COVID, Construction and Contracts

Submitted by hastihejazi on Fri, 01/14/2022 - 19:46
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{"version":"0.3.0","atoms":[],"cards":[],"markups":[["b"],["i"],["em"],["strong"]],"sections":[[1,"p",[[0,[],0,"January 14, 2022"]]],[1,"p",[[0,[],0,"Perhaps\nthe best word to describe the current construction environment is uncertain. While\nopportunities are high, several persistent and problematic conditions continue\nto pose significant threats to full recovery in 2022. Preparation will be\ncritical to success."]]],[1,"p",[[0,[],0,"Construction\ncosts are expected to keep rising through 2022 mainly due to insufficient\nmaterials and labor availability that will constrain the recovery at least\nthrough the first half of 2022. As of November, the 12-month producer price\nindex for steel mill products was up 141.6%, according to the U.S. Bureau of\nLabor Statistics. Steel pipe and tube, iron and steel scrap have also risen as\nhave concrete products and diesel fuels. "]]],[1,"p",[[0,[],0,"The\nuncertainty of the supply chain and continued pandemic consequences places owners\nand construction professionals in precarious positions when it comes to contractual\nobligations and dispute resolution. "]]],[1,"p",[[0,[],0,"Force\nmajeure clauses may not cover everything, particularly price increases, loss of\nprofitability associated with these conditions, or performance related to the\npandemic. This is a good time to refresh yourself on legal principles such as force\nmajeure, impossibility, and frustration of purpose during contractual\nnegotiations. "]]],[1,"p",[[0,[],0,"Here\u2019s\na quick summary of terms to refamiliarize yourself with - "]]],[1,"p",[[0,[],0,"\u00b7 \n"],[0,[0,1],2,"Force\nmajeure"],[0,[],0,": Force\nmajeure clauses absolve liability in the event of uncontrollable events (e.g.,\nwar, hurricanes, tornadoes) that are not the fault of any party, but make it difficult\nor impossible to fulfill the terms of a contract."]]],[1,"p",[[0,[],0,"\u00b7 \n"],[0,[0,1],2,"Impossibility\nor impracticability of purpose"],[0,[1],1,":"],[0,[],0," A common law doctrine that \u201callows\na party to suspend or avoid performance when a supervening event beyond its\ncontrol makes performance of the contract no longer capable of being\nperformed.\u201d Note: state law varies in the application of the principles. Common\nevents during the pandemic that might be considered as triggering events are\nprohibition or prevention by law and forced supply chain closures."]]],[1,"p",[[0,[],0,"\u00b7 \n"],[0,[0,1],2,"Frustration\nof purpose"],[0,[1],1,":"],[0,[],0," A frustration defense excuses a\nparty from breaching a contract when the contract has lost all value to one of\nthe parties. If the contract has lost all value, then the purpose of the\ncontract has been frustrated. The loss of value must be due to changes in circumstances\noutside the control of either party."]]],[1,"p",[[0,[],0,"Case-in-point is the 2021 Southern District of New York court\ndecision in the "],[0,[2],1,"Cai Rail, Inc., v. Badger Mining Corporation"],[0,[],0,",\n2021 WL 705880. When energy prices dropped at the outset of the pandemic, CAI\nRail used the frustration of purpose defense to cut leases because they weren\u2019t\nfinancially feasible. According to the court decision, \u201cit is . . . not enough\nthat the transaction has become less profitable for the affected party or even\nthat the affected party will sustain a loss.\u201d "]]],[1,"p",[[0,[],0,"AIA\ncontract forms address excusable delays. For instance, the AIA A201-2017\nGeneral Conditions, Section 8.3.1 includes broad terminology that provides\nseveral examples as the basis for time extensions for events outside the contractor\u2019s\ncontrol such as "],[0,[1],1,"unusual delay in deliveries"],[0,[],0," or "],[0,[1],1,"other causes beyond a\ncontractor\u2019s control"],[0,[],0,". "]]],[1,"p",[[0,[],0,"As\nstated above, this is a good time to refresh yourself on legal principles such\nas force majeure, impossibility and frustration of purpose during contractual\nnegotiations and contract execution to make sure you and your business are\ncovered."]]],[1,"p",[[0,[3,1],2,"AIA Contract Documents has provided this\narticle for general informational purposes only. The information provided is\nnot legal opinion or legal advice and does not create an attorney-client\nrelationship of any kind. This article is also not intended to provide guidance\nas to how project parties should interpret their specific contracts or resolve\ncontract disputes, as those decisions will need to be made in consultation with\nlegal counsel, insurance counsel, and other professionals, and based upon a\nmultitude of factors. "]]]]}
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