IS THE EVENT YOU ARE CLAIMING AS UNFORESEEABLE DELAY REALLY UNFORESEEABLE?

Posted on August 27, 2022August 27, 2022 by Edward Garber

Is the item or event you are claiming as an unforeseeable, excusable delay really unforeseeable? This is not a trick question.

Just because your construction contract identifies items or events that constitute unforeseeable, excusable delay does not mean those items can be used as a blanket excuse or crutch for the contractor. That would be unfair.

For instance, it is not uncommon for a construction contract to list as unforeseeable, excusable delay the following events or items: “(i) acts of God or of the public enemy, (ii) act of the Government in either its sovereign or contractual capacity, (iii) acts of another Contractor in the performance of a contract with the Government, (iv) fires, (v) floods, (vi) epidemics, (vii) quarantine restrictions, (viii) strikes, (ix) freight embargoes, (x) unusually severe weather, or (xi) delays of subcontractors or suppliers at any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and the subcontractors or suppliers.” See, e.g., F.A.R. 52.249-10(b)(1). While the itemization of excusable delay may be worded differently, the point is there may be a listing as to what items or events constitute excusable delay. An excusable delay would justify additional time and, potentially, compensation to the contractor.

The Civilian Board of Contract Appeals explained that a listing of items or events leading to unforeseeable, excusable delay is NOT intended to give the contractor free rein or a get-of-jail free card if the contractor encounters such delaying item or event:

Nevertheless, the mere fact that a delay is caused by a type of activity listed in the contract as generally excusable does not give the contractor carte blanche to rely upon such excuses. “The purpose of the proviso,” which is “to protect the contractor against the unexpected, and its grammatical sense both militate against holding that the listed events are always to be regarded as unforeseeable, no matter what the attendant circumstances are.” As the Supreme Court has explained, “[a] quarantine, or freight embargo, may have been in effect for many years as a permanent policy of the controlling government” and, if so, may not meet the definition of a cause “unforeseeable” at the time of contract award, even if quarantines and freight embargoes are listed in the contract as examples of possible excusable causes of delay.

Further, even if an unforeseeable cause of delay occurs, the contractor cannot sit back and fail to take reasonable steps in response to it — once such an unforeseeable event occurs, the contractor affected by it has an obligation to attempt to mitigate the resulting damage to the extent that it can. If the contractor fails to do so, it “may not recover those damages which could have been avoided by reasonable precautionary action on its part.”

Yates-Desbuild Joint Venture v. Department of State, CBCA 3350, 2017 WL 4296219 (CBCA 2017) (internal citations omitted).

Now, think about your construction contract. It may list similar items or events constituting delay. Perhaps it expands on this list and identifies COVID, the Russia-Ukraine war, or supply chain impacts. Similar to the reasoning above, “the mere fact that a delay is caused by a type of activity listed in the contract as generally excusable does not give the contractor carte blanche to rely upon such excuses.” Yates-Desbuild Joint Venture, supra. We know of the existence of COVID, the Russia-Ukraine war, and current supply chain impacts such that they are not unforeseeable. And, encountering such an item or event cannot be used to compensate for other delays as the contractor “cannot sit back and fail to take reasonable steps in response to it.” Yates-Desbuild Joint Venture, supra. The contractor still must mitigate the item or event it claims is causing excusable delay.

This serves as an example as to why you want clarity in your construction contract. If you are identifying an item or event as unforeseeable, make sure it truly is or specify the context in which the item or event constitutes excusable delay.

Please contact David Adelstein at dadelstein@gmail.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.

DOES THE RUSSIA UKRAINE WAR LEAD TO A CONSIDERATION IN YOUR CONSTRUCTION CONTRACTS?

Posted on March 26, 2022March 26, 2022 by Edward Garber

Material costs are still affecting the construction industry. Supply chain impacts too. The volatility started with COVID-19 (and, in certain cases, before with the imposition of tariffs) and has continued through present date.

But what about the war between Russia and Ukraine and the impact this has had or may have on the supply chain? I think the spillover from the war (with oil, gas, the energy sector, etc.), including the imposition of any sanctions, is not fully realized other than the concern exists in an economy that is already battling through material costs and supply chain disruptions.

How does this affect you?

It may not.

Or you may regularly enter into construction contracts in which you would be smart to address material costs and supply chain impacts. The reason being is that everything from a risk standpoint should begin with your construction contract. Not addressing an issue does not actually mitigate the risk. Confronting the issue does mitigate the risk because you are contractually addressing a concern and know where the other party stands relating to that concern so that business decisions can be made.

This does not mean the Russia and Ukraine war provides you a get-out-of-jail free card for every material cost or supply chain issue you deal with. It does not and should not. That would not be fair, right? What is currently affecting the construction industry should not be a basis to shield from accountability or causation. You still need to connect dots by tying a material cost escalation or supply chain impact to an actual event. The key is ALWAYS to understand how this will be dealt with in your construction contract and there are many ways to do so. Sure, the volatility of the market makes it difficult to predict any material cost in the near future and whether certain products will be impacted by supply chain disruptions. Recognizing the risk is the first step in trying to negotiate the allocation of that risk in your contract.

Remember, simply calling something a force majeure event post-contract does not actually make it so, particularly if you know about the event and the potential of the risk at the time of contract.

HOW ARE YOU DEALING WITH MATERIAL DELAYS / SUPPLY CHAIN IMPACTS?

Posted on May 8, 2021May 8, 2021 by Edward Garber

In a prior article I discussed a material escalation provision in your construction contract to account for the volatility of the material price market. While including such a provision may not have been much of a forethought before, it is now!

What about concerns with the actual supply chain that impacts the availability of and the lead time of materials? How are you addressing this concern in your construction contract?

The pandemic has raised awareness to this issue as certain material availability has been impacted by the pandemic. As a result, parties in construction have tried to forecast those materials where delivery issues may occur including those materials with longer than expected lead times. But equally important is how this issue is being addressed in your construction contract including how you want to negotiate this risk in future construction contracts.

Start with the force majeure provision. Does this force majeure provision address supply chain impacts? It may touch upon it but you may want more clarification dealing with delivery delays that impact a project’s schedule and identifying that this includes a supply chain impact attributable to a specific occurrence, such as the pandemic. Generally touching upon an issue is not the same as specifically addressing an issue for practical purposes to avoid any dispute down the road.

One way is to include or address certain supply chain impacts caused by the COVID-19 pandemic, any future pandemic, and other potential factors based on the current economic climate. If one thing COVID-19 taught us is that we need to fully address the risk of pandemics moving forward, both from a time standpoint and a cost standpoint. Another thing COVID-19 taught is to precisely word force majeure and other provisions so that parties are on the same page when it comes to a foreseeable risk.

The provision can be broad enough to include any supply chain impacts caused by the pandemic and any future pandemic and/or can include specificity based on certain materials that are known as of the date of the contract that have anticipated supply chain concerns and long lead times. While a contractor does its best to account for materials with long lead times, there are factors that can come into play associated with when that material is procured including the construction documents, the approval of shop drawings, deposits for fabricated items, transportation including where the material is being shipped from, and storage and staging issues. In other words, there are factors that can lead to delays in deliveries that simply occur regardless of the planning.

When preparing and negotiating your construction contract, consider the issues associated with material escalation and supply chain impacts.