You’re a general contractor who signed an AIA form contract to perform certain specified work at a construction project. Then, the calendar turns to March 2020. A global pandemic rears its head and each day, the government puts more and more restrictions in place regarding your work. Then, the construction project that your company is working on gets shut down. Months later, once the construction industry is allowed to re-commence its work, your work is subject to new governmental restrictions and protocols which, in turn, increase both labor and material costs (such as costs for personal protective equipment and other new equipment to “monitor” potential outbreaks at a project).
These costs were clearly not anticipated when you signed your contract pre-pandemic. What do you do now? Since you signed an AIA form contract, look to the force majeure clause. Article 8.3.1 of the AIA form contract sets forth the force majeure provision which states “[i]f the Contractor is delayed at any time in the commencement or progress of the Work…..by labor disputes, fire, unusual delay in deliveries, unavoidable casualties or other causes beyond the Contractor’s control; or by delay authorized by the Owner; or by other causes that the Owner determines may justify delay, then the Contract Time shall be extended by Change Order for such reasonable time as the Owner may determine.” Such a claim must be made in accordance with Article 15 of the AIA form contract – which would allow for an extension of time to complete the project due to delay.
But, this clause is silent as to damages. Section 8.3.3 of the standard form contract does not state that an extension of time is the sole remedy for delays – it in fact states that the force majeure provision “does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents”.
However, if you want to submit a claim for damages due to COVID-19 related costs – any claim that is submitted must strictly comply with the terms of the AIA form contract which requires that any claim for “delay/disruption damages” must be submitted in detail with the nature, extent, and amount of the damages and must include all relevant documentation. Moreover, the claim for these damages must be submitted within the time period set forth in AIA Article 8 and AIA Article 15, which requires that claims must be initiated within ten days after the occurrence of the event giving rise to such claim or within ten days after the contractor first recognizes the condition, whichever is later. This provision is strictly enforced – a failure to give such notice in a timely fashion would constitute a waiver and release of any and all claims arising from such event and would be a waiver of any right to recovery for “delay/disruption” damages.
Under Section 3.2.4 of the AIA form contract, one would argue that they are entitled to damages for these items because “additional costs or time is involved because of clarifications or instructions”. Section 3.9.2.3 of the AIA form contract actually mandates the issuance of a change order as a result of increased costs and requires that the amount of the change order shall reflect (1) the difference between actual costs and the allowances under Section 3.9.2.1 and (2) changes in Contractor’s costs under Section 3.9.2.2.
Although Section 8.3 of the AIA form contract clearly allows for extensions of time as a result of COVID-19, it does not explicitly entitle a contractor to damages for delay, i.e., the increased costs incurred as a result of the delay, and thus, the contractor would be likely required to bear the costs during the delay period until the parties adjudicate a claim for delay damages.
But – what if you want to claim that you’re entitled to an equitable adjustment for the increased costs under your AIA form contract due to pandemic costs? In reviewing a claim for increased costs by a government contractor, the Civilian Board of Contract Appeals allowed an equitable adjustment of a contract price for increased “outbreak” costs in Valerie Lewis Janitorial v. Dep’t of Veterans Affairs, CBCA 4026, 2020 WL 2507940 (May 5, 2020). In that matter, the contractor was permitted damages for increased costs due to new and more stringent protocols which increased the time and resources needed to meet new requirements, for example, cleaning. The “more stringent “ protocols resulted in cost increases for labor—costs which were not originally contemplated at the time that the contract was made. One could argue that the AIA form contract allows for a claim for these increased COVID-19 costs due to the equitable adjustment doctrine in addition to the other provisions of the contract allowing for potential recovery.
However, as set forth above, one needs to strictly comply with the notice of claim provisions contained within the contract. A failure to strictly comply will bar the recovery of these costs – with you, as the contractor, bearing the increased costs due to these new protocols.
Please feel free to contact the attorneys of the Construction Group at Goetz Fitzpatrick LLP at 212.695.8100 to discuss any questions you may have regarding your commercial construction contract.
