In these unprecedented times, access to current information is crucial to ensuring your safety and making informed business decisions. This is particularly the case in relation to essential services, like construction, which continue to operate through the COVID-19 pandemic. In this bulletin we provide a reference guide to the changed construction landscape that COVID-19 has effected through consideration of the following six subjects:
1. Delay and Inability to Perform Obligations – Force Majeure and Frustration
The COVID-19 crisis may be characterized fairly as an unforeseeable intervening event, outside the control of contracting parties, and capable of delaying the delivery of services or materials on schedule, or at all. Many construction contracts manage the impact of such events through a force majeure clause.
Force majeure clauses may excuse parties from performance of their contractual obligations on schedule, or at all, where such events occur. Such clauses typically enumerate a number of specific circumstances and commonly include, fires, strikes, lockouts, and abnormally adverse weather conditions. Pandemics, epidemics, and disease are sometimes enumerated, but often not specifically referenced. In these latter circumstances, properly worded basket clauses may still capture such events within a larger force majeure clause.
For example, the standard CCDC 2 contract provides the following force majeure clause:
6.5.3 If the Contractor is delayed in the performance of the Work by:
It would appear that item 4 in the clause above is capable of capturing other events like pandemics, epidemics, and disease.
This force majeure clause affords the contractor an extension of time for performance, but no additional costs resulting from a force majeure delay event. However, where owners have caused delay or a construction site has been shut down by way of court or public authority order, the standard CCDC contract affords the contractor both an extension of time and reasonable costs resulting from such delay events (see sections 6.5.1 and 6.5.2).
Complying with any prescribed notice provisions within the contract and establishing on the evidence that the force majeure event actually caused the delay in question are key elements to a force majeure claim. Through the COVID-19 crisis we have seen numerous parties across the country and in respect of many different projects deliver delay notices (or perhaps pre-delay notices) without identifying impacted activities, the extent of anticipated delay, how COVID-19 has caused delay, or even specifying whether the delay is a force majeure or other kind of delay event.
The lack of such details may, in part, be understandable given the never-before-seen and ever-changing impacts of COVID-19. Indeed, concerned that existing contractual arrangements may be insufficient, several construction associations (including the Council of Ontario Construction Associations) are lobbying government for a legislative solution for delays caused by COVID-19. In the absence of any such remedial legislation, however, parties will need to comply with stipulated timelines and provide requisite details in support of their force majeure and other delay claims, failing which relief for delay may be denied.
Also, force majeure clauses will not come to the aid of non-performing parties where their non-performance results from their own actions, where the subject event was foreseeable at the time the parties entered the contract, or where the contract specifically allocates risk for the occurrence of the subject event. Even where force majeure clauses are found to apply, parties will nevertheless be obliged to mitigate the extent of delay by taking reasonable measures (e.g., stockpiling certain materials, re-sequencing events, etc.). This obligation to mitigate exists at common law but is also often specifically prescribed within construction contracts.
The starting point as to whether a force majeure clause is applicable and what relief may be available is always the specific wording of the contract itself.
In the absence of a force majeure clause, the common law doctrine of frustration may come to the aid of a non-performing party. The doctrine may be found to apply in circumstances where a supervening event, outside the control of either party, has rendered further performance of the contract impossible or at least radically different from what was expected when the parties entered the contract. In such circumstances the contract is said to be “frustrated” and the parties are excused from further performance.
There is a high bar, however, to establishing frustration. Unforeseen circumstances that just render performance of the contractual obligations more onerous will generally fall short of justifying application of this doctrine. Whether COVID-19 may be a sufficient circumstance to establish frustration will turn very closely on the risks that parties assumed as expressed in the contract and the specific facts at issue.