LEGALLY SPEAKING COVID-19 Contractual and Legal Considerations On March 6, Smith Currie first reported on emerging impacts related to the disease COVID-19 nationally. At that time, the U.S. had approximately 500 reported cases and was just beginning to hear rumblings of construction supply chain disruptions. The legal firm posted on its website that: While the outbreak in the U.S. has not reached the magnitude seen in China (greater than 80,000 cases), South Korea (6,000 cases) or Italy (3,000 cases), the U.S. has begun to feel the impacts of coronavirus on trade and resultant disruptions to supply chains, as many raw materials used in U.S. manufacturing and manufac- tured goods consumed in the U.S. originate from China and the other impacted countries. Furthermore, the U.S. is likely to suffer more direct impacts from coronavirus, as the Centers for Disease Control and Prevention (CDC) notes that “[it’s] likely that at some point, [a] wide- spread transmission of [coronavirus] in the United States will occur.” By early April, the number of reported cases in the U.S. had skyrocketed (245,601 as of the submission of this article) and 31 states and the District of Columbia are under statewide business closures and/or stay-at- home orders. While engineering and construction have largely been exempted from these business restrictions, the construction industry has nevertheless been substantially impacted. Furthermore, the forecast is for even greater spread of COVID-19 (caused by a virus called SARS- CoV-2) and for increased economic disruption in the U.S. and its trading partners. That will make it increasingly likely that COVID-19 will cause more substantial impacts to construction material supply chains, labor availability and construction projects in general. To prepare for, address and mitigate ongoing and near certain future impacts, contractors, subcontractors, material suppliers, owners, sureties and other construction project participants should analyze and consider contractual , insurance, statutory, regulatory and other legal protections and relief that may be available. Among these protections and relief that will be covered here are: • Paycheck Protection Program 7(a) Loans under the CARES Act • Contractual force majeure clauses and other provisions providing for excusable delays • Material escalation provisions • Suspension and termination for convenience clauses • Common law relief for impracticability or impossibility of performance • Contractual indemnification provisions • Commercial general liability and other insurance coverage options CARES Act – Title I – Keeping American Workers Paid and Employed Act Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act contains a small business loan program, the Paycheck Protection Program (PPP), designed to provide quick financing of payroll and overhead (rent, interest on mortgage payments and utilities) for businesses with less than 500 employees and existing SBA small businesses through June 30, 2020. These loans are eligible for forgiveness upon submission of documentation demonstrating that the loans were used for payroll costs, interest on a covered mortgage, rent and utilities. Force Majeure and Excusable Delays Modern construction contracts commonly contain provisions addressing risks of delays resulting from force majeure (translated from French as superior force). A force majeure clause excuses a party’s performance obligations when certain events or circum- While engineering and construction have largely been exempted from [statewide business closures and/or stay-at-home orders], the construction industry has nevertheless been substantially impacted. stances beyond that party’s control delay performance or make performance com- mercially impracticable, illegal, inadvisable or impossible. These clauses provide for time extensions for covered events, but typically do not provide for compensation for the delays and impacts caused by the events. Examples of force majeure events are war, riots, earthquakes, hurricanes, lightning, explosions, energy blackouts, unexpected legislation, lockouts, slow- downs and strikes. When invoking a force majeure clause, a contractor or sub- contractor should consider the following: • Does it cover epidemics/pandemics? While courts have generally held that epidemics are force majeure events, applicability may depend on fore- seeability of the epidemic. DEEP FOUNDATIONS • MAY/JUNE 2020 • 111 Brian S. Wood, Daniel F. McLennon, Partners, Smith Currie
