HOW ARE YOU DEALING WITH MATERIAL DELAYS / SUPPLY CHAIN IMPACTS?

Posted on May 8, 2021May 8, 2021 by Edward Garber

In a prior article I discussed a material escalation provision in your construction contract to account for the volatility of the material price market. While including such a provision may not have been much of a forethought before, it is now!

What about concerns with the actual supply chain that impacts the availability of and the lead time of materials? How are you addressing this concern in your construction contract?

The pandemic has raised awareness to this issue as certain material availability has been impacted by the pandemic. As a result, parties in construction have tried to forecast those materials where delivery issues may occur including those materials with longer than expected lead times. But equally important is how this issue is being addressed in your construction contract including how you want to negotiate this risk in future construction contracts.

Start with the force majeure provision. Does this force majeure provision address supply chain impacts? It may touch upon it but you may want more clarification dealing with delivery delays that impact a project’s schedule and identifying that this includes a supply chain impact attributable to a specific occurrence, such as the pandemic. Generally touching upon an issue is not the same as specifically addressing an issue for practical purposes to avoid any dispute down the road.

One way is to include or address certain supply chain impacts caused by the COVID-19 pandemic, any future pandemic, and other potential factors based on the current economic climate. If one thing COVID-19 taught us is that we need to fully address the risk of pandemics moving forward, both from a time standpoint and a cost standpoint. Another thing COVID-19 taught is to precisely word force majeure and other provisions so that parties are on the same page when it comes to a foreseeable risk.

The provision can be broad enough to include any supply chain impacts caused by the pandemic and any future pandemic and/or can include specificity based on certain materials that are known as of the date of the contract that have anticipated supply chain concerns and long lead times. While a contractor does its best to account for materials with long lead times, there are factors that can come into play associated with when that material is procured including the construction documents, the approval of shop drawings, deposits for fabricated items, transportation including where the material is being shipped from, and storage and staging issues. In other words, there are factors that can lead to delays in deliveries that simply occur regardless of the planning.

When preparing and negotiating your construction contract, consider the issues associated with material escalation and supply chain impacts.

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.

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.

QUICK NOTE: CHARTING YOUR CONTRACTUAL RIGHTS WITH RESPECT TO THE CORONAVIRUS

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

As more and more information is being learned, and more and more industries are being impacted, it is likely that the construction industry will follow suit. And, while impacts with the global supply chain may not yet be realized, impacts could begin with labor supply and, frankly, employers’ safety protocols dealing with the coronavirus. One suggestion that should be implemented is a detailed chart, similar to the below, where you are charting rights and obligations under your contracts dealing with force majeure, notice, and project suspensions. This is step one to make sure you are making prudent decisions, preserving rights, and making sure contractual obligations are being met. Be proactive, not reactive.

QUICK NOTE: QUESTIONS AS TO THE FORCE MAJEURE IMPLICATIONS OF THE CORONAVIRUS? DO NOT HESITATE TO CONTACT ME!

Posted on March 14, 2020March 27, 2020 by Edward Garber

If you have questions or concerns, and I am sure you do, as it pertains to the coronavirus and its force majeure implications on construction projects you are involved with, please do not hesitate to contact me or someone else that you trust can help. Do NOT take a reactionary position and wait for things to get worse or for there to be more formalized suspensions in place, or impacts realized. It is not worth it. Please make sure you are undertaking efforts to know your contractual rights and options so that you can develop the best plans to preserve these rights and options. Do it for you, your business, your personnel, and all the people you rely on in the performance of your work. I remain here to assist in any way that I can to help you get through any delay, impact, and interruption the coronavirus and its force majeure implications may have on your business.

BE PROACTIVE, NOT REACTIVE, TO PRESERVE FORCE MAJEURE RIGHTS REGARDING THE CORONAVIRUS

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

If you are involved in construction, NOW is the time to consider the potential force majeure impacts associated with the pandemic Coronavirus. Things are beginning to drastically change on a minute-by-minute basis. From travel restrictions, to the suspension or cancellation of events on an international level, to company-wide policies and restrictions, the global uncertainty has led to the possibility that a force majeure delay will occur. Thinking otherwise is not being proactive. The Coronavirus, and the impacts / delays associated therewith, is beyond anyone’s control. Due to the uncertainty, it is hard to fathom at this time a reasonable challenge to someone’s reaction to this concern or their companywide response to the concern.

If you are a contractor, subcontractor, or even a supplier, my suggestions would be as follows:

Revisit your contracts and see what type of force majeure language it has – anything relating to delays beyond your control or epidemics;
Examine to see whether you have a basis for additional compensation AND additional time;
Examine what type of notice you are required to provide for force majeure events;
Be proactive – send notice now of the potentiality that this pandemic can impact / delay the job –no one should take offense to this letter as this pandemic has impacted all walks of life;
If an impact occurs, send follow-up notice accordingly to ensure rights under the contract are preserved; and
For future contracts, incorporate language that specifically addresses epidemics and pandemics now that the occurrence of this issue has become real.

If you are an owner, I would suggest that you also revisit your contract to reacquaint with the force majeure provisions and whether a force majeure provision allows for additional compensation and time. This is important for you to deal with too. You should also consult with your insurance broker to review policies in place to see whether you have insurance to cover losses associated with a pandemic.

If you need assistance with any of these activities, or want to inquire as to your rights, please give me a call. You can also call my cell at (954) 295-6117. Be proactive, not reactive, and having a contingency in place, determining a solution, and preserving rights is the right approach. I remain here to help and to steer you in the best possible direction in light of this uncertainty.

DELAYS CAUSED WHEN GOVERNMENT (OWNER) PUSHES CONTRACTOR’S WORK INTO RAINY / ADVERSE WEATHER SEASON

Posted on October 12, 2019October 12, 2019 by Edward Garber

There are a number of horizontal construction projects where a contractor’s sequence of work and schedule is predicated on avoiding the rainy season (or certain force majeure events). The reason is that the rainy season will result in delays due to the inability to work (and work efficiently) during the adverse weather (including flooding caused by the weather). If the work is pushed into the rainy season, is such delay compensable if the government (or owner) delayed the project that pushed work out into the rainy season? It very well can be.

For example, in Meridian Engineering Co. v. U.S., 2019 WL 4594233 (Fed. Cl. 2019), a contractor was hired by the Army Corps of Engineers to construct a flood control project for a channel in Arizona. Due to delays, including those caused by the government, the project was pushed into the monsoon season, which caused additional delays largely due to flooding caused by the heavy rain. One issue was whether such delays were compensable to the contractor – the government raised the argument that the contractor assumed the risk of potential flooding from the rainy season. The Court found this argument unconvincing:

[The contractor’s] initial construction schedule planned for a completion of the channel invert work, a necessary step in protecting the site from flooding, to be completed by late June 2008…[M]any issues arose in the project’s early stages that led to cumulative substantial delay, including those caused by the government’s failure….The government cannot now claim that [the contractor] assumed the risk of flooding from monsoon season when the government was largely responsible for [the contractor’s] inability to complete the project prior to the beginning of the monsoon season. Simply put, the government cannot escape liability for flood damages when the government is responsible for causing the contractor to be working during the flood-prone season.

Meridian Engineering, 2019 WL at *7 (internal citations omitted)

In other words, but for delays caused by the government, the contractor’s work would not have been pushed into the monsoon season. The Court’s outcome, perhaps, would have been different if the contractor was the sole cause of delays that pushed the project into the monsoon season or the contractor’s original schedule was unrealistic to begin with.

ACCOUNT FOR THE IMPOSITION OF MATERIAL TARIFFS IN YOUR CONSTRUCTION CONTRACT

Posted on March 28, 2018April 24, 2020 by Edward Garber

After Hurricane Irma, I wrote an article that contractors should revisit the force majeure provisions in their construction contracts. Not later. But Now. The force majeure provision is an important provision in a construction contract to account for certain uncertainties that you have NO control over.

Recently, another reason has given rise to contractors needing to revisit their force majeure provisions, as well as any provisions dealing with material escalations. Not later. But now. The imposition of raw steel and aluminum tariffs (tax on imported goods) and the back-and-forth regarding a potential trade war leads to the kind of uncertainty that should be assessed as a risk. A risk in both time and cost from material escalations.

Contractors want to revisit their force majeure provisions, as well as any material escalation language, for these two reasons.

First, you want to ensure any delay, to the extent there is any, associated with the tariffs or potential trade war provides for a time extension. Any impact a contractor has with the delivery or fabrication of raw steel due to the imposition of tariffs should result in an extension of time.

Second, and probably the bigger concern, is associated with price. Higher raw steel and aluminum costs could mean you based your price on inaccurate supplier and/or subcontractor pricing (pricing that did not factor in tariffs), particularly if the raw steel has not been pre-ordered or pre-delivered. Escalating material pricing is a concern.

Moving forward, I suggest including language in the force majeure provision that accounts for the imposition of tariffs and the concern of a trade war just to be safe. Clarity in a contract is always better. But, adding this language will account for time, but not the escalation of steel and aluminum pricing due to the tariffs.

If you are entering a lump sum contract, consider factoring this issue into your pricing. Or, alternatively, identify an allowance associated with these materials so that you are not penalized based on actual pricing that accounts for the tariff Another thing you can do is include a contingency in your lump sum contract with language that allows you to use the contingency for this purpose. The difference between the allowance and contingency is there is still contractor-risk with the contingency if the costs exceed the contingency agreed upon in the contract. Finally, you can include a carefully crafted material escalations provision that does not require you to bear the risk of certain material escalations.

If you are entering into a Guaranteed Maximum Price (GMP) contract, you want to factor this escalating material pricing into the GMP cap. Most GMP contracts have (and, if not, they should have) a line item for contingency. The contingency amount should be increased (or there should be a separate contingency) to account for this issue with language that allows the contractor to use the contingency for escalating material pricing. Alternatively, you can identify that due to the uncertainty associated with steel or aluminum pricing (or perhaps any other pricing) the GMP includes certain allowance items which will increase the contract through change order if the cost of the item exceeds the allowance. Finally, you can include a carefully crafted material escalations provision so that you are not bearing the risk of this uncertainty, i.e., material escalations entitle you to a change order.

The politics behind the tariffs are irrelevant. What is relevant, however, is the uncertainty behind the impact and pricing associated with the imposition of tariffs and the risk assessment that needs to be factored in to deal with this uncertainty. This uncertainty affects the costs and potential time associated with obtaining raw materials to fabricate and incorporate into an owner’s construction project.

If this issue is currently impacting an on-going project, be proactive and consult an attorney that can review the language in your existing contract(s) and help, as need be, craft a change order request or claim based upon what has already been agreed to.