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COVID-19: Delays May Affect Construction Project Schedules and Budgets

March 18, 2020

On March 16, Boston mayor Martin Walsh issued an order halting all construction projects in the city, citing concerns with worker safety and a need to slow the spread of COVID-19. While a similar order has not yet been issued in Connecticut, owners, contractors and lenders across the State are wondering how delays arising from the COVID-19 epidemic will affect project schedules and budgets. In short, it depends on your contract.

Section 8.3.1 of the standard American Institute of Architects A201 General Conditions of the Contract for Construction (“AIA General Conditions”) provides that a contractor delayed by “causes beyond the Contractor’s control” is entitled to an extension of the date for substantial completion of the work for a reasonable period of time (as determined by the Architect). Further, the contractor has the right under Section 14.1.1 of the AIA General Conditions to terminate the contract if the work is stopped for 30 consecutive days because a court, a public authority, or an act of government (such as a declaration of a national emergency) requires that all work be stopped.

Although the AIA contract documents are an industry standard, a substantial number of construction contracts are not based on, or vary from, the standard AIA contract documents. For example, some contracts have so-called "no damages for delay" clauses, which, most commonly, both provide that the contractor is prevented from recovering delay-related damages and limit the contractor’s remedy for delay to an extension of time to perform. Connecticut courts generally enforce these clauses, with four exceptions: (1) bad faith or active interference; (2) uncontemplated delays; (3) delays so extensive that they amount to an abandonment of the contract; and (4) delays resulting from a fundamental breach of the contract.

One might presume that delays following the COVID-19 outbreak would fall under the "uncontemplated delay" exception, thereby allowing the contractor to overcome a "no damages for delay" clause and, thus, to recover delay damages. The problem with this presumption is that the owner (or general contractor, in the case of a subcontract) under the contract is not the one causing the delay and, therefore, may not be found liable for the delay. Furthermore, a contract might contain other provisions that affect liability for delays. For example, a force majeure clause might discharge a party’s obligations in the event of uncontrollable delays or a notice provision may require the party seeking damages to put the other party on notice within a certain period of time after the event causing the delay as a precondition to the right to recover delay damages.

Ultimately, the rights and obligations of the parties will be largely governed by the terms of their contract. As always, it is important to read and understand your contract, particularly in the face of the rapidly changing circumstances that we are all experiencing. This alert is meant for general guidance, not an assessment of any particular circumstances. Please feel free to contact any member of our Construction Practice Group and we are happy to assist with any questions or particular problems you or your business may be experiencing.

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