Demolition Contractors’ Guide to COVID-19 Claims

April 12, 2022
By: Arthur N. Dore, Esq.

COVID-19 has disrupted and hindered essentially all trades over the last two years, and the demolition industry has been no different. Government-imposed quarantines and activity restrictions have affected costs in nearly every aspect of the industry. As such, cost impacts have been prevalent among demolition contractors.

This article will address preemptive measures that can provide relief in these unstable times and actions that should be taken to develop proper claims.

Best Practices

Nearly all demolition contracts require the contractor to give notice of potential delays and claims, with strict deadlines attached. Contractors must determine how to provide such proper notice and to who it must be sent. For instance, an email to the owner/general contractor (GC) noting the current issues may make the difference between recovering for delays and cost overruns and having a claim rejected.

Always note and track cost overruns and delays associated with COVID-19. This includes reduction of workforce due to mandatory self-isolation, delayed progress, cost increases because of enhanced health and safety precautions on-site, and material costs rising due to supply chain issues. It is a typical contractual requirement for the contractor to provide ongoing updates to the owner/GC after the contractor sends the original notice. As with the original notice requirements, the contractor may be prevented from receiving increased compensation if it does not provide necessary and timely updates.

If your project is being impacted by COVID-19 but you are unable to put a precise number on the costs or delays at the time, provide your owner/GC written notices that the project is suffering impacts that are not immediately quantifiable. If possible, have your estimator re-calculate the project under the new circumstances caused by COVID-19 so that you can provide the owner/GC specific numbers for days of delay and increased costs.

Contractual Remedies

Force majeure clauses can relieve the contractor from performing if specific listed events occur. If a force majeure event takes place, the contract typically requires the affected contractor to give notice to all other parties and then provides a process for determining the next steps with the project and the compensation the contractor may recover. Many contracts limit force majeure relief to schedule extensions without added compensation, so contractors must be aware of the type of relief to which they are entitled. For example, a force majeure clause that lists “epidemics” as a covered event may give a contractor the right to shut down the project if COVID-19 severely disrupts its performance. Moreover, when in the contracting phase, expressly defining a pandemic as a qualified force majeure event is wise and should be included.

At this time, it is not expected that a court interpreting the force majeure or delay clauses of any of the major standard contracts (AIA, EJCDC and ConsensusDocs) would rule that the COVID-19 pandemic does not qualify as a force majeure event. It is expected that most courts and arbitrators will likely conclude that the COVID-19 pandemic is a force majeure event under most contracts. Nonetheless, proper contract drafting is critical and can remove any doubt.

COVID-19 has and may continue to prompt governmental orders that lead to increases in project costs or inability to procure materials. As such, change in law provisions are important to review and inspect as well. These provisions allow for additional time, money or both, if there is a change to federal law, state law or an executive order during contract performance.

For contracts executed after the start of the pandemic, agreeing to a cost escalation clause should be considered by both parties, given that it protects the owner from unnecessary price contingencies in bids, while shielding the contractor from excessive risk due to extraordinary price shifts such as those that occurred recently with lumber, concrete and steel prices.

Noncontractual Remedies

If your contract does not contain the abovementioned clauses, there are other legal doctrines and strategies that can be utilized to attain relief.

First, the principles of “impossibility of performance” or “impracticability of performance” may provide a contractor the right to cease work on a job if performance becomes impossible or extremely burdensome, for reasons that could not have been contemplated by the performing party at the time the contract was signed. Currently, most state laws allow the doctrines to be invoked when performance is still physically possible but extremely burdensome on the party performing and completing the project is no longer commercially practicable.

Second, the doctrine of “frustration of purpose” can relieve a contractor of the duty to continue work if the entire purpose of the project has ceased to exist, so that the contractor’s ongoing performance is worthless to the owner/GC. One example of such an instance includes demolition of a structure to make way for a mixed-use development, but COVID-19 and related economic decline cause the development to be canceled. 

Third, some states’ laws recognize that unforeseen, unreasonable delays and disruptions to a project give a contractor the right to stop performance and recover its costs, even if the contract has a “no damages for delay” provision. For instance, if an owner/GC shuts down the project due to COVID-19-related issues, without any indication of when or if work will resume, the contractor may have a legal claim that the owner/GC abandoned the contract, which excuses the contractor from continuing work on the project. The same principle may apply if COVID-19 health and safety requirements greatly increase your project costs or seriously reduce your efficiency.  

Fourth, there are various other common law remedies that may apply, depending on the precise circumstances of each claim. For instance, the doctrine of mutual mistake could apply to undo a contract, which would then allow a court to award damages in the form of quantum meruit. Quantum meruit requires the owner to compensate the contractor for the value of the benefit provided. It could also be argued that there was no meeting of the minds between the parties, which is necessary to form a valid contract.

Finally, if the project is bonded, notice should be provided to your bonding company. Alerting your bonding company promptly will assist in potential future disputes. The bonding company may be able to get involved in the dispute and help push back on claims, using its own investigative resources. Additionally, if material prices continue to rise and lack of funds is disrupting a project, notice should be provided to the owner/GC as well, to explore how and if compensation and scheduling will be handled in a change order. Given the vast number of variables that may apply, contractors should consult with an experienced construction attorney prior to submitting a formal claim to ensure it is properly formulated.

Conclusion

COVID-19 has cast the demolition industry into an unfamiliar landscape. It is unknown how many more waves we may experience. Regardless, the best course of action for demolition contractors is to carefully review each project contract and try to work together with the other parties on the project. The contracts can include complicated clauses, with different notice requirements and covered events. As such, it could be very beneficial to have an attorney review your contract to evaluate whether the impacts you’re experiencing can support a claim, or if a contract you are contemplating is adequate in the current climate, as the pandemic continues to disrupt our business.