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Hunt Ortmann is one of the foremost authorities on California construction law, contracts, dispute resolution and litigation offering additional legal services in the areas of business and commercial law, employment matters and labor law compliance, real estate, insurance and suretyship.

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Should Current Construction Projects Scale or Hold Back in Response to the COVID-19 Pandemic?

March 16, 2020

The impact of the novel coronavirus (COVID – 19) on the daily lives of Americans has been brought into even sharper focus just in the last 72 hours.  In an effort to avoid a dramatic spike in the growth of the virus, as was experienced in Italy and Iran, public health officials are advising workers to stay home whenever possible; most schools and public facilities are closed, and as we all know household goods are in short supply.

The construction industry will not avoid having to make decisions in the coming hours and days about keeping ongoing projects moving forward or putting them on hold.  Owners, general contractors, subcontractors, and suppliers will be faced with decisions to scale back or entirely put projects on hold.  Placing a project on hold will have time and cost impacts.  Under these extraordinary circumstances, proactive steps are needed to ensure sound decisions are made about temporary suspension of work on currently active projects.  This evaluation starts with consideration of the applicable contract provisions. 

Most construction contracts have a Force Majeure clause. Generally, a Force Majeure event involves extraordinary circumstances beyond the control of the contracting parties, which could include a war, strike, riot or an “act of God”.  When properly triggered, the contractor and subcontractors are not responsible for schedule delays associated with the project being put on hold due to a force majeure event.  Also, when properly triggered, a Force Majeure clause protects owners from having to pay the contractor and subcontractors for work interruptions.

A Force Majeure clause typically has significantly different legal and financial consequences than suspension of work or termination clauses. These differences must be understood before taking action to idle a project.  If a decision is made to put a project on hold, the notice of such an event and the contract provisions under which the parties are proceeding must be made extremely clear. 

Careful thought must also be given in advance to any decision involving maintaining a safe and secure worksite while work is being placed on hold.

It is also possible that applicable insurance policies provide business interruption coverage for this unique event that is impacting all aspects of the construction industry and global economy. There are many factors to consider before deciding to scale back, place on hold, or to move forward on a construction project in this climate.  For legal counsel on contract provisions during this unprecedented time, please contact John Darling at darling@huntortmann.com

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