As concerns over Coronavirus increase, an inherent uncertainty over the future has forced some industries to a standstill. To make matters more precarious, China, the epicenter of coronavirus, is a particularly important supplier of building materials. As a result, many construction projects have been delayed by the precautionary measures China, and much of the world, has taken. Developers, builders, contractors and others in the real estate industry might wonder what effect this global slowdown will have on their construction contracts. This article explains how coronavirus factors into your contracts, why delays are occurring, and the remedies that exist.
Coronavirus has affected factories and transportation. Because workers around the world are being quarantined, companies are simply not producing at the same rate that they were six months ago. To compound the problem, companies that produce cargo are having difficulties shipping internationally. The American Association of Port Authorities has reported, “Due to the coronavirus outbreak, cargo volumes at U.S. ports might be down by 20 percent or more on a year-on-year basis compared to 2019.” When supplies do not arrive at their intended times, delays can arise on construction sites. “Time is money” and delays can be extremely costly to builders.
Who bears the risk of these costly delays?
The simple answer: Read the contract!
Contracts allocate risks and compensate for losses. A well written construction contract will discuss the event of delivery delays and which party, if any, should bear the loss.
If the contract does not discuss “delays due to pandemics,” do not worry (in fact, most contracts do not expressly identify global pandemics). A well-written contract will discuss “unforeseeable risks” or a “force majeure.” Also known as “Acts of God,” a force majeure is an example of an unforeseeable risk that could not be anticipated while writing the contract. Other examples of force majeures are 100-year storms, acts of terrorism, hurricanes and other typically unfortunate events. It’s important to note that not all storms are unforeseeable. In fact, many contracts typically provide for weather delays. For example, rain during monsoon season is not exactly unforeseeable. A global virus, such as Coronavirus, is a force majeure and not foreseeable.
A force majeure results in an “excusable delay,” as opposed to an “inexcusable delay.” While it depends on the contract, the usual distinction is determined by contractor control. Typically, something outside the contractor’s control that results in delays is excusable and results in extension of time. Coronavirus is not within anyone’s control and is most likely excusable unless the contract states otherwise.
Beyond time, a contractor might be entitled to monetary compensation. If the contract has a “no damage for delay” provision, then the owner and contractor have agreed that the contractor will not be paid in the event of delays. Other compensation-limiting provisions might apply, so please, read your contract!
Contact a Real Estate and Construction Lawyer in Phoenix!
Whether you need your contract reviewed or you need your contract drafted, it’s important to have an experienced attorney that can predict you in the event of unforeseen circumstance. MacQueen & Gottlieb, PLC has extensive experience with contracts and construction law in Arizona. Our highly experienced team of Arizona real estate attorneys is prepared to help you defend your interests. Contact us today at 602-726-2229 to schedule an initial consultation or make an appointment online.