As the COVID-19/Coronavirus pandemic continues to impact our economy and everyday life, the construction boom Orlando was experiencing has been dramatically affected with major entities like Walt Disney World halting construction operations just last week, among others. As the news changes by the hour, with some local and state governments limiting or even closing commerce, potential impacts to ongoing projects loom heavily. On a daily basis, cities and counties in Florida are issuing orders limiting business operations. On March 24, 2020, Orange County issued a Stay-at-Home Order effective Thursday, March 26 at 11 p.m., for a two week period. While many businesses are shuttered, construction – which is so critical to our Central Florida economy – is deemed an “essential” business and, therefore, may continue to operate (although businesses are still encouraged to practice social distancing, such as keeping at least 6 feet apart and limiting group size to less than 10 people). Broward County has issued a similar order. Conversely, the City of Atlanta issued a stricter order that stops construction activities that are not deemed “essential,” which generally means most types of commercial construction (public works excepted).
Here are a few key issues of primary consideration for project owners and contractors as they navigate these uncertain and changing times.
- Government Executive Orders – State and local governments are issuing and updating Executive Orders (also referred to as "Stay Home Orders" or "Shelter in Place Orders,” or some variation) on a daily (and hourly) basis. Governors for the states of California, New York, New Jersey, Illinois, Michigan, and Connecticut have issued similar orders and we anticipate more states, or the federal government, may follow suit. Whether your construction project is considered an “essential” business and allowed to continue operating under such an order will depend on the type of project and the specific order. For example, states like California appear to have classified some construction as an “essential” business for the time being, whereas others may generally require construction work to cease operations. Some jurisdictions are distinguishing public and essential infrastructure, which is allowed to continue, from commercial and residential construction, which is not allowed to continue.
- Contract Documents – Almost every construction contract has a force majeure provision, one that allocates relief and risk among the parties in events such as natural disasters, war, terrorism, labor strikes, “other causes beyond the parties’ control,” and in some provisions, pandemics. Although force majeure provisions are no longer “boilerplate,” they generally provide for schedule extensions, and in some cases, extended general conditions costs. State-specific treatment and interpretation of force majeure clauses should also be considered, as this can vary greatly from state to state. Force majeure provisions must also be read in conjunction with other related provisions, such as terms for delay, suspension, and termination. For example, the standard AIA Document A201-2007 allows the contractor to terminate the contract if the work is stopped for 30 consecutive days because an act of government requires all work to be stopped through no fault of the contractor. Florida courts strictly construe these construction contract provisions, making timely compliance crucial.
- Funding and Loan Instruments – Rights, remedies, and consequences under all funding, grant, or loan instruments should also be evaluated before taking any affirmative action to suspend or terminate a contract. These types of funding instruments may place limitations or restrictions, or simply require the third-party’s approval, before any action is implemented to suspend or terminate a project. These funding agreements may also have limitations on what costs are covered, so it is essential to ensure that the agreements are coordinating, and if not, then to understand whether a cost impact under the construction agreement will require funding from another source.
- Insurance Policies – It is unlikely that standard coverage instruments for construction projects, even Builder’s Risk with loss of use provisions, provide coverage for pandemics. Most of these coverage instruments are triggered by actual physical loss or damage to the project. Nevertheless, owners and contractors should gather all coverage instruments for a coverage review by a skilled insurance professional. Timely notice to the carrier of any possible claim is highly recommended.
- Notice Requirements – Because Florida courts strictly construe construction contract provisions, timely compliance is critical. Accordingly, all parties to the contracts and instruments discussed above must strictly follow any notice requirements on issues ranging from knowledge of an impact, a project delay, or any requirement to suspend or stop work. Notices of impacts may already be coming this week, and any response and reaction needs to be evaluated in accordance with the requirements of the contract, the needs to the project and participants, and honoring any time requirements. Bear in mind that many construction instruments have specific and very short notice periods for notice and presentation of a claim, and failure to follow these explicit requirements could constitute a waiver by either party.
- Project Documentation – It is more important now than ever for all parties to maintain accurate, detailed, and up-to-date project records on a daily basis and document things like: (a) site and weather conditions; (b) manpower; (c) project schedule and any deviation to the schedule and impacts to the critical path; (d) project cost data; and, (e) anticipated or actual material or supply delays potentially due to COVID-19. These records will become critical in post-event circumstances, whether that be in claims settlement, litigation, or perhaps in justifying state or federal assistance.
- Safety and Security – As always, but especially in times of heightened concern, all parties need to put the safety and security of their laborers, workers, and the ongoing project (especially if the project is occupied or operational) first, in order to minimize risk of personal injury or property damage.
Available options, strategies, and remedies are fact-specific and time-dependent. Construction project owners and contractors should immediately prepare their ongoing construction projects now, if they have not already, to address a potential or actual “stay at home” order in their jurisdiction or, best case, to avoid or minimize schedule disruptions and cost implications.
Robert Alfert, Jr. is a partner in the Orlando office of Nelson Mullins Broad and Cassel. He is a Florida Bar Board Certified Attorney in Construction Law, and an experienced Construction Arbitrator. Lacey Corona is an attorney in the Orlando office of Nelson Mullins Broad and Cassel. They can be reached at Robert.Alfert@nelsonmullins.com or Lacey.Corona@nelsonmullins.com.