In light of the impact the COVID-19 pandemic is having on all industries throughout the world, this article will discuss how a force majeure clause could impact a construction project. Although outside of the standard form construction contracts (i.e. CCDC contracts) each contract will likely have its own specific language relating to force majeure events. There may also be some similarities across the industry often depending upon the party that drafted the contract.
The Force Majeure Clause & CCDC Contracts
Within the CCDC contracts there is language that can potentially allow a contractor to obtain further time to complete the work as a result of an event that is out of their control, such as the COVID-19 pandemic. In order to make use of such a clause, the contractor would have to show that the event caused delay. They would also have to provide the appropriate notice to the owner within 10 days of the start of such a delay.
Although the contractor could potentially gain additional time to complete their work through these provisions, they would not be entitled to additional compensation unless they could show that the actions of the owner or the consultant caused the contractor to incur those additional costs. In certain circumstances, the contractor could even potentially terminate the contract if the event continues to prevent them from working for an extended period.
There are a number of additional clauses within the CCDC documents that govern how the contractor, consultant and owner must deal with such an event. These should also be reviewed if a party is looking to use such an event to change the timing and/or costing under the agreement.
Outside of Standard Form Construction Contracts
Outside of the standard form documents, parties are generally free to add terms dealing with how the parties handle force majeure events. Those terms will dictate what behaviour is appropriate and/or required under the contract. Note that without a force majeure clause (or potentially with an ambiguous clause), the courts will often seat the risk of non-performance with the contractor if the event is foreseeable, and alternatively with the owner if the event is seen as unforeseeable.
A pro-contractor clause could allow for additional costs to be billed, allow extensions of the contract time (as above), or even allow the contractor to terminate the agreement in the event of a prolonged delay.
Alternatively, a pro-owner clause could limit the additional amounts to be billed, allow them to strictly enforce the timelines, or even allow them to terminate the agreement if the event is having a negative impact upon their business or the project itself.
The parties can also negotiate which events would constitute a force majeure event, such as acts of God, wars, epidemics, quarantines, strikes, labour shortages, material shortages and government actions. Other items that are open to negotiation include the types of notice required to be given should such an event occur, and the parties’ obligations with respect to mitigation of the impact of such events.
Reviewing Contracts & Learning from COVID-19
Although many parties may not have looked too closely at these clauses within their contract at the time they entered into the agreement, now is likely a good time to review them. They can have a major impact on if, and how, the parties proceed on any particular project in these tumultuous times. Now that we are all seeing the impact of the COVID-19 pandemic on construction projects, it may also be time to seek legal advice on how best to include these clauses in contracts moving forward.
Do you still have questions? Contact our Construction Lawyers for more information about handling changes in construction.The information provided above is for educational purposes only. This information is not intended to replace the advice of a lawyer or address specific situations. Your personal situation should be discussed with a lawyer. If you have any questions or concerns, contact a legal professional.