Current events make this a time for everyone in the construction industry to assess their risks of supply chain disruptions, labor shortages and governmental restrictions on their projects. Consider how the often-overlooked force majeure contract clause may impact project delays or increased costs caused by COVID-19.
Black’s Law Dictionary defines force majeure as when business is disrupted due to a factor beyond its control. Most construction contracts contain a force majeure provision that:
- Allows a contractor to delay or stop performance under the contract due to certain, unforeseen circumstances that are not the fault of either party to a contract
- Specifies the party who bears the cost or risk of loss for any resulting construction delays as dictated by the language of the controlling written agreement
- May release deadline requirements when a contractor is unable to meet deadlines
Force majeure provisions can be a valuable tool in preventing contract liability that could arise because of COVID-19-induced construction delays. There are a significant number of articles circulating on the internet about how force majeure clauses may come to the forefront of disputes in the construction field. Below are just a few examples:
While force majeure provisions vary greatly in scope and allocation of risk, we strongly recommend that contractors review their current construction contracts with competent legal counsel to better understand any force majeure provisions and to plan for potential construction delays resulting from the spread of COVID-19.
Construction project participants need to assess and evaluate their respective risks on an ongoing basis. Carefully review future contracts with your legal and insurance team to include provisions for disruptions and delays caused by COVID-19. Pay close attention to clauses relating to force majeure, termination, suspension, owner funding, pay when paid, pay if paid, and/or change orders in the contracts.
As a Cincinnati Insurance policyholder, you have full access to use ConsensusDocs, at no additional charge, for one year after signing up. The standard contract agreements already address many of the concerns noted above. Ask your agent for details.