DELAYS AND SUSPENSION OF THE WORK UNDER FIXED PRICE GOVERNMENT CONTRACT

Posted on June 22, 2024June 22, 2024 by David Adelstein

Here is an interesting fact pattern and case decided by the Civilian Board of Contract Appeals dealing with (1) force majeure type events and epidemics (Covid-19); (2) suspension of the work; and (3) delays. These are three topics important to all contractors including federal contractors.

In Lusk Mechanical Contractors, Inc. v General Services Administration, 2024 WL 1953697, CBCA 7759 (CBCA 2024), a contractor entered into a fixed price contract with the government to repair, replace, and modernize site and building systems at a federal building. The contractor commenced work right before Covid-19. When Covid-19 hit, the government issued the contractor a two-week suspension of work notice on March 27, 2020. The suspension of work allowed off-site administrative work to continue but suspended on-site physical work. The government extended the suspension of work three more times. The contractor could resume work on the exterior on June 1, 2020, but was not permitted to resume work on the interior until July 20, 2020. On the same date that the contractor was able to commence interior work, it submitted a modification for delay caused by the suspension – 64 days for the time period the entire site shutdown, and 51 days for the interior work shutdown.

The contracting officer responded stating that under FAR Clause (FAR 52.249.10) dealing with fixed priced contracts, epidemics (such as Covid-19) that impact the critical path will entitle the contractor to a no-cost extension of time and the government grants the contractor a 66-day extension of time. The contractor was also seeking compensation, so it then certified its claim seeking an equitable adjustment in its compensation based on FARS’ suspension of work clause – FAR 52.242-14.

First, because the contractor entered into a fixed price contract, it assumed the monetary risk of delays caused by Covid-19:

It is “well-established that ‘a contractor with a fixed price contract assumes the risk of unexpected costs not attributable to the Government.”’ Absent a special adjustment clause, this Board has held that an unforeseen pandemic does not shift the risk to the Government for any unexpected costs incurred under a firm, fixed-price contract. Here, there is no such adjustment clause in the contract. “FAR clause 52.249-10 explicitly addresses how acts of God, epidemics, and quarantine restrictions are to be treated. A contractor is entitled to additional time but not additional costs.”

Lusk Mechanical Contractors, supra (internal citations omitted).

Second, regarding the suspension of work argument under FAR 52.242-14:

[A] contractor may recover an equitable adjustment from the Government if the contractor shows that ‘(1) contract performance was delayed; (2) the Government directly caused the delay; (3) the delay was for an unreasonable period of time; and (4) the delay injured the contractor in the form of additional expense or loss.” [The contractor] has not established that [the government’s] successive suspensions were the sole cause of the delay or that the work was delayed for an unreasonable period of time.

[The government] suspended [the contractor’s] construction on the exterior and interior portions of the project from March 27 to June 1, 2020, for a total of sixty-six days. [The contractor] contends that [the government’s] suspension of work directives were the sole cause of the delay. We disagree. The executive orders issued by the Governor, at least in part, caused [the government] to suspend [the contractor’s] work.

A contractor may only recover under the Suspension of Work clause “when the Government’s actions are the sole proximate cause for the contractor’s additional loss, and the contractor would not have been delayed for any other reason during that period.” The stay-at-home order issued by the Governor…in March 2020 equally interfered with [the contractor’s] performance of the work because there was no stay-at-home exemption for construction work that was not a “core life service” or maintained “the safety, sanitation, and essential operation to properties and other essential businesses.”

***

Even had [the government] been the sole cause of delay, the length of the suspension period was reasonable (based on Covid-19), precluding recovery by [the contractor].

Lusk Mechanical Contractors, supra (internal citations omitted).

Third, as it related to the additional delay to the interior work, that additional suspension also was not unreasonable. The contractor had been able to resume exterior work earlier, and its administrative work was never suspended. And, the contractor never proved that the suspension of work to the interior work impacted its critical path:

Because [the contractor] resumed work on the exterior portion of the project much earlier and the administrative work was never suspended, [the contractor] had to prove that the interior work was on the critical path of the project during the additional suspension period. [The contractor], however, has not established, or even asserted, that the interior work was on the critical path of the project. When establishing a Government-caused delay, the contractor bears the burden of proving that the delay affected the critical path of the project. “‘The reason that the determination of the critical path is crucial to the calculation of delay damages is that only construction work on the critical path had an impact upon the time in which the project was completed.”’ Here, [the contractor] provides no proof that the interior work was on the project’s critical path. Therefore, [the contractor] is not eligible for delay damages for the suspension of the interior work through July 20, 2020.

Lusk Mechanical Contractors, supra (internal citations omitted).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

QUICK NOTE: PHYSICAL LOSS OR DAMAGE UNDER PROPERTY INSURANCE POLICY = ACTUAL, TANGIBLE ALTERATION TO PROPERTY

Posted on May 30, 2022May 30, 2022 by Edward Garber

In one of Florida’s first appellate opinions dealing with business interruption losses and COVID-19, the appellate court found COVID-19 was not covered under the terms of the commercial property insurance policy to cover business interruption losses. In this case, a restaurant/bar suffered losses due to emergency measures imposed by Miami Dade due to COVID-19. Such emergency measures restricted the occupancy of restaurant/bars and undeniably resulted in business interruption. Occupancy and patrons are the lifeline of restaurant/bars. So why weren’t business interruption losses covered? Because there was no direct physical loss of or damage to the property at the restaurant/bar. The appellate court, affirming the trial court, explained direct physical loss of or damage to the property means there needs to be actual tangible alteration to property. COVID-19 did not cause actual tangible alteration to property which caused the restaurant/bar to suffer business interruption losses. Moreover, any COVID-19 particles that got on property could be cleaned. The analogy the appellate court provided, as cited here, is as follows: “The difference “between [the restaurant/bar’s] loss of use theory and something clearly covered—like a hurricane—is that property did not change. The world around it did. And for the property to be useable again, no repair or change can be made to the property—the world must change.”

As with any insurance coverage dispute, the terms of the policy matter, fairly or unfairly. When dealing with an insurance coverage dispute, make sure you work with counsel that best frame your coverage arguments. In this case, the insured’s counsel tried to maximize coverage with creative arguments. But in the end, the lack of actual tangible alteration to property to support direct physical loss or damage doomed its claim.

DOES THE RUSSIA UKRAINE WAR LEAD TO A CONSIDERATION IN YOUR CONSTRUCTION CONTRACTS?

Posted on March 26, 2022March 26, 2022 by Edward Garber

Material costs are still affecting the construction industry. Supply chain impacts too. The volatility started with COVID-19 (and, in certain cases, before with the imposition of tariffs) and has continued through present date.

But what about the war between Russia and Ukraine and the impact this has had or may have on the supply chain? I think the spillover from the war (with oil, gas, the energy sector, etc.), including the imposition of any sanctions, is not fully realized other than the concern exists in an economy that is already battling through material costs and supply chain disruptions.

How does this affect you?

It may not.

Or you may regularly enter into construction contracts in which you would be smart to address material costs and supply chain impacts. The reason being is that everything from a risk standpoint should begin with your construction contract. Not addressing an issue does not actually mitigate the risk. Confronting the issue does mitigate the risk because you are contractually addressing a concern and know where the other party stands relating to that concern so that business decisions can be made.

This does not mean the Russia and Ukraine war provides you a get-out-of-jail free card for every material cost or supply chain issue you deal with. It does not and should not. That would not be fair, right? What is currently affecting the construction industry should not be a basis to shield from accountability or causation. You still need to connect dots by tying a material cost escalation or supply chain impact to an actual event. The key is ALWAYS to understand how this will be dealt with in your construction contract and there are many ways to do so. Sure, the volatility of the market makes it difficult to predict any material cost in the near future and whether certain products will be impacted by supply chain disruptions. Recognizing the risk is the first step in trying to negotiate the allocation of that risk in your contract.

Remember, simply calling something a force majeure event post-contract does not actually make it so, particularly if you know about the event and the potential of the risk at the time of contract.

DON’T SIGN A CONTRACT THAT DOESN’T ADDRESS COVID-19 (OR PANDEMICS AND EPIDEMICS)

Posted on November 15, 2020November 15, 2020 by Edward Garber

Do yourself a favor: Don’t sign a construction contract that doesn’t address COVID-19 or any pandemic or epidemic from this point forward!

As the number of COVID-19 numbers rise, it would be reasonable to think this could have an impact on ongoing or future construction projects. For this reason, I want to revisit the subject of addressing COVID-19 (and any pandemic or epidemic) in your construction contract.

The potential impact caused by COVID-19 could result from governmental regulations that impact construction of the project, shutdowns due to affected workers, owners’ decisions to suspend performance or adjust the way the project is being constructed, increased deep cleaning requirements, and increased measures associated with social distancing and re-sequencing of shifts. This all plays into the timeliness of performance and the productivity of manpower and equipment usage. When submitting a price, a lot of these considerations may not be factored in because doing so could lead to a price that will never get accepted.

The question then becomes, how do you deal with this?

The answer is easy.

Be prudent when entering into a contract to make sure you address this risk. Now that we know about COVID-19 and the ramifications, the last thing you want to do is not address it at all and create the argument that you have assumed all of the risk for COVID-19. The best thing is to specifically address this in the contract, whether in the force majeure provision or another provision along with what specifically requires a contractor to equitable adjustment of the contract sum and contract time due to COVID-19. I am not suggesting that this contractual provision is used as a tool to avoid proof of the impact caused by COVID-19. Demonstrating the impact absolutely needs to occur, but pretending that COVID-19 will never result in an impact (or increased direct costs to keep the site sanitized) and, thus, does not need to be addressed in the contract is naïve.

Contingency language in the contract could be included with a specified amount to cover certain direct costs (e.g., masks, temperature screening, having a dedicated safety person ensuring masks are being worn, hand washing stations, frequent deep cleaning) and delays or inefficiencies caused by COVID-19. This way this money is not necessarily built into the price, but can be utilized to cover the “contingency.”

Language in the contract could be included to demonstrate the type of proof a party must submit to demonstrate the COVID-19 impact or the lost productivity / inefficiency caused by COVID-19.

Language in the contract could also specify what, in particular, about COVID-19 constitutes a force majeure issue (e.g., shutdown) and whether a party is entitled to money if there is a COVID-19 issue, or just time.

Language in the contract could further address how long a job can be suspended before a party may terminate the contract.

Regardless of the specific negotiated language, the key is simply to be PROACTIVE and address the risk in the contract. As mentioned, with rising numbers, do NOT neglect this consideration. Indeed, this consideration should be broader than just COVID-19 and cover any pandemic or epidemic as this concern becomes more prevalent in contract drafting from this point forward. Prior to COVID-19, addressing pandemics or epidemics in most contracts was an afterthought. That should not be the case anymore!

If you need assistance drafting or negotiating contractual language regarding COVID-19, work with construction counsel that has experience factoring in this risk. I have dealt with a variety of language in the last few months that accounts for this risk where the parties understand the language, have accepted any risk allocation, and have made the business decision associated with the risk.

QUICK NOTE: COVID-19 CLAIM – PROVING CAUSATION

Posted on June 21, 2020June 21, 2020 by Edward Garber

In certain jurisdictions, the number of people testing positive for COVID-19 is on the rise. As this occurs, there is the possibility that a construction project will have to deal with one or more workers testing positive. That is the current reality. If the dialogue has not occurred before, now is the time to discuss any enhanced measures—above OSHA guidelines—that could be implemented to address this reality and mitigate the risk. Part of the reality, though, is that regardless of the enhanced measures and mitigation, it is impossible to truly prevent this risk.

No one disputes COVID-19. There may be a dispute as to whether COVID-19 constitutes a force majeure event or some other event, however, before you start labeling it, you still NEED TO PROVE the impact caused by COVID-19. There needs to be a cause-and-effect relationship so you can address (i) how this impacted the critical path of your schedule and/or (ii) how this impacted labor productivity. In other words, you need to prove causation. Stating there was a delay or loss of productivity without establishing the cause-and-effect relationship (i.e, causation) provides no value because it does not support the production impact or time extension and, without either, there is no basis for additional compensation (even if you establish it should be deemed an excusable, compensable delay).

We have all read articles about how COVID-19 can impact a project. This does not mean that all or any of these issues impacted your project. If they did, and you are seeking a time extension and/or additional compensation, remember, it is your burden of proof to support the entitlement, both as to time and money. This is not an easy task and, in many situations, the impact may be very difficult to actually prove. But again, stating you have a COVID-19 impact without truly demonstrating causation will be, and should be, a claim that is denied. If you need assistance putting together or evaluating a COVID-19 claim, make sure you work with experienced counsel and consultants to best package and present the claim.

QUICK NOTE: WEBINAR ON MAXIMIZING PAYMENT DURING COVID-19

Posted on May 18, 2020May 18, 2020 by Edward Garber

How do you maximize payment, particularly during an uncertain COVID-19 economy? Check out the webinar I did for LevelSet where you can watch the webinar or read the transcript. I don’t want to give any spoilers, but it discusses preserving and enforcing lien and payment bond rights, tidbits to ensure you are maximizing payment, charting contractual notice provisions relating to force majeure, and those contractual provisions to note moving forward in this new climate. All good-to-know information to ensure you are preserving rights and appreciating risks with a topic that did not cross your mind a few months ago!

NOW IS THE TIME TO REVISIT CONTRACT LANGUAGE IN LIGHT OF COVID-19 TO ADDRESS FUTURE CONTRACTS

Posted on April 12, 2020April 12, 2020 by Edward Garber

Now is the time! Today! If you are currently in the process of negotiating or executing contracts, now is the time to ensure the contract protects your interest in light of this new world we enter into. The impacts associated with COVID-19 may have been realized by some parties, but not others. Regardless, the full extent of the COVID-19 impacts has likely been realized by no one — we are dealing with an unknown, prospective impact.

Will projects get suspended? Will they stop and start back up due to disinfecting? Will they slow down due to health concerns and preventative measures? Will there be unanticipated material lead times? Will current material lead times or material orders be delayed? Will material prices increase? Will there be a labor shortage and/or inefficiencies with the labor force? Will labor costs increase in order to address the preventative measures and anticipated inefficiencies?

These are some questions you may be asking, plus more. You are asking these questions because of the unknown factor associated with COVID-19 and any future health crisis. This is the reason now is the time — the time to ensure your contract best captures the risk of the unknown.

Here are considerations:

1. Force majeure wording. – This needs to be beefed up and tweaked to address COVID-19 and, potentially, other pandemics / health crisis. You need to have an understanding who is bearing the cost risk for a project being shut down (by the government or otherwise), suspended, or slowed-down due to this issue. Leaving it alone is a mistake. All contracts until this pandemic hit left it alone meaning no contract truly addressed the global pandemic we are all facing.

2. Additional safety and preventative health measures. – This needs to be factored in as the additional measures will add a cost to the project. The measures may also add a cost in that they will add certain inefficiencies into the project that need to be factored into the schedule and general conditions.

3. Material price escalations.- Could the cost of materials increase due to supply chain issues? It is certainly a possibility and should be considered. Further, it is likely that to avoid this issue, a party wants to accelerate the ordering of materials at today’s price, and there may be additional storage costs associated with doing this. Conversely, what if the price of materials skyrocket post-contract? This issue could break a party’s performance, profitability, and financial wherewithal to perform. A party may want to address protection from any uncertainty with material price escalations.

4. Material lead times and material delays.- If there are delays tied to COVID-19, how this being allocated? There could be a realistic delay in material deliveries that impacts the project’s schedule. The delay is not the ordering party’s fault but the result of impacts associated with the pandemic. Based on this concern, this may result in the discussion of material accelerations and the additional storage costs associated with doing this (also discussed above).

5. No-damage-for-delay.- A no-damage-for-delay provision is common. However, a party may want to deliberately carve-out from this issue delays associated with or tied to COVID-19 or any pandemic / health crisis. The carve-out language should be broad and include language “arising out of or relating to” COVID-19 or any pandemic / health crisis based on the uncertainty as to how impacts may be realized.

6. Contingencies.- Certain contracts, such as GMP contracts, contain a contingency. Parties may want to add a contingency in the contract for COVID-19 and pandemics / health crisis. A certain sum is built into the contract sum to address the unknown costs that could be incurred.

7. Dispute resolution.- Knowing that the onslaught of COVID-19 cases will start affecting the judicial system, parties may want to revisit their dispute resolution provisions to see how disputes can be more efficiently resolved. Parties may consider turning towards more specific arbitration provisions that modify standard contractual language. Since arbitration is a creature of contract, parties can essentially start negotiating the rules of arbitration within the parameters of the contract. Parties may demand pre-suit mediation provisions, executive settlement meetings, or partnering agreements as vehicles to efficiently resolve disputes and avoid delays or inefficiencies with the judicial system.

These are some talking points. There will be others based on the scope. I remain available to assist any party that wants to revisit their standard form contracts or needs help in drafting or negotiating contracts. A party should not rely on their same-ole contract forms. Also, a party should not rely on the same-ole negotiation as COVID-19 brought new issues to the table and highlighted the significance of other issues and contractual provisions.

VIDEO CONFERENCE CONSULTATION FOR YOUR CONSTRUCTION ISSUE AND COVID-19 CONCERNS

Posted on April 7, 2020April 7, 2020 by Edward Garber

COVID-19 has brought on tons of uncertainty. Tons of angst. Tons of concern. Tons of deliberation and questions over whether this is (i) a force majeure issue, (ii) a national emergency, (iii) an occurrence that gives rise to a business interruption insurance claim or a property damage insurance claim, or (iv) a basis to support the application of impossibility of performance or frustration of purpose. Both money and time are involved. Contractual provisions and rights are involved.

During this time, cash may be king, and there may be stress over cash flow. (Cash is always king, but maybe even more so now.) This may be impacting your decision to seek the right legal advice NOW. It does not need to be stated that getting counsel involved sooner than later is always in your best interest.

I am offering video conference consultations for your construction issues. And, if I cannot assist you, I will refer you to other counsel that hopefully can. Take advantage of a video conference consultation to ensure your rights are protected and you are not waiting until the last moment to seek legal guidance. Do not let COVID-19 prevent you from prudently seeking the right guidance and advice NOW. Reach out to me and I am happy to coordinate a video conference to start the introduction and dialogue.