On June 25, 2020, Clark Wilson LLP delivered a webinar discussing some of the impacts of COVID-19 on construction projects in BC. A link to the webinar can be found here. Part of the webinar focused on delay claims and related issues of COVID-19 in construction contracts, in this article we expand on those topics.
It is clear that COVID-19 has, and will continue to have, an impact on the construction industry and specifically on the performance of construction contracts including by causing delays whether through disruption to the material supply chain, labour force, or access to work sites.
Common Law Doctrine of Frustration
Generally, when a delay event occurs, each party should look to their contract to determine any available remedies, and what actions may be required in order to realize on those remedies. However, not every contract will include provisions that deal with delays or the process to be followed when unforeseen circumstances cause delays or make performance of the contract impossible. Where the contract is silent, the common law doctrine of frustration may apply.
The doctrine of frustration will apply where there is an intervening event that the parties did not foresee, and therefore made no provision for in their contract, and that makes the performance of the contract “radically different” from what was agreed. Parties seeking to rely on the doctrine of frustration should be aware that there is a high bar to meet before the doctrine will be applied. The doctrine or frustration will only apply where the circumstances of the contract are so drastically changed that the performance of the contract becomes fundamentally different than what the parties agreed to – not whether performance of the contract becomes more difficult or expensive to perform. This is a difficult test to meet in the construction context as a common consequence of an unforeseen circumstance will be extra work or extra costs both of which are consequences typically addressed in the contract.
Parties should also consider if their contract includes a force majeure clause. Force majeure clauses suspend the parties’ contractual obligations when a specified event, beyond the control of either party, prevents a party from performing the contract. Any force majeure provision should be carefully reviewed to determine if any of the specified events include a COVID-19 related delay. Typically, force majeure clauses will provide extensions of time in the event of a specified delay, as well as termination rights if the force majeure event continues. Such provisions will likely include notice requirements that must be adhered to before a party can rely on any right or remedy specified by available force majeure clause.
CCDC Contracts and Delays
It is likely that your construction contract will also contain provisions addressing delays. Provisions addressing delays have, for example, been incorporated into the CCDC form of contracts, which are commonly used in the construction industry. A review of the standard form CCDC contracts indicates some general trends in how the general conditions (GCs) in these contracts address delays, notably with either extension of contract time or money. For example, CCDC -2 2008 Stipulated Price Contract deals with delays at GC 6.5 – Delays as follows:
- GC 6.5.1: delays caused by the owner or its consultant will provide the contractor with extra contract time and money in respect of the delay (as recommended by the consultant);
- GC 6.5.2: delays caused by a stop work order will provide the contractor with extra contract time and money in respect of the delay (so long as the stop work order was not issued as a result of an action taken by the contractor); and
- GC 6.5.3: delays caused by an act beyond the control of the contractor will provide the contractor with extra contract time in respect of the delay, but not money (unless the delay is caused by an action of the owner or the consultant in which case the contractor will also be entitled to money).
Although GC 6.5 provides for extra contract time, and in some cases extra money, contractors should be aware that they must follow the specified notice provisions set out in GC 6.5.4. Pursuant to this general term, a contractor must give notice of an event of delay within ten working days of the commencement of the delay. If no notice is given, no extra time shall be provided.
Even where a contractor has provided notice of an event of delay or submitted a claim for change in contract price, the alleged event causing delay or the increase in contract price should be carefully considered. For example, it is unlikely that any order issued by the B.C. Public Health Officer providing guidance and instructions with respect to health and safety measures to be followed during the COVID-19 pandemic are “stop work orders” as contemplated by GC 6.5.2. Although some orders made by the B.C. Public Health Officer may make performance of the contract more costly or take longer time, B.C. has not taken any global steps to shut down construction sites. In fact, the B.C. Government has stated on numerous occasions at the beginning of the COVID-19 pandemic that construction in B.C. should continue as an essential service. Further, the orders made by the B.C. Public Health Officer have been phrased as “guidelines” not legislative or statutory changes.
Parties should also be aware that the standard CCDC provisions are often revised by supplementary conditions. Parties faced with a delay event should carefully review their specific contract in order to confirm how their delay event will be addressed.
In this regard, supplementary conditions often make express provisions for the duty to mitigate in the face of delays, the obligation to provide documentation and information to support delay claims and provisions dealing with slack in the schedule that must be “used” first before any extension of time is granted.
Addressing COVID-19 in Construction Contracts Going Forward
Going forward, there are four general options that parties should consider taking to address risks of delays and disruptions caused by COVID-19. For example,
- Leave the standard CCDC (or your standard form contract) “as is”, meaning that the in certain circumstances, the contractor will, if it follows the required notice provisions, be able to apply for extension of contract time, or money, or both;
- Amend the provisions of your contract so that the contractor will receive extensions of time but no extra costs for COVID-19 delays or disruptions;
- Amend the provisions of your contract so that the contractor will receive extra cost, but no extension of time for COVID-19 delays or disruptions; or
- Amend the provisions of your contract so that the contractor will receive extra costs and an extension of time for COVID-19 delays or disruptions.
These options should be considered in the context of the specific contract and type of construction project. For example, there may be certain COVID-19 related delays or events where the parties feel it is appropriate to award both extra time and money, but not all. In this regard, considerations should be given to what types of risks in delays in completion and costs should be undertaken by the owner versus the contractor: labour issues of work processes and absenteeism, supply chain disruptions and personal protective equipment and materials.
We recommend that the parties dealing with COVID-19 issues and parties that are entering into contracts during the COVID-19 pandemic engage in clear communications around the risks facing the project and methods of remedies best suited to address those risks in the circumstances.