Pandemic Creates Cause to Rethink Overlooked Contract Provisions

Zachary Davis | Ahead of Schedule

The last time my byline appeared in this column, we were just a few weeks into the government-ordered lockdown, and I pondered whether construction projects could — or should — continue. In the year since, the construction industry proved adaptable as owners and general and trade contractors worked closely to ensure that work continued while keeping workers safe and complying with the various government-ordered and -recommended practices intended to slow the spread of COVID-19.

While we are still many months from being past the pandemic, we have at least neared the light at the end of the tunnel. Most adults in Oregon are now or will soon be eligible for vaccination, and there are signs of normalcy as kids return to school and the various pandemic-related restrictions that had become the new normal are slowly lifted. As our industry and communities enter this new stage of what is hopefully recovery and resurrection from the pandemic, the time is right to look back at lessons learned over the past 12 months.

Contracting Considerations

Prior to March 2020, I cannot remember spending more than five minutes negotiating force majeure language in a construction or design contract. When advising owners, I often recommended a handful of modifications to the force majeure provisions of the various industry standard forms, which were typically accepted without comment or revision by the other party.

Post-March 2020, the force majeure provision is easily the one that is most closely scrutinized — at least in terms of time and red ink. And for parties negotiating new agreements, the range of solutions has run a broad spectrum as contracting parties have looked for fair — and sometimes creative — ways to allocate the numerous risks that the ever-changing pandemic presented (and still presents).

Of course, for contracts negotiated over the past year, the parties have been in the unique position of negotiating during an ongoing force majeure event — or at least force majeurelike circumstances. Because the pandemic is ongoing, contracting parties should — at least to some degree — be able to account in both price and schedule for the known impacts of the pandemic as of the date of contracting. Thus, the challenge is drafting a provision in the midst of a pandemic that is flexible enough to differentiate between those known risks — e.g., the impacts of existing government orders and restrictions — and the unknown risks — e.g., future government orders strengthening restrictions or imposing new lockdowns due to a surge. While the rule traditionally followed in construction contracting is that the occurrence of a force majeure event gives the contractor the right to additional time — but not necessarily money, many owners have agreed to include a remedy for additional costs as part of pandemic-specific force majeure provisions. On the flip side, many such owners also want the opportunity to share in any savings in the event the work gets less expensive due to, for example, a loosening of government restrictions that comes earlier than anticipated.

But while force majeure has claimed the spotlight, there are other contract clauses that were similarly overlooked pre-pandemic that are proving equally worthy of scrutiny. One such example is the “change in law” provision. Executive orders and agency-level directives may or may not qualify as a “change in law” depending on, among other things, (a) how “law” is defined by the contract (if at all), and (b) whether the contract permits a remedy for all such changes in the law or for just a certain class of changes.

The other challenge is determining how these provisions and remedies interact within the broader context of the contract. For instance, if a new government order that imposes additional social distancing requirements does not meet the contractual definition of a “change in law,” that may not necessarily mean that the impacted party is without a remedy under another provision. Thus, contracting parties may want to include language that, for example, clarifies whether they intend that the “change in law” provision is the exclusive remedy for impacts involving government orders. While that conclusion might be inferable from a holistic reading of the contract, including express language ensures that the parties’ intent is honored.

Managing Impacts and Claims During a Pandemic

The flip side of drafting a contract that allocates risk for unexpected events such as a pandemic is how the parties implement that agreement when those risks arise during performance. For instance, most contracts require an impacted party to provide timely notice to the other party of an event or circumstance that triggers a contractual remedy. While a force majeure provision may excuse performance of certain contract obligations, it is unlikely to excuse notice requirements — even in the event of a global pandemic.

And, of course, the occurrence of a force majeure event is not a blank check for the impacted party and does not provide a remedy or excuse performance for obligations not causally impacted by the event. For instance, a contractor submitting a request for an extension of time due to a force majeure event should expect that the owner will want a critical path analysis showing that the claimed event actually caused a delay and that the delayed activity was in fact on the project’s critical path. In my experience, owners who were initially sympathetic to their contractors at the outset of the pandemic — and thus less inclined to strictly enforce their contracts — are far less willing to overlook shortcomings now that both sides have lived through pandemic conditions for more than a year.

As we emerge from a year of lockdown and conducting business in unprecedented conditions, the events of the past year will leave their mark for generations. The construction industry — like society at large — has learned important lessons that will make it better prepared to face future challenges.

Force Majeure: What are the Chances for Relief?

Kent B. Scott | Babcock, Scott & Babcock


Is a substantial increase in the cost of materials covered by a force majeure provision?

In short, the answer is dependent on the terms of the specific contract. If a contract is a fixed price contract, an increase in the cost of materials likely will not be covered by a force majeure provision. Moreover, if a contract is a fixed price contract and it contains a “no damage for delay” provision, then it is very likely an increase in the cost of material will not be covered by a force majeure provision. Since it is unlikely a substantial increase in the cost of materials will trigger a force majeure provision, it is not necessary to determine what the appropriate remedy would be.


Applying Florida law, the Eleventh Circuit found that a contractor who entered into a fixed price contract with a property owner and subsequently saw a substantial increase in its costs due to effects of a series of hurricanes, which caused a shortage of labor and material, was precluded from recovering additional labor and material costs from the force majeure events – i.e., the hurricanes. S&B/BIBB Hines PB 3 Joint Venture v. Progress Energy Fla., Inc., 365 Fed. Appx. 202, 203, 205 (11th Cir. 2010). In S&B, the parties’ contract required the contractor to “provide pricing for [all material, equipment, workmanship, labor, engineering, and any other items or labor performed or furnished] at a firm fixed price.” 203. The contract further contained a “no damage for delay” provision that provided “that in no event shall Contractor be entitled to any increased costs, additional compensation, or damages of any type resulting from such Force Majeure delaysId. at 204. The court ultimately found that:

it would subvert the entire purpose of a fixed price contract to allow [the contractor] to recover additional labor and materials costs when the benefit of a fixed price contract is to protect against price increases, labor shortages, material shortages, and the like. In contracting for the fixed price construction job, ‘the parties thoroughly addressed and allocated the risks’ inherent in the project, and [the contractor] could have increased its prices to reflect the risks it was assuming.”

Id. at 205-06 (quoting Marriot Corp. v. Dasta Const. Co., 26 F.3d 1057, 1065-66, 1066 (11th Cir. 1994)). The court reasoned that “[t]he contract made plain that [the contractor] bore the risk of these additional expenses and could have negotiated an alternate contract containing an escalation clause, a cost-plus arrangement, or a higher fixed price to protect against unforeseen expenses or increased its contract price to account for such risks.” Id. at 206.

The Fourth Circuit similarly held that a force majeure clause does not protect against changes in market price. Langham-Hill Petroleum Inc. v. S. Fuels Co., 813 F.2d 1327, 1330 (4th Cir. 1987). In Langham-Hill, two parties entered into a fixed price contract for a lump sum number of barrels of oil, which would be purchased at the fixed contract price over four monthly installments. Id. at 1329. The first three installments concluded without dispute. Id. However, prior to the fourth and final installment there was a substantial drop in the world oil prices. Id. The purchaser invoked the contract’s force majeure clause and refused to perform any further obligations under the contract. Id. The Fourth Circuit reasoned that “[i]f fixed-price contracts can be avoided due to fluctuations in price, then the entire purpose of fixed-price contracts, which is to protect both the buyer and the seller from the risks of the market, is defeated. Id. at 1330.

Utah courts seem to follow this reasoning. In Kilgore Pavement Maintenance, LLC v. West Jordan City, 2011 UT App 165, ¶ 2, 257 P.3d 460, a pavement contractor provided a city with a fixed price bid that was based on liquid asphalt oil being priced at $350 per ton, which the city accepted, and the two parties subsequently entered into a contract. Id. Shortly after the parties entered into the contract, the price of liquid asphalt increased to $1005 per ton. Id. at ¶ 3. The court ultimately held that the contractor “assumed responsibility for supplying all materials necessary for its performance, and therefore, assumed the risk of supply cost increaser”, which ultimately precluded the contractor from relying on a claim of impossibility or commercial impracticability. Id. at ¶8, 12. While a force majeure clause is absent from the reasoning in Kilgore, Kilgore does provide that under Utah law, a fixed price contract is prima facie evidence of an allocation of risk of the change in the contracted material’s market price.


It is important to note that although it is likely a claimant is precluded from relying on a force majeure provision, it may still have a claim under an excuse doctrine, such as “frustration of purpose, impossibility, and commercial impracticability.” § 7:322. Relief from disruption caused by COVID-19 pandemic, 2A Bruner & O’Connor Construction Law § 7:322. However, pursuant to Kilgore, it is unlikely such a claim would be successful. 2011 UT App 165, ¶ 8, 12, 257 P.3d 460.

Is Coronavirus a Force Majeure Event?

Michael Kelley | Shutts

Coronavirus (or COVID-19) is already causing significant disruption to businesses around the world, including quarantines and travel bans affecting trade and commerce, manufacturing, construction, hospitality and service industries in an unprecedented way. Now the disruptions are impacting society-at-large, from the closing of restaurants and attractions to remote work models for corporate staff members, “social distancing” and now even mandatory lockdowns in some locations. With this heightened sense of precaution (which is good) bordering on anxiety and panic (which can be very bad), it is crucial for businesses to apply the same level-headed approach to their dealings as they always have. The fact is that COVID-19 would likely not excuse non-performance or even cancel existing contracts, with very rare exceptions.

So what does the coronavirus mean for business, particularly in real estate development, finance and construction? How does it impact real estate transactions, acquisition and finance closings? Are you in breach if you cannot fulfill your agreement, even if your inability is linked to effects – even extraordinary government action – that are linked to COVID-19? While some may assume that the craziness of the pandemic excuses performance altogether, effectively canceling agreements, the reality is that, unless you are dealing with an extremely rare situation, any valid agreement is not simply canceled as a result of coronavirus. Businesses need to carefully review the language of their agreements, which may (or may not) provide for any relief – or the contracted relief may be challenged. And if the contract doesn’t have the right language, one cannot assume any certainty about the consequences of failure to perform.  More than likely, businesses are going to be expected to take action to fulfill their contractual obligations, and the failure to be proactive may end up costing them dearly. How folks need to treat and respond to what certainly appears to be a pandemic will in the vast majority of cases depend solely on the specific language of the contracts involved, including upfront contingencies agreed to by both parties, provisions granting certain relief to either party, and, the hot topic circulating the internet right now, “Force Majeure.”

What is a force majeure clause?

A force majeure clause is commonly included in commercial contracts, addressing what parties are supposed to do under certain defined force majeure (“superior force”) circumstances.  These are recognized events that prevent performance of contracts.  They are usually “acts of God” (earthquakes, floods, tsunamis) and certain disruptive, unplanned acts of people (war, labor strikes, terrorism). These clauses are unique to most contracts and have very specific language identifying the types of events covered, the process for claiming or notifying the other party of the force majeure event, and what to do going forward (excused from performance / suspended performance / additional time and/or money / termination, etc.).

In common law jurisdictions, like the overwhelming majority of the U.S., force majeure is not implied as a matter of law – that is, there’s no common understanding of what a force majeure is such that it could be applied by judges or tribunals to normal contract interpretation.  Force majeure clauses must be express, and they will be interpreted strictly according to their precise language. Even a widely-worded force majeure clause may not necessarily capture events such as COVID-19, and the party relying on the clause will still likely need to prove that the event was not “reasonably contemplated” by the parties when making the contract, and that the event is “beyond reasonable control” of the party seeking relief.

What should my next steps be?

Review – In light on the current pandemic, it is important to review every contract you have that requires some form of fulfillment of goods or services, or some sort of financial action or commitment over the next 90 days.

Be proactive – It is also important to be proactive in seeking information and communications from your business relationships (suppliers, contractors, customers, owners) regarding the impact of the virus and how best to avoid or mitigate potential disruptions.

Seek legal advice – If you or your real estate investment, development, or construction business is at risk, contact a construction attorney with significant experience in contract delay litigation, insurance coverage disputes, bonding issues – performance and payment challenges, and particularly force majeure clauses. An experienced attorney with a solid understanding of how these events are likely to be resolved by the courts can help avoid potential disasters to existing business and long-term relationships.

Managing Project Risk Associated With The Coronavirus Outbreak Through Force Majeure Provisions

Sara Beiro Farabow | Seyfarth

Globally, many developers and contractors are scrambling to identify available contractual relief as the Coronavirus (COVID-19) disrupts cross-border supply chains. US businesses will recall a similar effort just eighteen months ago, when the Trump Administration announced increased tariffs on $300 billion of Chinese goods. That trade war prompted companies to scrutinize remedies and mitigate associated project risks by tapping alternative sources originating in other Asian countries and Canada. Once again, construction industry stakeholders should reexamine delay provisions in pending and future contracts to mitigate risks arising from project disruptions caused by COVID-19.

This article provides an overview of US case law interpreting the doctrine of force majeure in the context of disease-related delay claims. Drawing on that guidance, we then identify practical considerations for applying existing force majeure or related delay provisions and how they may be modified for future projects.

Project Risk Associated with the Spread of the Coronavirus

Reports of a slowdown in the construction industry have been growing in the past weeks across multiple respected industry publications, including Engineering News-Record.1 Because of its severity, the Coronavirus outbreak is expected to disrupt supply chains across the globe in the construction industry, as well as in manufacturing and other sectors. This ranges from worker shortages, transportation disruptions, and closures of production plants and ports of entry to restrictive governmental action, such as bans on travel and mandated quarantines. Yet the full impact remains largely speculative as scientists and construction executives assess the daily breaking news. As recently observed by the Chief Economist of the Associated General Contractors of America (AGC):

The coronavirus outbreak continues to spread globally each day but the impact on U.S. construction remains speculative. So far, there do not appear to be any reports of cancelled, deferred or interrupted construction projects, nor of delays or shortages of construction equipment, parts or materials. However, the disruption to Chinese production and shipping is increasing, adding to the likelihood that some construction products and projects will be affected.2

To cut out much of the media’s speculation and potential misinformation, readers may check the official CDC and WHO guidelines at CDC Coronavirus Disease 2019 (COVID-19) and WHO Coronavirus Disease (COVID-19) Outbreak webpages.

What is a Force Majeure Provision and Where is it Buried in Your Contracts?

Force majeure clauses operate to excuse performance obligations or to extend time of performance on a contract when an unforeseeable event, or one that is “beyond the contractor’s control,” causes project delay. While not well standardized in the United States, such provisions often include both “acts of God” and “acts of Governmental Entities,” as well as an assortment of other possible delaying events. Two of the most commonly-used industry published contracts forms—The ConsensusDocs© Coalition (ConsensusDocs©) and the American Institute of Architects (AIA®)—do not use the term “force majeure.” Instead, the operative language is in the overall delay provisions of the contracts.

In the AIA® suite of contracts, the delay provision is found in the AIA Document A201″ – 2017, “General Conditions of the Contract for Construction,” incorporated into many of the contract forms. In particular, Section 8.3.1, “Delays and Extensions of Time,” describes some force majeure-type events which may permit an extension to the Contract Time:

§ 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 Section, 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.

§ 8.3.2 Claims relating to time shall be made in accordance with applicable provisions of Article 15.

§ 8.3.3 This Section 8.3 does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents.

Similarly, ConsensusDocs© describes various force majeure type events in the main agreement between the Owner and Constructor—but also specifically identifies “epidemics.” The ConsensusDocs© 200, “Standard Agreement and General Conditions Between Owner and Constructor (©2011, Revised May 2017) includes a non­exclusive list of thirteen force majeure events in Section 6.3.1, “Delays and Extensions of Time.” This provision cites “epidemics” in addition to a more general reference to “transportation delays not reasonably foreseeable” as shown below in the excerpted provision:


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) fire; (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.

6.3.2 In addition, if Constructor incurs additional costs as a result of a delay that is caused by items (a) through (d) immediately above, Constructor shall be entitled to an equitable adjustment in the Contract Price subject to §6.6.

6.3.3 NOTICE OF DELAYS If delays to the Work are encountered for any reason, Constructor shall provide prompt written notice to Owner of the cause of such delays after Constructor first recognizes the delay. The Parties each agree to take reasonable steps to mitigate the effect of such delays.

The nine causes listed in ConsensusDocs© Section 6.3.1’s subsections (e) through (m) are customary force majeure events. Like the AIA®, the above Section 6.3.2 of the ConsensusDocs© provides for an equitable adjustment to the contract time, but not the contract price, should a force majeure event occur.

US Case Law Interpreting Delay Claims Predicated Upon Disease Outbreak

While the question of whether a particular disease outbreak constitutes a force majeure event turns on the language of the provision and applicable law, there is not extensive published case law in the United States involving disease outbreak. In the relatively small number of judicial opinions that have analyzed whether a certain disease outbreak constituted a force majeure event, courts have focused on the extent to which the outbreak was an unforeseeable event precipitating a dramatic change in market conditions.

In a 2003 case involving the supply of hogs from three farms, the court noted that an outbreak of Porcine Reproductive and Respiratory Syndrome (PRRS) which affected hog production constituted a force majeure event for purposes of summary judgment.3 In SNB Farms, Inc. v. Swift & Co., the contract at issue provided: “[w]here either party claims an excuse for nonperformance under this Section, it must give prompt telephonic notice, promptly confirmed by written notice, of the occurrence and estimated duration of the Force Majeure Event to the other party; and shall give prompt written notice when the Force Majeure Event has been remedied and performance can recommence hereunder”4 (applying Colorado law). At issue on summary judgment was whether the non-performing parties had provided sufficient notice, as required under the force majeure clause, to be entitled to the excuse of force majeure. For one breaching party that had notified the non-breaching party of PRRS in a letter and orally, the court held that the notification question was appropriate for a jury to decide.5 However, for the remaining two breaching parties, who did not raise the PRRS issue or claim force majeure in their quarterly estimates, the court held that they were precluded from asserting the defense.6 Accordingly, summary judgment was appropriate against those two entities.

By contrast, in Rexing Quality Eggs v. Rembrandt Enterprises, Inc., a federal court in Indiana applying Iowa law held that falling consumer demand did not constitute a force majeure clause.7 In reaching its holding, however, the court noted “[u]nlike the avian flu example, which may plausibly constitute an unforeseeable event precipitating a dramatic change in market conditions, a change in purchaser demand—even a substantial change—is a foreseeable part of doing business.”8

Regardless of whether it is ultimately declared a pandemic, courts may logically find the Coronavirus outbreak to be beyond the “reasonable control of the party” and fall within the meaning of “acts of God.”9 If the quarantines and travel restrictions put into place by governments render the contractor or subcontractor unable to perform, these actions may constitute a valid “Governmental Entities” act excusing performance.10 For some construction project stakeholders holding contracts that are silent with respect to disease-related delay, they must rely upon these more general contractual language referring to events beyond its control, acts of God or Governmental Entities.

A more compelling claim of force majeure delay caused by the Coronavirus outbreak is found in construction contracts that specifically identify “disease,” “epidemic,” or “pandemic” in the definition of a force majeure or delay event. This is especially crucial in some jurisdictions, such as New York, where courts have ruled that a delay beyond the control of the claiming party may only excuse performance if the event has been expressly listed in the governing delay or force majeure clause.11

The fact that currently 61 countries have reported COVID-19 cases to the World Health Organization distinguishes it from other epidemics.12 With that, courts in the United States may be more willing to find that both the outbreak and governmental responses were unforeseeable or beyond the control of either party. Notably, this is only the sixth time that the WHO has declared a disease outbreak to be a Public Health Emergency of International Concern (PHEIC) since being vested with that authority in 2005, two years after the SARS outbreak.

Practical Considerations for Modifying Force Majeure-Related Provisions

Below are some practical issues businesses should consider when reviewing or re-negotiating their force majeure clauses:

  • Does your contract specifically include some reference to delay caused by disease, such as quarantine, outbreak of disease, epidemic, or pandemic? Or does it only generally reference events that are beyond the parties’ control?
  • If a force majeure event occurs, does it entitle the contractor to an equitable adjustment in the contract time?
  • If a force majeure event occurs, is the contractor also entitled to an equitable adjustment in the contract price? Should any entitlement to an increase in the contract price be limited to the contractor’s direct costs?
  • Consider whether the contractual definition of a force majeure event should include both epidemic and an increase in tariffs, given the recent volatility in the tariff wars and the extent to which the project’s supply chain originates outside of the United States.

Below we provide a sample robust definition of force majeure that includes both disease and tariffs:

Force Majeure Event includes, but is not limited to, any intervening act of God or public enemy, war, invasion, act of terror, hurricane force winds, tornados, strikes or labor disputes, riot or other public disorder, disease outbreak, epidemic, pandemic, or other declaration of public health emergency, quarantine restriction, and any act of any governmental body or authority that results in the imposition of a tariff or duty on imported materials required under the Contract Documents which was not applicable as of the Effective Date of this Agreement.”

Owners, contractors, and subcontractors should carefully negotiate the definition of force majeure to allocate the risk in a commercially reasonable manner. Rather than seeking to shift the risk disproportionately to the party with the weaker bargaining strength, parties should consider an allocation of risk that is both fair and furthers the shared goal of achieving successful project delivery.

Seyfarth Shaw’s Workplace Safety and Environmental Group has organized a Coronavirus task force that presented a webinar, “Coronavirus Part 2: Preparing for a Potential Pandemic — New Employer Challenges,” on March 2, 2020. This webinar updated employers about the latest information on coronavirus. You can view the slides and view to the recording.



[2] Ken Simonson, Coronavirus impacts loom but have yet to affect construction inputs or projects, AGC Data Digest, Vol. 20, No. 8, Feb 17-28, 2020.

[3] No. C01-2077, 2003 WL 22232881, at *10 (N.D. Iowa 2003).

[4] Id.

[5] Id.

[6] Id.

[7] 360 F. Supp. 3d 817, 841-42 (S.D. Ind. 2018).

[8] Id. at 841 (emphasis added).

[9] See, e.g.Am. Nat. Red Cross v. Vinton Roofing Co., 629 F. Supp. 2d 5, 9 (D.D.C. 2009) (“‘[a]n Act of God’ is the result of the direct, immediate and exclusive operation of the forces of nature, uncontrolled or uninfluenced by the power of man and without human intervention, and is of such character that it could not have been prevented or avoided by foresight or prudence”).

[10] See, e.g.Harriscom Svenska, AB v. Harris Corp., 3 F.3d 576, 580 (2d Cir. 1993) (finding that government’s prohibition on sale of goods classified as military equipment to be “government interference” within the meaning force majeure clause).

[11] See, e.g.Phibro Energy, Inc. v. Empresa De Polimeros De Sines Sarl, 720 F. Supp. 312, 318 (S.D.N.Y. 1989) (citing Kel Kim Corp. v. Central Markets, Inc., 524 N.Y.S.2d 384, 385 (1987)).

[12]—2-march-2020 (WHO Director-General’s Opening Remarks at Media Briefing on COFID-19, March 2, 2020)