Delay and Compensation Claims Resulting From COVID-19

By Larry Lubka

I’ve received a number of requests regarding how to handle delay and compensation claims in light of the Covid-19 situation.  Since the goal can vary based on your position in the chain of construction parties (owner, general contractor, subcontractor), I have tried to address the issues for a general contractor and for a subcontractor.

In addition to checking the clauses regarding claims, schedules, delays and force majeur, I suggest you reread the safety provision.  As addressed in another memo from Jeff Epstein of our office, OSHA requirements may also point to stopping work at a construction project.  Generally, it is difficult to second guess a decision made in the name of safety.  That would apply even more in the current emergency.

At the same time, if you believe that continuing construction work is in your best interest, I would note the Order of the Health Officer of the County of Santa Clara which regarded shelter in place in Santa Clara county.  Although not controlling in Los Angeles or other southern California counties, it does list as an essential activity the construction of housing and it also lists work necessary to the operations and maintenance of “water, sewer, gas, electrical, oil refining, roads and highways, public transportation … computing services …”  I would be surprised if a similar set of exemptions did not apply should such a rule be issued in Southern California.  If your work involves any of those scopes, particularly housing, you may not have to shut down.  However, even the exemption requires compliance with Social Distancing.

CLAIM BY GENERAL CONTRACTOR

1.Notice To Owner And Request For Financial Reassurance:  If there is a force majeure clause in your contract, refer to it in any notice.  The notice should reference Covid-19, the applicable changes, delay and schedule provisions of the prime contract and possibly the safety provision of the prime contract, as well as any applicable government direction or regulation.  The notice should state “This is notice of a [potential] [ongoing] delay to the project.  It is anticipated that the subcontractors on the project may elect not to appear to work or will have reduced capacity.  We expect delivery of materials will be impaired.  The result is an impact on productivity and a continuing delay to the project for which contractor will claim additional time and compensation for itself and pass-through claims by its suppliers.”

Given [expected] delays to the project, contractor requests written assurance that you and the lender will have ready access to the financial capacity to promptly address increased costs on the project.  While contractor is seeking to mitigate delays, to the extent allowed by law and regulation, we need to know that existing pay applications and those in the next few months will be promptly paid.  Lacking such reassurance and lacking the ability to inform our subcontractors, it may be in everyone’s best interest for us suspend construction until the pandemic has been sufficiently addressed.”

2. Response To Subcontractors:  “At this time there has been no governmental direction that construction cease.  Accordingly, it is anticipated that baring such direction, the work will proceed.  We will make making efforts to address Covid-19 by adding wash stations and soap.  You should be prepared to provide masks or visors to your workers and direct them to work at least 6 feet apart.

In the event you are delayed by this pandemic, we agree to pass-through any delay or other claim you might have to the owner.  We can not assure you of a particular result, but we will certainly forward your claim to the owner with the understanding that the final decision of the owner, subject to any dispute will be final.”  I’ve not seen the particular subcontract you used, but I’m not sure there is a mandatory pass-through provision.

CLAIM BY SUBCONTRACTOR

“Subcontractor hereby gives notice of a claim pursuant to the claim section of the subcontract (Section ___), the force majeure section (Section __) and the safety section (Section __).  Subcontractor has [ceased] [significantly slowed] its work as a result of the pandemic known as Covid-19, as a result of government directions and regulations and because the ripple effect of Covid-19 has impacted others on which Subcontractor relies in performing its work, such as Subcontractor’s vendors.  Subcontractor notifies Contractor that is has a claim for delay and additional compensation that is ongoing.  Subcontractor is seeking for itself and its subcontractors, additional compensation for delay, loss of productivity, general conditions, extended home office overhead, escalation, additional personnel costs, and additional costs for existing scope, such as providing masks and visors.  Subcontractor will finalize its delay and price impacts on cessation of the pandemic and the governmental rules, directions and regulations resulting from the pandemic.”

Laurence P. Lubka

Lubka & White LLP

larry@lubkawhite.com

(626) 301-0700

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