Construction projects (people working in close quarters with not-yet-installed sanitation) can be breeding grounds for germs and viruses in general, but the potential pandemic presented by novel COVID-19, or the coronavirus, making its way around the world right now can make you feel like your project itself is afflicted.

Within the realm of possibility if illness continues to spread are these troubling scenarios:

• Material and equipment delays, shortages, and cancellations
• Community spread of the virus within your workforce causing mass absence
• Quarantines that prevent your workers from reporting to the jobsite
• School closures that force your workers to stay home and supervise their children

All of these potential problems lead to one costly place – delays.  Let’s consider each of the issues you may face during this time of uncertainty.

Contract Clauses to Look For

Your contract is always the best place to start in answering questions about rights and remedies. This situation is no different, even if no one had even heard of the coronavirus when they drafted and executed it.  The logical place to start is the force majeure clause, if any.  They can vary widely and yours may or may not be helpful in this situation, so do not assume that the mere presence of something that says “Act of God” will solve your problems.  A pandemic is analogous to a natural disaster, because no one in the contracting chain is at fault or reasonably could have avoided the harm.  Look for inclusions like “labor shortages,” “labor stoppages,” “material shortages,” “government orders,” and “causes outside of the contractor’s control.”  You will need to understand exactly why you need dispensation to determine the clause’s applicability.  Is there a shortage of building materials or equipment because of factory shutdowns in China?  Or are goods just delayed in shipping?  Are your employees all documented as diagnosed with the virus?  Is your community subject to quarantine?  The analysis depends on the specific language in the clause as well as the specific facts that you wish to use to excuse your performance.  As with all great legal questions, the answer to whether a force majeure clause saves the day with coronavirus is a firm “it depends.”

Don’t forget about notice and claims provisions.  Even if you have the best possible contract language to excuse your delays and even obtain compensation for them, you will likely have to provide the owner (or general if you’re a sub) with notice of the situation and causation and ask for those remedies within the time provided.

Supply Chain Interruption

Material and equipment shortages and delays are likely to be the most widespread and significant impacts on the construction industry.  Shipping from China is already reduced and the news has been reporting on factory shut-downs for weeks. Many factories have not resumed production since the Chinese New Year.

Article 2 of The Uniform Commercial Code has been adopted in near-identical form in every state and governs the sale of goods.  Section 2-613 addresses impossibility of performance, but only covers instances where specific goods are destroyed.  Section 2-615 is very likely to apply in this situation and refers to “excuse by failure of presupposed conditions” which translates to transactions that have become commercially impracticable because totally unanticipated circumstances have limited supply or shipping capabilities.  Goods may be unavailable, in very limited supply or performance has become so expensive that a supplier will not only lose money, but face financial ruin.  The UCC instructs a seller intending to invoke one of these provisions to give the buyer notice and the opportunity to elect termination of the contract or a substitution of goods or shipping methods.  The United Nations Convention on the International Sale of Goods, on the other hand, will excuse an international supplier from performing only if it was impossible to do so and not merely frustrated or rendered impracticable.  An argument could be made that a sole source which is totally out of production may give rise to impossibility.

Before agreeing to the substitution of goods and accepting their delivery, contractors should be careful to check their contracts (and flowdown provisions not specifically duplicated) for substitution clauses.   An owner may reserve the right to review and approve substituted materials or equipment and following the prescribed procedures is key to protecting claims for both time extensions and costs overruns.

Business Interruption and Contingent Business Interruption Insurance

Regrettably, business interruption and contingent business interruption (when your supplier shuts down) policies are typically written in relation to property insurance and relate specifically to physical reasons that a business cannot operate.  Claims under these policies typically arise in instances of natural disasters, casualties and equipment failures involving floods, fires, and power outages.  One exception, and it’s unpleasant to think about, is the possibility that a physical site would require decontamination or professional remediation to eliminate the virus and restore the space’s usability.  Coverage might apply in that case, but only once you come to terms with your office or project becoming a petri dish.  To date, studies have suggested that the coronavirus does not travel in airborne form through ductwork or survive very long on surfaces.

Worker’s Compensation

It is possible that someone carrying the coronavirus will bring it to a jobsite and spread it to others.  Like a common cold or the flu, this is not the type of workplace injury or illness that would lead to a worker’s compensation claim.  The risk of contracting a highly communicable virus at work on a construction site is not any higher than doing so at a grocery store or other public place and is not related to the work itself.  Healthcare professionals who are directly exposed to sick patients may be subject to a different interpretation.

Employee Leave and Pay

It’s very unlikely that you have a pandemic plan in your employee handbook.  What you probably do have, however, is an inclement weather plan.  If geographic quarantines (as opposed to diagnosis and exposure based quarantines of particular people) affect your workers or projects, you might treat the situation similarly to a major snow event and declaration of state emergency banning non-emergency vehicles and personnel from the roadways.

As a general rule in Maryland and many other states, employers have no fundamental obligation to pay employees for any time they do not work.  Employment contracts and company policies may offer paid time off in one or many categories and Maryland’s Earned Sick and Safe Leave Act directs the accrual of paid sick time for qualifying employees.  An employee who actually contracts coronavirus, or is charged with the care of an immediate family member who has it, should fall under these policies and the Family and Medical Leave Act as they would with any other illness.  You may elect to treat healthy, but quarantined, workers this way also.

Last, but not least, be sure to offer plenty of soap, water, and hand sanitizer in all trailers, portable bathroom banks, work areas, and office to promote good hygiene and limit the spread of colds and flus as well at coronavirus.

Visit our COVID-19 Resource Page for more updates.