Building Greater Knowledge of COVID-19 Impacts to the Construction Industry

This Alert summarizes key questions project participants are facing:

1. Is it permissible to continue an existing project or start a new construction project?
    
2. What steps can be taken to help reduce the risk of COVID-19 impacts to a project?
    
3. How can project participants protect themselves with respect to potential contract claims?

Is Construction an “Essential” Service?

Several states and municipalities have issued Executive Orders and regulations banning or heavily restricting all but “essential” services or businesses. As a result, the threshold issues are:

1. Whether construction is deemed an essential service in a specific jurisdiction, and
    
2. Whether all construction project types are considered essential, or only certain types of projects (e.g., transportation infrastructure; hospital and healthcare facilities; other public works; and public housing).

States and municipalities have reached different conclusions. For example, as of the date of this Alert:

• New York: New York currently takes a broad view. Governor Cuomo’s guidance regarding the scope of essential services under the “New York State on PAUSE” Executive Order (202.8), provides that construction, including, skilled trades such as electricians and plumbers, and “other related construction firms and professionals for essential infrastructure or for emergency repair and safety purposes,” fall within the “essential service” category. Industry trade associations sought direction from the Empire State Development Corporation, who advised, as of March 22, 2020, that the designation of “essentials services” applies to all construction.
   
• Washington, DC: As of March 24, 2020, Mayor Bowser ordered the closure of all non-essential businesses. The Order (2020-053) identifies “Construction and Building Trades” as an essential business. However, much like with New York and other jurisdictions, the breadth of “construction and building trades” activities that fall under the essential business category will likely need further clarification.
   
• California: Project participants continue to seek clarification in California. The State and various municipalities have applied different interpretations. Governor Newsom did not address construction in Executive Order N-33-20, issued on March 19, 2020. The California State Public Health Officer, however, issued a list on the State of California Government website, which designated “construction of critical or strategic infrastructure,” “construction material supplier[s],” and “Construction Workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects (including housing construction)” as “essential workforce.” Such designations potentially conflict with municipal city executive orders. As an example, San Francisco’s Order of the Health Officer No. C19-07 states that only public works construction and construction of housing (i.e., affordable housing or housing for individuals experiencing homelessness) are considered to be essential services.
   
• Massachusetts, Boston, Cambridge: On March 23, 2020, Governor Baker issued an emergency order that all non-essential businesses and organizations must close their workplaces to workers, customers, and the public. This Order deems construction an essential business, including construction workers “who support the construction, operation, inspection, and maintenance of construction sites and construction projects (including housing construction).” In contrast, the City of Boston shut down all regular construction activity, with the caveat that skeleton crews were permitted to remain on sites to ensure that safety and emergency work could take place, provided such work obtain approval by the City of Boston’s Inspectional Services Department. Cambridge’s March 18, 2020, Moratorium Order mirrored Boston’s shut down. Reconciliation of the state and city orders is still pending.
   

Two caveats to consider:

1. The scopes of the Executive Orders and regulations remain subject to change because we are in uncharted territory.
    
2. Industry trade associations continue to press for clarification regarding the scope of the “essential” services designation because many of the Executive Orders and regulations are not yet definitive. As a result, project participants must continue to actively monitor governments’ evolving application of this issue.

Reducing Risk by Maintaining Safe Project Sites

1.  Project Safety Plans

To reduce risks and impacts from COVID-19, project participants should assess the project’s safety plan, and institute best practices designed to minimize exposure to COVID-19.  The CDC, OSHA and some State health agencies have provided important guidance on how to maintain safe workspace. For example, all owners, developers, construction companies and design professionals performing work or providing services at project sites should implement the following practices and procedures, among others:

• Promote frequent and thorough hand washing, including by providing workers and worksite visitors with a place to wash their hands. If soap and running water are not immediately available, hand sanitizer containing at least 60% alcohol.
   
• Require workers to stay home if they are sick.
   
• Provide workers with closed receptacles for tissues and trash.
   
• Limit in-person meetings. 
   
• Practice social distancing at the work site; if and to the extent possible, re-sequence work or employ multiple shifts of workers to reduce jobsite congestion.
   
• Discourage workers from using other workers’ phones, desks, offices, or other work tools and equipment, when possible.
   
• Maintain routine cleaning and disinfecting of surfaces, equipment, and other elements of the work environment.

2.  Certifications of Safe Practices

Project participants should also consider demanding a COVID-19 certification from parties with whom it contracts to perform work and/or provide services at the construction site. Such certification should represent that the party’s policies and practices will include, at a minimum, guidelines regarding their establishment of safe practices, commitment to monitoring their employees’ adherence to those practices, and reporting exposures to COVID-19 that could impact the project site.

Potential Claims and Relevant Contract Provisions

Project participants should be prepared to mitigate and confront various claims and damages that may arise due to COVID-19. Delay claims and productivity impacts could arise due to labor shortages and inefficiencies with replacement workers, supply chain disruptions and/or market price escalation relating to materials and equipment. Relevant contract provisions and principles impacted by COVID-19 include:

• Scope of Force Majeure Provision – For existing contracts, will COVID-19 and the impacts therefrom be interpreted as included under a Force Majeure definition if “disease” or “epidemic” or “pandemic” is not expressly listed, by virtue of a “catch-all” clause such as “or other causes of delay beyond the reasonable control of [the performing party]”?  Courts from State to State interpret these provisions differently.
   
• Project Schedule/Delays – Should COVID-19 and the impacts therefrom excuse the performing party from providing work/services in accordance with the project schedule?
   
• Notice Requirements – Parties must comply with applicable notice requirements to protect claims.
   
• Suspension of the Project – Should the time in which an owner can suspend the project include government shutdowns due to COVID-19?
   
• Duty to Mitigate.  Project participants should also seek to mitigate claims and damages by not only implementing the safe worksite measures discussed above, but also seeking alternative sources of materials/equipment, and preparing for potential shutdowns by making safe rough openings and securing materials.
   
• Insurance Coverage.  Project participants should also check with their insurance brokers whether there is coverage for losses as a result of COVID-19 under the business interruption or contingent business interruption provisions of their all-risk insurance policy. It remains uncertain whether insurers will equate COVID-19 contamination to property damage or loss of use.

Conclusion

Ultimately, because of the many unknowns surrounding the impacts of
COVID-19 on the construction industry, raising the right questions and staying abreast of the ways to mitigate risk and damages may help to better situate each of the project participants. We will be providing further Alerts on how to handle these looming questions and issues through Arent Fox’s COVID-19 task force website. Monitoring the website is a great way to keep track of current developments as they arise.