In construction contracts, the parties often create their contracts using templates offered by the American Institute of Architects. The AIA documents are widely recognized forms and contracts that define the relationships and terms involved in design and construction projects. This article is going to review the standard Terms and Conditions that are part of construction contracts, and analyze what could happen during the pandemic caused by COVID-19.
Note, though, that owners and contractors often make changes to the various AIA templates. Any analysis of a specific situation must begin, and end, with the actual contract language.
General Conditions of the Contract for Construction, A201-2017. In most construction contracts using the AIA documents, the key document of the Conventional family of documents (A201) is the General Conditions providing terms and conditions between the Owner, Contractor, and the Architect.
Force Majeure Clause Not a Standard Clause. In general, a force majeure clause assigns the risk of nonperformance for certain events that are unforeseeable, and outside the contractor’s control. The General Conditions of an AIA contract does not typically contain a force majeure clause.
Section 8.3: Delays and Extensions of Time. The standard clause grants the contractor a reasonable time extension, but does not excuse performance. The standard clause provides that a delay “in the commencement or progress of the Work” caused by, e.g., labor disputes, fire, unusual delay in delivery, unavoidable casualties, “other causes beyond the Contractor’s control…”, or “other causes that the Contractor asserts, and the Architect determines, justify delay….”
This clause could be used by a contractor to obtain an extension of time if, for example, the various government directives makes delivery of supplies impossible, or makes labor unavailable. The clause also grants a catch-all that allows the Contractor to assert these, or other causes, which convinces the Architect that delay is justified.
Section 18.104.22.168: Termination by the Contractor. When work is delayed, or performance becomes unnecessarily difficult to complete, the AIA provides a method for the Contractor to terminate the Contract. The Contractor may terminate if Work is stopped for a period of 30 consecutive days through no act of fault of the Contractor, a Subcontractor, a sub-subcontractor, for any of the following reasons (among others likely not relevant):
(1) Issuance of an order of a court or other public authority requires all Work to be stopped; or
(2) An act of government (e.g., a declaration of a national emergency) requires all Work to be stopped.
Arguably, the stay-at-home orders could be considered an act of Government that requires Work to be stopped. However, many stay-at-home orders allows that Construction is an essential business and need not be stopped.
If a Contractor determines that it can terminate the Contract, the Contractor would be entitled to recover payment for Work already performed, and reasonable overhead and profit on Work not yet performed.
Section 14.3: Suspension by the Owner for Convenience. Section 14.4 Termination by the Owner for Convenience. The Owner may suspend, delay, interrupt, or terminate the Contract for its own convenience. The decision to suspend, delay, interrupt, or terminate must be done in writing.
If the Owner delays performance, the Contractor would be entitled to an adjustment of the contract sum, including profit, caused by the delay. If the Owner terminates the contract, the Contractor is entitled to payment for the work properly completed, costs incurred because of the termination (including costs to terminate subcontracts), and a termination fee (if required by contract).
Conclusion. Because many stay-at-home orders provide that construction is an essential service and, therefore, allowed to continue to work, the need for relief due to COVID-19 may not be a significant problem. However, there have been some reports that these stay-at-home orders have made it difficult to secure labor and to purchase materials. In such cases, the standard AIA contract will typically allow for the Contractor to obtain a reasonable extension of time for performance. As always, particular care should be paid to review the terms of the Contract.
If you would like to discuss issues regarding COVID-19s impact on construction contracts, please contact Bert Andia at 336.273.1600 or [email protected]