How COVID-19 Impacts Construction Contracts

COVID-19 and Construction Contracts

How do labor and material supply chain disruptions resulting from the COVID-19 epidemic impact construction contracts? The answer depends on the language the contract, before damages can be found and a judgment rendered, all agreements obligate the parties to mitigate their damages, some allow for more time, others require substitutions. 

The first step in the analysis is to review all the relevant documents. This includes the construction contract but also construction loan agreements, guaranties, use permits and building permits which may have expiration dates and milestone obligations. In addition to the owner/contractor agreement, there are often subcontracts and purchase orders. If there are shortages of labor, materials or equipment, all parties should maintain detailed records that identify the source of such shortages, their impacts on construction progress and attempts to mitigate damages.
Builders risk insurance policies generally cover direct physical losses. Coverage is often expanded to cover business loss and even increased construction costs, but not damages stemming from epidemics and most include hard expiration dates. As a result, it is often owners, rather than contractors, bear the risk of increased costs, shortages and force majeure events, including pandemics.