisions is a fact-specific inquiry based on the express language of the contract, it behooves the reader to scrutinize the typical force majeure
provisions prevalent in construction form contracts.

IV. COMMON FORCE MAJEURE PROVISIONS IN CONSTRUCTION FORM CONTRACTS

This section of the article will evaluate the force majeure provisions found in common industry standard form contracts and will include some suggested modifications to ensure the force majeure provision includes impacts to the project caused by COVID-19, or future pandemics and government shutdowns.

AIA A201 – 2017

§ 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 by (1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor; (2) by changes ordered
in the Work; (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section15.1.6.2, or other causes beyond the Contractor’s
control
; (4) by delay authorized by the Owner pending mediation and binding dispute resolution; 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. (emphasis added).

Commentary

The inclusion of “unusual delay in deliveries” and the catch all are strong points for a contractor whose work is delayed by COVID-19 to argue that such delays are excusable. However, in light of the current pandemic
and the subsequent government shutdowns throughout the country, there is no good reason for not expressly including “epidemics” and “adverse governmental actions” in this provision. Contractors should also insist that the provision be further modified to state that “…such time extensions should be affo ded whether or not the events or conditions were reasonably anticipated at the time and should be equitable and not subject to the Architect’s sole determination.”

ConsensusDocs 200 (2011, revised 2017)

6.3 Delays and Extensions of Time

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: (a) acts or omissions of Owner, Design Professional, or Others; (b) changes in the Work or the sequencing of the Work ordered by Owner, or arising from decisions of Owner that impact
the time of performance of the Work; (c) encountering Hazardous Materials, or concealed or unknown conditions; (d) delay authorized by Owner pending dispute resolution or suspension by Owner under §11.1;
(e) transportation delays not reasonably foreseeable; (f) labor disputes not involving Constructor; (g) general labor disputes impacting the Project but not specifically related to the Worksite; (h) fi e; (i) Terrorism; (j) epidemics; (k) adverse governmental actions; (l) unavoidable accidents or circumstances; (m) adverse weather conditions not reasonably anticipated. Constructor shall submit any requests for equitable extensions of Contract Time in accordance with ARTICLE 8. (emphasis added).

Commentary

Since 6.3.1 explicitly mentions “epidemics” and “adverse governmental actions”, it would be difficul for an owner to successfully argue that delays to the work caused by COVID-19 are not excusable. To avoid all doubt on
whether foreseeability is a determining factor as to whether delays caused by COVID-19 are excusable, this provision should be modified to state: “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, whether or not such event or condition is foreseeable unless otherwise stated herein.”

EJCDC C-700 (2018)

4.05.C Delays in Contractor’s Progress

If Contractor’s performance or progress is delayed, disrupted, or interfered with by unanticipated causes not the fault of and beyond the control of Owner, Contractor, and those for which they are responsible, then Contractor shall be entitled to an equitable adjustment in Contract Times. Such an adjustment will be Contractor’s sole and exclusive remedy for the delays, disruption, and interference described in this paragraph. Causes of
delay, disruption, or interference that may give rise to an adjustment in Contract Times under this paragraph include but are not limited to the following:

  1. Severe and unavoidable natural catastrophes such as fires, floods, epidemics, and earthquakes;
  2. Abnormal weather conditions;
  3. Acts or failures to act of third-party utility owners or other third-party entities (other than those third-party utility owners or other third-party entities performing other work at or adjacent to the Site as arranged by or under contract with Owner, as contemplated in Article 8); and
  4. Acts of war or terrorism.
    (emphasis added). Commentary
    At first glance, this provision seems to adequately address impacts caused by pandemics such as COVID-19. However, the use of the word “severe” is problematic because it is subjective, and the word “unavoidable” is too strong and certain. Hopefully COVID-19 will be less
    severe towards the end of 2021, but the disease may still impact construction activities if it spreads onsite, thus requiring quarantine. As for “unavoidable,” what does that really mean? If COVID-19 could have been avoided had our federal and state governments acted faster or
    taken more extreme measures to curb the spread, does that mean COVID-19 was avoidable and not subject to this provision? What if the workforce refuses to get vaccinated despite ease of access to vaccines? Does this mean COVID-19 is avoidable and not subject to this provision? The inclusion of those words creates confusion and uncertainty, so they should be struck.
    The inclusion of “unanticipated causes” will also cause problems for contractors whose work may be impacted by COVID-19 if the contract was executed after March 11, 2020, the date the World Health Organization declared COVID-19 a global pandemic. It would be wise for
    contractors to strike “unanticipated causes” and replace it th “whether or not such event or condition is foreseeable unless otherwise stated herein.”
    DBIA Document No. 535 (2010)
    1.2.8
    Force Majeure Events are those events that are beyond the control of both Design-Builder and Owner, including the events of war, floods, labor disputes, earthquakes, epidemics, adverse weather conditions not reasonably anticipated, and other acts of God. (emphasis added).
    8.2 Delays to the Work
    8.2.1
    If Design-Builder is delayed in the performance of the Work due to acts, omissions, conditions, events, or circumstances beyond its control and due to no fault of its own or those for whom Design-Builder is responsible, the Contract Time(s) for performance shall be reasonably
    extended by Change Order. By way of example, events that will entitle Design-Builder to an extension of the Contract Time(s) include acts or omissions of Owner or anyone under Owner’s control (including separate contractors), changes in the Work, Differing Site Conditions, Hazardous Conditions, and Force Majeure Events.
    8.2.2 In addition to Design-Builder’s right to a time extension for those events set forth in Section 8.2.1 above, Design-Builder shall also be entitled to an appropriate adjustment of the Contract Price provided, however, that the Contract Price shall not be adjusted for Force Majeure
    Events unless otherwise provided in the Agreement.
    Commentary
    Similar to ConsensusDocs and EJCDC, the inclusion of “epidemics” makes clear that COVID-19 would constitute a Force Majeure Event and that any delays caused by such an event would be excusable. Similar to the above provisions, to remove any doubt as to whether a foreseeable delay caused by COVID-19 constitutes a Force Majeure Event, contractors should make appropriate modifications, so they get the benefit of the force majeure relief.
    V. CONCLUSION
    During contract negotiations, careful consideration should be given to drafting the force majeure provision to provide entitlement to excused performance and equitable relief. A well-drafted force majeure provision
    will help ensure that project participants stand a better chance of mitigating their risks, and potentially reducing the likelihood of protracted litigation.
  1. Matt Moore is the Managing Partner in Peckar & Abramson’s Houston office. Mr. Moore represents general contractors, construction managers, sureties, owners, developers, and subcontractors in all phases of construction and on a wide variety of construction-related issue. Matt also regularly reviews, drafts, and negotiates construction contracts. Mr. Moore has been selected each year beginning in 2012 to the Texas Super Lawyers and Rising Stars lists in the area of Construction Law. He is also among the first attorneys in Texas to become Board Certified in the area of Construction Law by the Texas Board of Legal Specialization. Lee Banta is a Senior Associate in Peckar & Abramson’s Houston office. Lee has experience with lien and bond claim disputes, construction defect
    litigation, and general commercial matters. He has represented owners, contractors, subcontractors, and materialmen at all stages in the litigation process.
  2. Sun Operating P’ship v. Holt, 984 S.W.2d 277, 282 (Tex. App.—Amarillo 1998, pet. denied).
  3. Paradine v. Jane, 82 Eng. Rep. 897 (1647).
  4. Hinde v. Whitehouse, 103 Eng. Rep. 216 (1806).
  5. Fred R. Pletcher & Anthony A. Zoobkoff, FORCE MAJEURE (AND OTHER USEFUL FRENCH PROFANITIES) IN RESOURCE AGREEMENTS,
    59 Rocky Mtn. Min. L. Inst ., 17-3 to 17-4 (2013).
  6. Alphonse M. Squillante & Felice M. Congalton, FORCE MAJEURE, 80 Com. L.J. 4, 5 (1975) (“[t]here is no ground for damages and interest, when by consequence of a superior force or of a fortuitous occurrence, the debtor has been prevented from [performing]. . .”) (quoting § 1148 of the French
    Civil Code from which the concept of force majeure is derived.).
  7. Pletcher & Zoobkoff, supra note 5, at 17-3 to 17-4. For this reason, force majeure provisions are sometimes referred to by the Latin phrase “vis
    major”.
  8. Arthur L. Corbin, Corbin on Contracts § 1324 (One vol. ed. 1952).
  9. Pletcher & Zoobkoff, supra note 5, at 17-2.
  10. See, e.g., Matsoukis v. Priestman & Co. [1915] 1 K.B. 681, 685 (noting that it was not clear whether a British court applying British law would be
    bound or entitled to give the words the full meaning as they have under French law); see also Thomas Bortwick (Glasgow) Ltd. v. Faure Fairclought Ltd. [1968] 1 Lloyd’s Rep. 16, 28 (commenting that “the recise meaning of this term, if it has one, has eluded lawyers for years”).
  11. Pletcher & Zoobkoff, supra note 5, at 17-9.
  12. See, e.g., Koltermann, Inc. v. Underream Piling Co., 563 S.W.2d 950, 957 (Tex. Civ. App.—San Antonio 1977, writ ref’d n.r.e.) (“Where the obligation to perform is absolute, impossibility of performance occurring after the contract was made is not an excuse for nonperformance if the
    impossibility might have reasonably been anticipated and guarded against in the contract.”).
  13. See Sun Operating P’ship v. Holt, 984 S.W.2d 277, 283 (Tex. App.—Amarillo 1998, pet. denied) (“Force majeure, is now little more than a
    descriptive phrase without much inherent substance. Indeed, its scope and application, for the most part, is utterly dependent upon the terms of the contract in which it appears.”); see also N. Irr. Co. v. Dodd, 162 S.W. 946, 948–49 (Tex. Civ. App.—Austin 1913, writ ref’d) (“‘[W]here the party of his own contract creates a duty or charge upon himself, he is bound to make good, notwithstanding any accident by inevitable necessity, because he ought to have provided against it by his contract.’”)
  14. See GT & MC, Inc. v. Texas City Ref., Inc., 822 S.W.2d 252, 258 –59 (Tex. App.—Houston [1st Dist.] 1991, writ denied); see also N. Irr. Co., 162
    S.W. at 948–49 (“‘It is a well-established rule of law that, where a person creates a charge or obligation upon himself by express contract, he will not be permitted to excuse himself therefrom by pleading an act of God rendering such performance impossible.’”) (quoting 1 Am. & Eng. Ency. Law, p. 588).
  15. Metrocon Const. Co., Inc. v. Gregory Const. Co., Inc., 663 S.W.2d 460, 462–63 (Tex. App.—Dallas 1983, writ ref’d n.r.e.) (defendant-builder
    assumed the risk of failure to timely construct a wall due to the occurrence of high winds).
  16. See N. Irr. Co., 162 S.W.at 948–49 (noting that the performance of a contract is prevented by law as an exception to the general rule that a promisor is not discharged where the performance becomes impossible subsequent to the making of the contract).
  17. Centex Corp. v. Dalton, 840 S.W.2d 952, 954–55 (Tex. 1992) (quoting Rest atement (Sec ond) of Contra ct s § 261 (1981)).
  18. Key Energy Servs., Inc. v. Eustace, 290 S.W.3d 332, 340 (Tex. App.—Eastland 2009, no pet.).
  19. Tractebel Energy Mktg., Inc. v. E.I. Du Pont De Nemours & Co., 118 S.W.3d 60, 69–70 (Tex. App.—Houston [14th Dist.] 2003) (disallowing
    impossibility defense where party to the contract dismissed legal challenge to agency decision because the party did not believe the case could be won in time to effectuate the contract).
  20. Walden v. Affiliated Comput. Servs., Inc., 97 S.W.3d 303, 325 (Tex. App.—Houston [14th Dist.] 2003, pet. denied).
  21. Id.
  22. R & B Falcon Corp. v. Am. Expl. Co., 154 F.Supp.2d 969, 974 (S.D. Tex. 2001) (applying Texas law) (quoting BLACK’S LAW DICTIONARY 33 (6th ed.1990)); accord N. Irr. Co., 162 S.W. at 948–49 (defining “Act of God” as being “the result of such natural causes as could not reasonably have
    been foreseen and provided against”).
  23. N. Irr. Co., 162 S.W. at 948–49 (the lack of a severe drought for the ten years preceding the contract did not constitute an act of God excusing the
    defendant from failing to furnish water for irrigation). Of course, more leniency may be shown for a flu-like pandemic, which has not occurred on such a scale in over a century.
  24. Metrocon Const. Co. v. Gregory Const. Co., 663 S.W.2d 460, 461 (Tex. App.—Dallas 1983, writ ref’d n.r.e.).
  25. Id. at 462–63.
  26. Id.
  27. Id.
  28. Gulf, C. & S.F. Ry. Co. v. McCorquodale, 9 S.W. 80, 80–81 (Tex. 1888) (unprecedented flood that washed away a bridge an act of God but shipment of cattle would have passed the juncture prior to the casualty if the shipment left at its original departure time)
  29. See, e.g., TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176, 179 (Tex. App.—Houston [1st Dist.] 2018, pet. denied).
  30. See id. at 186. (specifically identifying “fire, flood, storm, act of God, governmental authority, labor disputes, [or] war . . . .” as force majeure events).
  31. R & B Falcon Corp. v. Am. Expl. Co., 154 F.Supp.2d 969, 974 (S.D. Tex. 001).
  32. Id.
  33. Id.
  34. Id. at 975.
  35. TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176, 179 (Tex. App.—Houston [1st Dist.] 2018, pet. denied).
  36. See id. (“Should either Party be prevented or hindered from complying with any obligation created under this Agreement . . . by reason of fire, flood, storm, act of God, governmental authority, labor disputes, war or any other cause not enumerated herein but which is beyond the reasonable control of the Party whose performance is affected . . . ”).
  37. Id. at 186.
  38. Id.
  39. Id.
  40. See, e.g., Sherwin Alumina L.P. v. AluChem, Inc., 512 F.Supp.2d 957, 966 (S.D. Tex. 2007) (listing “unforeseen shortages or unavailability of fuel, power, transportation, raw materials or supplies, inability to obtain or delay in obtaining necessary equipment . . . ” among the specifically
    enumerated force majeure events).
  41. Id. at 960.
  42. Id
  43. Id. at 961–62.
  44. Id.at 967–974.
  45. Id. at 966.
  46. Id. at 967.
  47. Id.
  48. Compare the cases discussed in section II above, with those in this ection.
  49. Hydrocarbon Mgmt., Inc. v. Tracker Expl., Inc., 861 S.W.2d 427, 435 (Tex. App.—Amarillo 1993, no writ).
  50. Id.
  51. Id. at 436.
  52. See Sherwin Alumina, 512 F.Supp.2d at 960–69 (discussing opinion in the context of specifically identified commercial events).
  53. Id. at 968.
  54. Id. at 968–69.

Anticipatory Repudiation of a Contract – the Prospective Breach

David Adelstein | Florida Construction Legal Updates

There are instances where a party can engage in the anticipatory repudiation of their obligations under a contract.  In essence, this is basically a party prospectively breaching the contract by repudiating their obligations in the contract.

prospective breach of contract occurs where there is absolute repudiation by one of the parties prior to the time when his performance is due under the terms of the contract.  Such a repudiation may be evidenced by words or voluntary acts but the refusal must be distinct, unequivocal, and absolute. Moreover, repudiation can be shown where one party makes additional demands not included in the initial agreement:

            The law is clear that where one party to the contract arbitrarily demands performance not required by the contract and couples this demand with a refusal to further perform unless the demand is met, the party has anticipatorily repudiated the contract, which anticipatory repudiation relieves the non-breaching party of its duty to further perform and creates in it an immediate cause of action for breach of contract.

24 Hr Air Service, Inc. v. Hosanna Community Baptist Church, Inc., 46 Fla. L. Weekly, D1344a (Fla. 3d DCA 2021) (quotations and citations omitted).

In 24 Hr Air Service, an air conditioning contractor agreed to perform repairs to a Church’s air conditioning unit.  However, when the contractor went into the attic to start the repairs, the wooden platform in the attic was unstable and a portion of the ceiling collapsed.  The Church repaired the ceiling.  However, the contractor refused to return to complete its repairs citing safety reasons.  The contractor requested proof the repairs to the ceiling were made before it returned to complete its contracted work and such proof was never provided.

Did the contractor’s refusal to complete its work amount to anticipatory repudiation of its contract by imposing the additional demand of proof of repairs to the ceiling before completing its contracted work?  Both the trial and appellate court believed so.

The Contractor’s request that the Church provide safety assurances of the ceiling repairs constitutes an additional demand that was not agreed to by the parties under the service contract.  Despite the Contractor’s argument that it never abandoned the job, its demand for safety assurances coupled with its refusal to complete the agreed repairs until such assurances were provided was an anticipatory breach of the contract. 

24 Hr Air Service, Inc., supra.

Based on the anticipatory repudiation or breach of the contract, what were the Church’s damages?

The proper measure of damages “would be either the reasonable cost of completion, or the difference between the value the repair would have had if completed and the value of the repair that has been thus far performed.”  24 Hr Air Service, Inc., supra (quotation and citation omitted).  This is referred to as benefit-of-the bargain damages, with the objective to place the damaged party in the position “he would have been in had the contract been completely performed.”  Id.    The party, however, cannot seek what is known as “betterment” or a better deal than what it originally bargained for—a party “can neither receive more than [it] bargained for nor be put in a better position than [it] would have been had the contract been performed.”  Id.

If you are dealing with a breach of contract, or even a prospective breach / anticipatory repudiation of an existing contract, it is advisable to seek legal counsel to assist you in preserving your arguments, the proper measure of damages for the breach, and any potential betterment associated with your damages.

The Pitfalls of Oral Agreements in the Construction Industry

Matthew A. Margolis | Construction Executive

Too often, construction professionals engage with each other to handle a project or series of projects and instead of memorializing their terms in writing, the agreement between the parties consists of nothing more than a conversation and a handshake. Both parties put their trust in each other that the terms they discussed will be honored. Nevertheless, one (or both) of the parties may eventually determine that their trust was misplaced, resulting in a big-money, big-headache dispute.

By having a written contract at the commencement of their relationship, these issues could have been avoided. Here are nine reasons to have a written contract.

1. THE AGREEMENT IS ACTUALLY ENFORCEABLE

An oral agreement might not be enforceable. There is a legal doctrine known as the “statute of frauds” that covers certain kinds of promises and transactions. While each state has slight variations to their statute of frauds, it is universally true that—if the agreement takes longer than a year (or is expected to take longer than a year) to complete—it’s unenforceable. This is also the case for contracts for the sale of goods which are valued at $500 or more.

For example, a developer and general contractor entered into a handshake agreement for a large condominium project. While they joked that it would be completed in a couple of months, both parties knew it was a massive undertaking that would take at least two years. After the certificate of occupancy was issued, the two sides battled over a number of allegedly agreed-upon terms. However, because of the statute of frauds, both parties had trouble enforcing the agreement. 

2. THE SCOPE OF WORK IS NOT A GRAY AREA 

Absent a contract, parties are left to rely upon conversations and industry standards when tackling a project with an ambiguous scope of work. As an example, one party may think that the other party, in this instance a general contractor, is tasked with painting a large commercial building. There might have been a conversation about it, but it is not documented.

Regardless, when it came time to paint the property, the general contractor explained that the quoted price did not include painting. Because no one in the construction industry works for free, the general contractor further explained that the work required a change order and extra funds. The developer reminded the general contractor that painting was included in the original quote and told the contractor that the longer the dispute took, the more the project would be delayed. Neither of the parties relented, and the dispute cost a significant amount of time and money. 

This scenario could have been avoided if the parties agreed to a written contract with a clearly defined scope of work. 

3. INDEMNITY AND DEFENSE LANGUAGE TO THE RESCUE

Where litigation occurs because of construction, transfer of risk (such as having a party indemnify and provide a defense) could save a company thousands, if not millions, of dollars. While a party may orally agree to come to the other party’s rescue in the event an issue arises, that may be far from reality. For example, a general contractor transitioned from commercial to residential projects. The general contractor bid out the work and acquired a new crew of subcontractors to handle it. 

The general contractor reasoned that since his crews stepped up when things went south on commercial projects, they would they do the same on the residential projects. However, one of the jobs resulted in a claim for defective construction. Without contractual language obligating the subcontractors to defend or indemnify the general contractor, there is little to no chance that they would do so

This scenario could have been avoided if the parties had a written contract which included language requiring the subcontractors to indemnify and defend the general contractor for their own actions or inactions. 

4. PAYMENT PROVISIONS ARE PROTECTION FROM ANGRY SUBCONTRACTORS

Payment is probably one of the most contentious topics in the construction industry. It is not uncommon to have payment delayed or withheld (whether merited or not). In these instances, how can a general contractor pay its subcontractors? For many, the reality is that they cannot. In these situations, unsurprisingly, the parties that are owed money are not going to be particularly happy. While some of them will ultimately file liens on the property, others will pursue the general contractor directly. 

This scenario could have been avoided if the parties had a written contract which included “pay-when-paid” language, or language that provided that being paid by the developer or owner is a condition precedent to paying subcontractors. 

5. CHOOSE THE LAW AND SELECT THE VENUE

Having the ability to choose where disputes take place and what law governs is a powerful tool to have in litigation. Otherwise, contractors may run into a situation where they are out of their home state and out of their element. For example, a contractor based in Florida agreed to a joint venture project in Kansas. 

Unfortunately, the joint venture soured and the contractor faces a lawsuit in Kansas. While the contractor’s Florida attorney was ready to fight, he was unfamiliar with Kansas law and not licensed in the state. As a result, the contractor had to hire an attorney in Kansas to defend the company before jurors who might relate better to the homegrown plaintiff.

This scenario could have been avoided if the parties had a written contract that included a choice of law and choice of venue provision, which would have required that any litigation would happen in a chosen location and governed by a chosen state/federal law.

6. INSURANCE, INSURANCE, INSURANCE

Insurance and oral agreements do not mesh well. In another example, a developer of a luxury condominium engaged a general contractor for the work. Before obtaining the permits, the general contractor verbally explained that the developer would be named as an additional insured on the insurance policy. As an added bonus, the general contractor indicated that he required his subcontractors to do the same. 

The project was completed and certificates of occupancy were issued. A couple of years later, the developer turned over ownership of the condominium to the individual unit owners. Those unit owners hired an engineer to inspect the property. The engineer issued a scathing report about all the defects resulting from original construction.

The unit owners filed a lawsuit against the developer. In turn, the developer tendered the claim to the general contractor’s and subcontractors’ insurance carriers. To no one’s surprise, none of the parties named the developer as an additional insured on the policies. 

This scenario could have been avoided if the parties had a written contract which included language requiring the general contractor and the subcontractors to designate the developer as a named additional insured on their policies of insurance. 

7. “TIME-IS-OF-THE-ESSENCE” BECOMES MORE THAN JUST A SAYING

Delays are almost inevitable on any construction project. However, when delays start to impact deadlines and cost additional sums, it is inevitable that a developer or owner will have to take action against the general contractor. 

A developer of a large commercial beachfront hotel told the contractor he needed the hotel to open before summer. It fell behind schedule, so the developer put the general contractor on notice that he was going to terminate the contractor’s services project delays. The general contractor countered that there was there was no completion date in writing and that any attempt to remove him would be a breach of the oral agreement. If the developer terminated the general contractor, he would run the risk of being in breach; if he doesn’t, the project would not be delivered in time for the summer tourist season. 

This scenario could have been avoided if the parties had a written contract which included a “Time-is-of-the Essence” provision or similar language stating when the project had to be completed. 

8. MEDIATE OR ARBITRATE AWAY THE ISSUES

It is very common to see contracts mandate mediations and arbitrations in lieu of litigation with the rational that these proceedings are cost-effective tools to avoid prolonged, expensive litigation.

Without these provisions, this may occur:

A commercial project did not go as planned. Multiple subcontractors came after the general contractor for a variety of issues, mostly related to payment. The subcontractors filed liens and lawsuits, which the contractor tried to stop with informal mediation. The contractor also hoped that mediation would save attorneys’ fees and court costs. The subcontractors moved forward with litigation, and the contractor had no choice but to head to court.

This scenario could have been avoided if the parties had a written contract which included alternative dispute resolution language. 

9. EXCULPATORY LANGUAGE COULD SAVE THE CONTRACTOR’S BUSINESS

A big verdict can completely wipe out a contractor. In some instances, the amount of the verdict can be more than the amount of the contract, where the risk outweighs the return.

For example, a subcontractor was paid a low six-figure amount for stucco installation at a condominium building. The stucco system failed. After settling with the developer, the general contractor went after the subcontractor for the damages, attorneys’ fees, expert costs and other expenses incurred as a result of the developer’s lawsuit. After going to trial, the general contractor was awarded nearly 10 times the amount that was paid to the subcontractor. 

This scenario could have been avoided if the parties had a written contract which included language which limited or waived damages against the subcontractor.