Despite the economic disruptions caused by COVID-19, California’s construction industry continues to move forward building much-needed housing, remodeling commercial spaces and maintaining habitability of homes. With county Shelter-in-Place orders varying wildly and a statewide mandate that is as clear as mud, contractors are searching for best practices to protect themselves and their employees from legal ramifications for job delays and material supply chain interruptions.
Much of the information available as to whether contractors will be held responsible for contract completion delays is speculative, at best. The consensus is that until a claim is brought to the courts and officially ruled on, there won’t be a definitive answer or precedence for how this will be handled going forward. Waiting for the legal scholars to hash out court orders and mandates does not help the current small business contractor facing a time deadline that can’t be met due to a jobsite shutdown, a crew of sick workers or a permit office that isn’t performing inspections due to COVID-19 mandates.
Below are simple, best business practices for getting ahead of any contract breaches for time-delays that would arise as a result of COVID-19 mandates throughout California.
Communicate Early and Often: As changes to crew availability or the inability to obtain materials or compliance officers come to light, reach out to the project's customer or general contractor (if the agreement is as a subcontractor). Be clear in the expectation of the delay, the cause of the delay (availability of supplies, staffing shortage related specifically to COVID-19, etc.) and the potential cost of the delay.
Write It Down: There is certainly the temptation to pick up the phone and notify the customer that there may be an issue or even just reassure them things will keep moving forward to put them at ease during a panicked time. However, a phone call won’t protect a contractor in a dispute over contracts. It is imperative to document every call, casual contract discussion, change order, email communication related to time and supply delays. It should be noted that change orders only apply to fixed sum or lump sum contracts. If the document is a cost-plus fee contract, a contract addendum or an entirely new contract may need to be produced.
Calculate Construction Cost Codes: For the explicit purpose of protecting against a claim related to COVID-19 delays, it is recommended that the contractor keep a separate calculation of all costs codes related to any contract changes. Using a separate tracking mechanism will show a clearly identified cost and tracking for all items that may have led to delays or supply cost increases. The courts will be able to distinctly identify that the contractor was properly tracking and communicating costs as they relate to COVID-19, letting the court know that the claim was not caused by other factors.
Review the Contract: Many small contractors use boilerplate contracts found online or even just a signed estimated invoice for time and materials. Now is as good of a time as any to review the contracts used when taking on projects. Is there language regarding communicated time delays? If there is not a clause in the current contracts, now is a perfect time to introduce them into future contracts. Many contract templates being used by small business contractors do not address delays or cost changes due to “acts of God”, otherwise known as Force Majeure. Most of the legal industry believes COVID-19 will fall under the Force Majeure classification due to the unprecedented actions being mandated. The current legal conjecture is that, while the contract does not explicitly state allowances for these types of delays, the contractor will be able to lean on the legal assumption that this pandemic falls inside of the “unforeseeable, unavoidable, and not the result of the defendant's actions” requirement that would enact the Force Majeure clause. However, expensive court and arbitration battles are likely to ensue over what percentage of the delay and cost overruns were due to events out of the contractor’s control.
Estoppel Stipulations: There may be room to invoke an estoppel stipulation, should legal action be brought against the contractor for contract delays or the customer reneges on the agreement. An estoppel is a principle in contract-law that allows for modified contract terms to be enforced without the use of a new contract. Estoppel requires some action or representation on the part of the promisor (the contractor) and for the promisee (the customer) to rely on the contractor’s promise as a reasonable or anticipated expectation. This is known as detrimental reliance. An estoppel can work in reverse as well. The contractor depends on the customer’s newly agreed terms and expects that a claim will not be filed in the future due to the expressly communicated conditions.
It is a time in the California construction industry of mass uncertainty. While there are very little legal certainties to lean on given the nature of this pandemic, adhering to smart business practices of getting everything in writing and staying in front of any issues that may occur will certainly go a long way in the eyes of the court, should a contractor find themselves in that unfortunate situation, due to COVID-19 orders.