COVID-19 and the Construction Industry
As the novel coronavirus (COVID-19) pandemic unfolds, we are seeing unprecedented steps being taken by the federal and state governments of the United States to “slow the curve” of infections. In Ohio, those steps began with Governor Mike DeWine declaring a state of emergency on March 9, 2020. Over the next ten days, the Director of the Ohio Department of Health issued a dizzying series of orders closing bars and restaurants, limiting the size of public gatherings, closing the polls on election day, and closing hair and nail salons, tattoo parlors, and massage therapy locations. Then, on March 22, 2020, the Director issued a “Stay at Home Order” requiring all Ohio citizens to stay at home except those engaged in “Essential Activities,” “Essential Governmental Functions” or “Essential Businesses and Operations,” all terms defined in the order. The pace of change has been breathtaking to say the least.
So far, the Ohio construction industry has been spared a mass shutdown. The order specifically classifies construction as “Essential Infrastructure,” which itself is part of the “Essential Businesses and Operations” allowed to continue operating. The order is subject to change, however, as deemed necessary by the Director; hence, the construction industry should not assume it will remain exempt. For example, on March 16, 2020, Boston’s Mayor announced a two-week shutdown of all construction activities in the city except for emergency work. While that occurred in Boston, not Ohio, the point remains: things can and will change quickly as the pandemic unfolds.
Indeed, just today Michigan's Governor also issued a stay at home order, effective March 24. While that order exempts certain business operations as “critical infrastructure workers,” the construction sector is not listed as a class. “Public works,” however, are listed, which may encompass public construction projects. The Michigan order refers to the Director of the U.S. Cybersecurity and Infrastructure Security Agency’s guidance of March 19, 2020, which describes public works as follows:
- Workers who support the operation, inspection, and maintenance of essential dams, locks and levees
- Workers who support the operation, inspection, and maintenance of essential public works facilities and operations, including bridges, water and sewer main breaks, fleet maintenance personnel, construction of critical or strategic infrastructure, traffic signal maintenance, emergency location services for buried utilities, maintenance of digital systems infrastructure supporting public works operations, and other emergent issues
- Workers such as plumbers, electricians, exterminators, and other service providers who provide services that are necessary to maintaining the safety, sanitation, and essential operation of residences
- Support, such as road and line clearing, to ensure the availability of needed facilities, transportation, energy and communications
- Support to ensure the effective removal, storage, and disposal of residential and commercial solid waste and hazardous waste."
As of the writing of this article, it is unclear what specific construction operations are included. Given the uncertainty of the intended scope of the Michigan order, contractors, subcontractors and suppliers should seek individual legal guidance on their obligations under it and should not assume they are excluded.
Contractors, subcontractors and suppliers can and should be proactive in addressing COVID-19 in a few different ways.
First, people’s safety remains paramount. Check regularly for health updates on appropriate and necessary steps to keep employees safe. These include the now familiar social distancing requirement, working remotely wherever possible and making sure employees who show symptoms stay home. Up to date information can be found at https://coronavirus.ohio.gov/wps/portal/gov/covid-19/.
A construction project, of course, presents its own challenges in following such directives. Certain aspects of construction work, for example, can only be done by two or more people working closer together than six feet. And certainly a bridge or road cannot be built remotely. But, estimating and other functions can and should be performed remotely to the greatest extent possible during the duration of the COVID-19 pandemic. And the more employees can do to comply with health directives the better. Contractors, subcontractors and suppliers should require such steps be taken wherever possible and do what they can to encourage and enable them.
Second, contractors, subcontractors and suppliers should look at their contracts regarding delay damages, liquidated damages, extensions of time and notice requirements. Depending on the terms of the contract and the exact facts, legal arguments may exist for excusing delayed performance (or non-performance) due to “Acts of God” (also called force majeure events). COVID-19 may well qualify for such arguments, but more immediately, contractors, subcontractors and suppliers need to know what their contracts say about when and how they must give notice of a problem that has or could cause a delay. Many contracts contain strict and short time requirements that notice be given within only a few days of the event giving rise to the delay, or potential delay. Failure to meet those requirements usually results in a waiver of such a claim. It is not too soon to provide notice of the potential for delays due to COVID-19, even if the delay has not manifested itself yet. If no delay occurs, the notice will have been an unnecessary formality. If a delay does occur, the notice will preserve the ability to take appropriate action later. Err on the side of sending notice now.
In sending the notice, reference the states of emergency declared at the federal and state levels and identify what you can regarding impacts already seen. Also reference the section or sections of your contract pursuant to which you are sending the notice. You may later supplement the notice with additional information as it arises. (For additional information on force majeure clauses see Eastman & Smith's article, "Take 20 Seconds to Look at Your Contract (And Wash Your Hands): Force Majeure Clauses Amid the COVID-19 Outbreak.")
Third, keep detailed daily documentation of any impacts the project related to COVID-19. Such issues could include labor shortages due to sick employees (or absent employees taking care of sick family members), decreased productivity caused by social distancing of workers, material supply problems caused by travel restrictions and so on. The point is to keep and maintain contemporaneous documentation of everything that could prove a later delay occurred because of COVID-19 and was, therefore, beyond your control. After the fact documentation will not get the job done.
Fourth, determine whether your insurance provides business interruption or other coverage that might apply to losses caused by COVID-19. And, if such coverage exists, determine what is required to make a successful claim for such coverage. When do you have to put the insurer on notice of the claim? What documentation will the insurer require to pay the claim? These are all questions to discuss with your insurance broker. (For further details on this insurance see, "Are Economic Losses Related to COVID-19 Recoverable Under Business Interruption Coverage?" which is located on our web site.)
These are unsettling times, but contractors, subcontractors and suppliers can take steps to get through them successfully. If you have questions on how to do so, please contact Mr. Harper.
At the date of publication the above information was correct. It is quite possible the information above has changed as COVID-19 is a rapidly evolving situation.
The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.