Alert - Construction Projects: Prepare for Mandatory Civil Authority Shutdowns Due to COVID-19

Update 3/21/2020:

The Philadelphia Department of Licenses and Inspections released guidance in response to Governor Wolf’s order to shut down construction sites in Pennsylvania. Additional time has been allowed for contractors to secure construction sites in-progress. Construction sites must now be shut down and secure by Friday, March 27 at 5 p.m.

L&I issues guidance on construction work following Governor’s March 19th order.

Update 3/20/2020: An updated list has been released.

The recent spread of COVID-19 is causing disruption to many industries across the United States, most recently the construction and infrastructure industry. This disruption is causing both state and local government authorities to place restrictions on non-essential businesses. To date, the most drastic is Governor Wolf’s order closing all “non-life sustaining” businesses throughout Pennsylvania. It is expected that other jurisdictions will follow in the coming weeks.

Considering Governor Wolf’s order and the impending shutdown on construction and other infrastructure-based projects, it is important to reconsider the force majeure doctrine and, more specifically, civil authority orders as the basis for its invocation. As previously explained here, force majeure clauses typically come into play as a result of weather-related events, strikes, or natural disasters; and parties are accustomed to dealing with these types of risks. In fact, while the spread of coronavirus obviously presents a novel issue, there is precedent for the invocation of force majeure following natural disasters such as hurricanes.

For example, the Fifth Circuit in Ergon-W. Virginia, Inc. v. Dynegy Mktg. & Trade[1] determined that the extensive damage caused by Hurricanes Katrina and Rita in 2005 was sufficient to invoke force majeure provisions and excuse the defendant’s contractual duty to supply natural gas to plant managers, including any damages resulting from the defendant’s inability to do so. Similarly, in Tejas Power Corp. v. Amerada Hess Corp.,[2] abnormally cold weather caused gas wells to freeze and the defendant was unable to supply the full amount of its gas obligations to its various customers, including the plaintiff. The court agreed with the defendant’s invocation of the clause and held that, despite an ability to “overcome” the severe weather by significantly more expensive means, the force majeure clause excused its performance for the duration of the event.

Aside from the lessons that can be extracted from these cases, it’s also necessary to consider what steps can be taken in terms of preparations in the event state or local governments force a complete shutdown on all construction and infrastructure projects. Some best practices include:

• • Read the order, does it apply to your project?
  • Consider whether there will be a “waiver program” to apply for. It’s expected that there will be an opportunity to seek waiver of the general order. This may involve discussions with your counsel regarding the requirements.
  • Think daily about what must be done to secure projects in the event of closure. Owners and contractors must work collaboratively to achieve these goals.
  • Develop a closure plan by agreement. Understand that the closure could be for an indefinite period or a short period of time and develop contingencies. Also, determine what work can be performed remotely to keep the project moving. For example, can you catch up on submittals, responses to RFIs, change orders, etc. in order to mitigate all other potential sources of delay?

Finally, it’s important to not only consider the language in the contract, but also the notice provisions to eliminate any potential waiver argument. Notice of the force majeure event is often required to be given in writing and within a reasonable amount of time due to the serious consequences of force majeure on the performance of the contract. Thus, to preserve all potential arguments based on a force majeure provision, it’s best to provide prompt notice to the other party of the delaying event and to take any other necessary mitigation steps. Even though coronavirus is currently dominating the news cycle, it remains critical to notify the other party of the specific civil authority order(s) issued by your state and local governments that are disrupting, or will disrupt, contract performance and to provide notice that such disruptions qualify as a force majeure event. Failing to comply with notice provisions in the contract may unnecessarily subject a party to waiver arguments that can be easily mitigated by addressing any issues now before projects are shut down.

[1] 706 F.3d 419 (5th Cir. 2013).
[2] 1999 WL 605550 (Tex. App. Aug. 12, 1999).