Now is the time! Today! If you are currently in the process of negotiating or executing contracts, now is the time to ensure the contract protects your interest in light of this new world we enter into. The impacts associated with COVID-19 may have been realized by some parties, but not others. Regardless, the full extent of the COVID-19 impacts has likely been realized by no one — we are dealing with an unknown, prospective impact.
Will projects get suspended? Will they stop and start back up due to disinfecting? Will they slow down due to health concerns and preventative measures? Will there be unanticipated material lead times? Will current material lead times or material orders be delayed? Will material prices increase? Will there be a labor shortage and/or inefficiencies with the labor force? Will labor costs increase in order to address the preventative measures and anticipated inefficiencies?
These are some questions you may be asking, plus more. You are asking these questions because of the unknown factor associated with COVID-19 and any future health crisis. This is the reason now is the time — the time to ensure your contract best captures the risk of the unknown.
Here are considerations:
1. Force majeure wording. – This needs to be beefed up and tweaked to address COVID-19 and, potentially, other pandemics / health crisis. You need to have an understanding who is bearing the cost risk for a project being shut down (by the government or otherwise), suspended, or slowed-down due to this issue. Leaving it alone is a mistake. All contracts until this pandemic hit left it alone meaning no contract truly addressed the global pandemic we are all facing.
2. Additional safety and preventative health measures. – This needs to be factored in as the additional measures will add a cost to the project. The measures may also add a cost in that they will add certain inefficiencies into the project that need to be factored into the schedule and general conditions.
3. Material price escalations.- Could the cost of materials increase due to supply chain issues? It is certainly a possibility and should be considered. Further, it is likely that to avoid this issue, a party wants to accelerate the ordering of materials at today’s price, and there may be additional storage costs associated with doing this. Conversely, what if the price of materials skyrocket post-contract? This issue could break a party’s performance, profitability, and financial wherewithal to perform. A party may want to address protection from any uncertainty with material price escalations.
4. Material lead times and material delays.- If there are delays tied to COVID-19, how this being allocated? There could be a realistic delay in material deliveries that impacts the project’s schedule. The delay is not the ordering party’s fault but the result of impacts associated with the pandemic. Based on this concern, this may result in the discussion of material accelerations and the additional storage costs associated with doing this (also discussed above).
5. No-damage-for-delay.- A no-damage-for-delay provision is common. However, a party may want to deliberately carve-out from this issue delays associated with or tied to COVID-19 or any pandemic / health crisis. The carve-out language should be broad and include language “arising out of or relating to” COVID-19 or any pandemic / health crisis based on the uncertainty as to how impacts may be realized.
6. Contingencies.- Certain contracts, such as GMP contracts, contain a contingency. Parties may want to add a contingency in the contract for COVID-19 and pandemics / health crisis. A certain sum is built into the contract sum to address the unknown costs that could be incurred.
7. Dispute resolution.- Knowing that the onslaught of COVID-19 cases will start affecting the judicial system, parties may want to revisit their dispute resolution provisions to see how disputes can be more efficiently resolved. Parties may consider turning towards more specific arbitration provisions that modify standard contractual language. Since arbitration is a creature of contract, parties can essentially start negotiating the rules of arbitration within the parameters of the contract. Parties may demand pre-suit mediation provisions, executive settlement meetings, or partnering agreements as vehicles to efficiently resolve disputes and avoid delays or inefficiencies with the judicial system.
These are some talking points. There will be others based on the scope. I remain available to assist any party that wants to revisit their standard form contracts or needs help in drafting or negotiating contracts. A party should not rely on their same-ole contract forms. Also, a party should not rely on the same-ole negotiation as COVID-19 brought new issues to the table and highlighted the significance of other issues and contractual provisions.
Please contact David Adelstein at email@example.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.