Dispatch #51 - What’s at stake with COVID-19 contract language?

What’s at stake with COVID-19 contract language?

The answer is big dollars—in the form of project costs we’re forced to pay, but didn’t include in our cost estimates, due to project delays, cost increases, and health and safety protocols.

No one knows how much the coronavirus will impact a specific job, or every job. Uncertainty equates to risk. One way to manage risk is through effective contract language—both upstream (with customers) and downstream (with suppliers and subcontractors).

So where to start? In a recent CFMA Building Profits article, Michael McLin writes: “[Examine] contract language for force majeure clauses and/or language specific to ‘pandemics, quarantine, acts of God, etc.’”

What other COVID-19 clauses should we consider? I posed the question to Brian Trowbridge, a California construction attorney, and here’s what he said:

Consider your business and goals. Which specific, practical issues are you most concerned about?

·        To address a potential work stoppage, allow for reasonable delays caused by the Pandemic or virus, or allow for termination of further obligations if the delay lasts for a certain period of time (with or without a cost).

·        Allow for cost increases if the delay lasts for a certain amount of time.

·        As for liability related to Coronavirus infection, the law is far from settled but you can consider an "assumption of risk" notice and "waiver of liability" clause if you and your customer, subcontractor, etc., are voluntarily choosing to start a new project or continue one that has been on hold.

As always, each individual or business should consult with their lawyer to address their specific needs.

Two more points to consider:

• An allowance for additional mobilization costs on jobs that start/stop in response to workers testing positive for coronavirus;

• Remember to look at change orders, too, not just original contracts.

It’s a tough situation. If we all try to price 100% coverage on 100% of the risks, no new work will get signed. Instead, let’s negotiate contracts that fairly share the risk among all parties while defending ourselves against excessively self-interested parties trying to write one-way contracts. 

The contracts signed today will influence our financial health for months and years to come. The extra attention we give them today could end up paying enormous dividends down the road and in a very real way help keep us on track toward executing our business plan.

Need help with this or other financial matters faced by construction contractors? Let’s talk!

David Stern CFO makes every effort to provide useful and accurate information. This content, however, is not intended as a substitute for specific business-related financial advice. We disclaim all warranties and liabilities from its use.