Posts By: Gregory Cokinos

By Shelly Masters & Wes Hunnell

Two avenues for financial assistance under the March 27, 2020 CARES Act include: the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA) and the Federal Reserve’s Main Street Loan Facilities Program. Locally, the State of Texas is partnering with Goldman Sachs and LiftFund to provide $50 million in loans through the PPP to small businesses affected by COVID-19. Additional federal assistance remains available for small businesses under the existing Economic Injury Disaster Loan (EIDL). As of April 16th, the SBA is withholding accepting loan applications until further funding is appropriated from Congress.

Relief for a small business with 500 employees or less

The PPP provides financial support to small businesses equal to 2.5 times the borrower’s average monthly payroll costs up to $10 million. The loan can be forgiven if the funds are used for payroll costs, interests on mortgages, rent, and utilities so long as 75% of the forgiven amount was used for payroll. No collateral or personal guarantees are required. The loans are issued by eligible lenders such as U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies. Loan applications can be submitted through an approved lender or through the partnership with LiftFund at https://www.liftfund.com/covid-19-loan/.

PPP Eligibility

To qualify, a small business must have 500 employees or less. The employee number includes any affiliates under the SBA’s affiliate rules. The SBA waives affiliation requirements for hotels, food service industry, and other franchises, but limits those businesses to 500 employees per physical location. Additionally, the business must have been operational on February 15, 2020 and had employees it needed to pay. An eligible business also includes a 501(c)(3) non-profit organization (including faith-based organizations), 501(c)(19) veterans’ organization, sole proprietors, independent contractors, or self-employed persons. The business must be created or organized in the United States with significant operations in the United States and the majority of its employees in the United States.

Additional PPP Requirements

• The PPP applies to loans extended between February 15, 2020 to June 30, 2020.
• Proceeds must be used for payroll support. This includes employee salaries, sick leave, insurance premiums, mortgage, rent, and utility payments.
• Loans are subject to maximum interest rate of 1% and subject to deferment of 6 months.
• Loan size is capped at $10 million or 2.5 times the average monthly 2019 payroll costs.
• Borrower must complete a detailed certification to the lender.
• Individual employee compensation is capped at $100,000.

Additional PPP Considerations

• Affiliation rules apply to counting employees for determining eligibility.
• SBA waived the requirement to be “unable to obtain credit elsewhere.”
• Each borrower is limited to one PPP loan. It is still possible to take out a loan from the Main Street Facilities program.
• The program is “first-come, first-serve.”
• As of 15 April, the average payment speed has been 5 days.[1]

Economic Injury Disaster Loan

A traditional Economic Injury Disaster Loan (EIDL) remains available to small businesses. An EIDL offers up to $2 million in assistance at a 3.75% interest rate for small businesses and 2.75% interest rate for non-profits. Terms are determined on a case-by-case basis, but long-term repayments up to 30 years are possible. Due to the COVID-19 crisis, the SBA is providing up to $10,000 forgivable advances to the EIDL as emergency relief—the forgivable advance is essentially a grant that does not have to be repaid. As of 15 April, the average payment speed has been 23 days.[2]

Relief for mid-sized businesses with less than 10,000 employees or $2.5 billion in annual revenue

Two Main Street Loan Facilities programs are available: one for new loans (MSNLF) and one to expand existing loans (MSELF). To qualify, a business must have no more than 10,000 employees or less than $2.5 billion annual revenue in 2019. The minimum loan size is $1 million. The borrower must be a business that is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States.

Additional Requirements

• The program runs through September 30, 2020.
• Loans will have a 4-year maturity with principal and interest differed for 1 year.
• The maximum new loan amount is the lesser of $25 million or an amount when added to the borrower’s outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 earnings before interest, tax, depreciation and amortization (EBIDTA).
• The maximum expansion of an existing loan is the lesser of $150 million, 30% of borrower’s existing outstanding and committed but undrawn bank debt or an amount that when added to borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the borrower’s earnings before interest, tax, depreciation and amortization (EBIDTA).
• There is no prepayment penalty.
• Adjustable rate of the secured overnight financing rate (SOFR) plus 250-400 basis points.

Additional Considerations

• The MSELF and MSNLF can be used in conjunction with a PPP loan.
• Restrictions are placed on buybacks, dividends, and compensation.
• Borrower must commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the Eligible Borrower has first repaid the Eligible Loan in full.
• Borrower must make several attestations including:
  • it requires financing due to the exigent circumstances presented by the coronavirus disease 2019 (“COVID-19”) pandemic, and that, using the proceeds of the Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the eligible loan,
  • it meets the EBIDTA leverage conditions, and
  • it is eligible to participate in the Facility, including in light of the conflicts of interest prohibited by the CARES Act.

A look into the future of COVID-19

Vaccine Development

A vaccine or treatment for COVID-19 is one of the critical steps to a return to normalcy. As of April 9th, the Milken institute is tracking 79 different initiatives to develop a vaccine and 116 potential treatment studies underway.[3] The Coalition for Epidemic Preparedness Innovations (CEPI) is tracking 115 COVID-19 vaccines in development.[4] CEPI notes that nearly half of vaccine development is occurring in North America. With the race for a solution, many of the vaccines and treatments are already in clinical trials or are being used in hospitals for compassionate use. The first human trial vaccine began March 16th, while others are beginning soon.[5] However, according to recent news articles, most experts believe it will be at least 10-12 months before a vaccine is ready.

Stock Market

While the stock market has been volatile over the last couple of months, Goldman Sachs analysts suggest the market has passed through its low point and is on the road to recovery.

Local News

Governor Abbott is expected make an announcement today about the plan to gradually reopen the Texas economy. This will be a welcome relief for many businesses struggling with the COVID-19 fallout. As of the latest PPP report from the SBA, Texas businesses have the most approvals of any state and the construction industry accounts for the largest industry sector qualifying for approval.[6]

On April 13th, Governor Abbott announced the State of Texas is partnering with Goldman Sachs and LiftFund to provide $50 million in small business loans through the PPP.

LiftFund is a non-profit organization based in Texas to help small business owners with limited access to capital. To apply for a PPP loan through LiftFund, please visit https://www.liftfund.com.

Goldman Sachs is offering opportunities and access to capital in Texas through their small businesses program. The program provides access to capital, but also business education resources for owners and business support services. Business owners receive educational resources through partner institutions and one-on-one business advising. To apply for the Goldman Sachs program, visit https://10ksbapply.com.

Shelly D. Masters

[1] https://www.covidloantracker.com/
[2] https://www.covidloantracker.com/
[3] https://milkeninstitute.org/sites/default/files/2020-04/Covid19%20Tracker%20NEW4-9-20-2.pdf
[4] https://cepi.net/news_cepi/cepi-publishes-analysis-of-covid-19-vaccine-development-landscape/
[5] https://www.theguardian.com/world/2020/apr/15/coronavirus-vaccine-when-will-we-have-one-covid-19
[6] https://content.sba.gov/sites/default/files/2020-04/PPP%20Report%20SBA%204.14.20%20%20-%20%20Read-Only.pdf

A Cokinos|Young Informational Update

Following up on our recent bulletin focusing on force majeure and project delay, which may be found at https://www.cokinoslaw.com/covid-19-and-force-majuere/, this update provides more specific information regarding the treatment of force majeure clauses in Texas. Handling of these issues may vary in other jurisdictions, but most concepts are relatively common and should be in the minds of all construction industry participants as the novel coronavirus continues to threaten the stability and prosecution of construction projects worldwide.

The Need for Strong Contract Controls

At this point, it is clear the novel coronavirus outbreak will disrupt all sectors of the construction industry. Reports of slowdown in the industry are increasing across Texas and the rest of the country. What began as an emerging health crisis in a single country has developed into a worldwide pandemic, and construction professionals are now faced with the question of who will be responsible for the impacts caused by project delays, material and labor shortages, and potential spread of the new virus on construction projects around the country.

Construction contracts, at their core, are risk-shifting devices intended to address these kinds of questions. Texas, like all jurisdictions in the United States, recognizes the primacy of the right to contract and the wisdom of allowing commercial parties to apportion risk however they choose. Optimally, parties to a contract will use this ability to assign each particular risk to the party with the greatest ability to mitigate or protect against that risk. Doing so clearly and with sufficient detail decreases the odds of disputes arising between the parties and also decreases the risk of a court imposing its own assessment of the risk in litigation.

Shifting the Risk of Delay

As discussed in our force majeure bulletin, project delay is one of the primary concerns arising from the spread of COVID-19. In the construction industry, remaining on schedule is critical. There are few projects where timeliness of completion is not a material concern, and project owners may face substantial economic damage in the event their project is incomplete as of the date scheduled for completion. From the contractor’s perspective, both profits and availability of materials and labor can be dramatically impacted by unexpected delays the schedule and, perhaps more importantly, significant liability for delay damages can accrue—often in the form of liquidated damages.

The spread of the novel coronavirus poses a clear and immediate threat to timely completion of construction projects. As more and more states issue mandatory lockdown orders and local governments further restrict the operation of businesses, it is likely many projects will be forced to suspend work entirely. Liability associated with resulting delays will be determined by the strength of the parties’ contract. Specifically, does the contract account for unexpected delays and assign that risk to a particular party? If so, does the coronavirus pandemic meet the contract’s definition of an unexpected delay? The answers to these questions will play an integral role in allocating the cost and liability for the delay.

Because project delays are such a critical risk, most construction professionals will already be familiar with the concept of “force majeure.” Put simply, a force majeure clause excuses performance obligations, or extends time of performance, when an unforeseeable or uncontrollable event results in project delay. Most force majeure clauses define the specific types of events that will qualify as force majeure, though some contracts take a broader approach and utilize undefined, “catch-all” language. The most robust clauses often employ both approaches. The list of defined causes generally includes tornados, lightning, floods, fires, earthquakes, droughts, strikes, lockouts, riots, wars, explosions, sabotage, epidemics, and governmental acts.

Some force majeure clauses may not even use the term “force majeure.” Use of the term is not necessary, but almost all construction contracts incorporate the concept in some way. The American Institute of Architects’ “AIA A201 – General Conditions of the Contract for Construction,” for example, uses the following language:

“If the Contractor is delayed at any time in the commencement or progress of the Work by … an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor … by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions … or other causes beyond the Contractor’s control … then the Contract Time shall be extended for such reasonable time as the Architect may determine.”

Treatment of Force Majeure by Texas Courts

Force majeure clauses are valid and enforceable in Texas, and they are strictly construed by courts. In other words, if a given event qualifies as “force majeure” pursuant to the terms of the contract, the contractual language will control allocation of liability arising from that event. If there are uncertainties left by the contract language, some common law doctrines may operate to fill the gaps (as discussed below), but clearly defined contract language will reign supreme, and the courts will not re-rewrite the contract or interpret it in a manner inconsistent with the stated intent of the parties.

When a party raises a force majeure clause as a defense for non-performance of its obligations under the contract, that party bears the burden of proof to establish the defense. If that party can prove the alleged uncontrollable circumstance meets the definition of force majeure set forth in the contract, non-performance will be excused, generally for as long as the circumstances affecting performance continue. Importantly, the claimed force majeure event must be the actual cause of the party’s non-performance. If, for example, it was unlikely the party could have timely performed, even if the event had not occurred, the force majeure defense will be weakened and likely unsuccessful.

Is a Pandemic a Force Majeure Event?

Unfortunately, there is not extensive published case law in Texas, or the United States, involving disease outbreaks. For that reason, the question of whether a particular disease outbreak constitutes a force majeure event will turn on the language used in the contract at issue. While most contracts in force when COVID-19 became a worldwide concern are likely to include some variety of force majeure language, clauses specifically mentioning epidemics and/or pandemics will offer the best protection. Texas courts strictly construe force majeure provisions, so they may be less inclined to grant relief where the force majeure provision uses vague language and does not specifically reference the cause of the delay or non-performance.

The most compelling claim of force majeure caused by the Coronavirus outbreak will be found in construction contracts that specifically identify “disease,” “epidemic,” or “pandemic” in the definition of a force majeure event. If the parties unambiguously allocate the risk of the specified event, there will be no room for a court to inquire into the foreseeability of the event. The following excerpt is a good example:

“As used herein, “Force Majeure Event” includes, but is not limited to, acts of government, acts of God, war, rebellion, strikes or lockouts, epidemics or health crises, landslides, lightning, earthquakes, fires, named tropical storms…”

Though less preferred, more general language may also be sufficient to encompass the current pandemic, especially due to the fact the “unforeseeability” of the event—at least with respect to contracts executed prior to January 2020—is difficult to argue. These more general clauses may include events arising from “acts of God,” “any other unforeseen event,” or “any other cause beyond the affected party’s control.” Moreover, if the quarantines, travel restrictions, and lockdowns put into place by government authorities render a party unable to perform, they may also constitute an “act of government” excusing performance.

Contracting parties should keep in mind, however, reliance on generic or vague provisions increases the likelihood a court will impose additional considerations when interpreting the clause. Furthermore, now that spread of the novel coronavirus, and its probable impact on the construction industry, is widely known, diligent professionals will include very specific language in their force majeure provisions to address unquantifiable risks from a known threat. For example, the prior excerpt could be strengthened further:

 “As used herein, “Force Majeure Event” includes, but is not limited to, acts of government, acts of God, war, rebellion, strikes or lockouts, epidemics or health crises (whether arising from known or unknown pathogens), landslides, lightning, earthquakes, fires, named tropical storms…”

There is also nothing stopping contracting parties from specifically mentioning the novel coronavirus or COVID-19 and identifying it as a circumstance qualifying as “force majeure.”

What if my Contract Doesn’t Mention Epidemics or Pandemics?

When the precise wording of a force majeure clause does not include the specific circumstance being invoked as force majeure, Texas courts will look to the more general language used and impose additional restrictions. As noted above, many contracts include catch-all provisions like “any other event outside of a party’s control” or “any unforeseen event.” This type of language may be sufficient and will be considered by the court, but the party asserting force majeure should expect additional hurdles in proving up its defense.

One additional restriction imposed by Texas courts is the requirement that the excusable event or circumstance be unforeseeable at the time the contract was executed. This foreseeability requirement generally applies only when the event or circumstance is not specifically listed in the force majeure clause, and the party asserting force majeure is relying on a generic or general catch-all clause to excuse performance. It can be a high burden of proof to meet, because the foreseeability test is typically applied in hindsight and Texas courts are not consistent in its application. A finding that a certain event was “unforeseeable” will depend entirely upon the circumstances and the predilections of the court, so it is a test best avoided.

Another potential hurdle imposed by some courts in Texas is a requirement that the event of force majeure be beyond the reasonable control of the non-performing party. Similar to the “unforeseeability” test, this requirement imposes a burden of proof upon the non-performing party to show the claimed force majeure was outside of its reasonable control in order to obtain any relief from performance. Texas courts are again inconsistent in application of this doctrine, so the impact will vary by jurisdiction, but the exact wording of a contractor’s force majeure clause could make a difference in whether this additional requirement is imposed.

Fortunately, for contracts already executed and in place at the start of this year, it seems highly unlikely any court would view the novel coronavirus outbreak as a foreseeable event at the time of contracting, or within the control of any party. For contracts executed from mid-February 2020 forward, however, courts will be much more likely to view a pandemic or epidemic as foreseeable, and potentially more likely to find the effects of the pandemic subject to control or mitigation, further emphasizing the importance of language explicitly including such events in future contracts.

What Should I Look for in a Force Majeure Clause?

Cokinos|Young stands ready to assist you in all of your contracting needs, but the following rough guidelines are helpful when analyzing contractual force majeure language and assessing risk. First, consider the standard components of a thorough force majeure clause and ensure each component is present and agreeable: 1) list of events qualifying as “force majeure;” 2) excusal of affected party from performance; 3) affected party’s obligations during force majeure event, if any; 4) the other party’s remedies during force majeure event, if any. Next, consider the following questions and how they can best be addressed:

• Does the contract specifically reference delays caused by disease, outbreak of disease, epidemic, or pandemic?
• Does the contract instead rely on a more general, catch-all provision?
• If the language is more general in nature, what does the contract say about foreseeability?
• Is a party affected by force majeure entitled to an equitable adjustment of the contract time?
• Is a party affected by force majeure entitled to an equitable adjustment of the contract price?
• What notice or mitigation requirements are included in the clause?
• At what point does a force majeure event entitle a party to terminate the contract?

As noted above, some force majeure clauses will include notice and mitigation requirements, and Texas courts have historically strictly enforced such requirements—failure to give timely notice or properly mitigate the impacts of a force majeure event may bar the impacted party from seeking relief. For this reason, it is important to review force majeure and delay language in existing contracts to be aware of all obligations and ensure strict compliance.

What if my Contract has no Force Majeure Language?

Most modern construction contracts include some form of force majeure or excusable delay clause, but there is always the possibility of a contract without such necessary risk controls—whether due to oversight or the result of aggressive negotiation. Fortunately, in addition to contractual force majeure clauses, there are also common law doctrines that may excuse a party from performance in the event of unforeseen events. By “common law,” we refer to the law imposed by courts absent a contractual agreement to the contrary, and the relevant doctrines include impossibility of performance and commercial impracticability.

Although most helpful when no contract language exists for protection, in most jurisdictions a party may assert both a force majeure clause and one of these common law doctrines as a defense for delayed or frustrated performance. Under these doctrines, a court may relieve a party from performance under the contract if changed conditions have made performance under the contract impossible or extremely burdensome and unreasonable. Texas courts have referred to the doctrines of impossibility of performance, commercial impracticability, and frustration of purpose individually, but there is no functional distinction between the doctrines.

The doctrine of impossibility of performance was first recognized by courts centuries ago. Traditionally, this doctrine only excused performance in extreme cases. In other words, this doctrine only excused a party’s performance when the unanticipated event made the performance objectively impossible. Wary of the harsh application of the doctrine, most courts moved towards a standard of commercial impracticability.

While there is no definition of the term “impracticable,” Texas courts have typically applied the doctrine in circumstances where, after a contract is made, a party’s performance is made impracticable without fault of the party, by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made. Essentially, the event must have been unforeseeable to the parties at the time of contracting, and the idea that nothing like the event would ever occur was assumed by the parties when they agreed to the terms of the contract. While this standard is more forgiving in its application than absolute impossibility of performance, it is very narrowly construed by Texas courts. While most courts would likely view the novel coronavirus outbreak as unforeseeable to the parties at the time of contracting, rendering performance impossible or impracticable, it would be prudent moving forward for both parties negotiating contracts to include force majeure provisions expressly addressing the subjects of “pandemics,” “epidemics,” or “quarantines” to ensure adequate protection.

We’re Here to Help

Our attorneys are experienced in identifying and analyzing contractual obligations that will be of crucial importance in the weeks and months ahead. We can also assist in negotiating and drafting contract provisions to protect your business and your employees in this uncertain time. This includes not only delay and force majeure provisions, but also other major areas of potential liability such as indemnity and insurance. Please contact us if you have any questions or need assistance.

The Institute for Health Metrics and Evaluation (“IHME”) predicts that COVID-19 infections and hospitalizations will peak in Texas on April 29, 2020.  Cities[1] and counties such as Harris County, Bexar County, Travis County, and Dallas County are monitoring construction sites and increasing job site safety mandates and plaintiff lawyers are advertising for injury or illness for the construction workforce.  We value your trust in our services and advice and strive to ensure we keep you informed of evolving risks, as outlined below.  Risks will vary based on fact-specific circumstances that our Firm can address, tailored to your business needs.

In the next two weeks, experts predict that COVID-19 infections and impacts on workforce, labor, and supplies will increase.  Your best strategy is to prepare and formulate your document and contingency plan today.  Affecting employment and labor, we anticipate an increase in OSHA complaints or violations, negligence lawsuits, and wrongful death claims from employees or others allegedly infected through construction work.  Many contracts contain broad form indemnity for bodily injury, illness, or death as permitted under the Texas Insurance Code, Chapter 151.  Failure to adhere to government orders relating to safety could be viewed as more intentional acts that negate coverage under a commercial general liability policy.  The law is evolving on how insurance companies will administer COVID-19 claims.  It is vital for your business to stay ahead of these issues to avoid and reduce exposure in a post-pandemic world.

Steps To Protect Against COVID-Related Employee Safety Lawsuits

If an employee contracts COVID-19, employers may face actions or claims for liability alleging that the employee contracted the virus in the workplace due to the employer’s failure to maintain a safe work environment.  These actions may take a number of forms, including enforcement actions by OSHA, claims for workers’ compensation, or civil actions for negligence.  In one recent example, the estate of a former Walmart employee brought wrongful death lawsuit against the after the employee died from COVID-19 complications.

To proactively position themselves to endure potential legal risks, employers that can demonstrate that they acted in good faith to reduce the risk of transmission and protect workers’ health will be best positioned.  Companies should make sure they are following applicable health guidance, abiding by relevant laws and orders, and taking steps to enhance workplace safety and address related employee concerns.  For instance, employers should emphasize respiratory etiquette and hand hygiene by disseminating posters informing employees to stay home if sick and cough and sneeze etiquette, and hand hygiene.  Employers should follow OSHA’s Guidance on Preparing Workplaces for COVID-19 and keep abreast of updates to OSHA and CDC guidance for businesses.

OSHA Compliance

An employer’s duty of care is controlled by the general duty of care established by the Occupational Safety and Health (OSH) Act, which requires employers to provide a safe and healthy workplace for all employees.  OSHA requires companies to provide employees with a workplace “free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.”  Violations of OSHA, including this “general duty” clause, are subject to enforcement actions and civil penalties, including additional fines for willful or repeated violations. Willful violations resulting in death can also give rise to criminal liability.

OSHA recently created the OSHA COVID Portal, publishing several coronavirus related resources for employers, which can be found here:  https://www.osha.gov/SLTC/covid-19/   The COVID Portal includes a link to applicable OSHA standards.

OSHA has provided several easy to use resources for employers to comply with the general duty clause:

1. Ten Steps All Workplaces Can Take to Reduce Risk of Exposure to Coronavirus
2. Guidance on Preparing Workplaces for COVID-19
3. Preventing Worker Exposure to Coronavirus
4. One-sheet summary regarding  Worker Exposure Risk to COVID-19 

Employers should also follow Enforcement Guidance for Recording Cases of Coronavirus Disease 2019 (COVID-19) for work-related cases of coronavirus.  Under this guidance, employers with notice of several cases developing among workers who work closely together without an alternative explanation will likely need to report the illness on their OSHA 300 log.

Follow CDC Guidance

The Center for Disease Control continues to update guidelines Safety Practices for Critical Infrastructure Workers Who May Have Had Exposure for when an essential employer should permit a critical infrastructure employee to return to work after a coronavirus exposure (defined as a household contact or having close contact within 6 feet of an individual with confirmed or suspected coronavirus for up to 48 hours before the individual became symptomatic).

The CDC currently recommends that an asymptomatic employee can return to work as long as they are asymptomatic, and follow the following steps:

• Employers should measure the employee’s temperature and assess symptoms prior to them starting work. Ideally, temperature checks should happen before the individual enters the facility.
• Employees should self-monitor under the supervision of their employer’s occupational health program.
• The employee should wear a face mask at all times while in the workplace for 14 days after last exposure. Employers can issue facemasks or can approve employees’ supplied cloth face coverings in the event of shortages.
• The employee should maintain six feet and practice social distancing as work duties permit in the workplace.
• Clean and disinfect all areas such as offices, bathrooms, common areas, shared electronic equipment routinely.

Additionally, the CDC reminds employers to immediately send home any employee who becomes sick during the workday.  In those instances,  workspace surfaces should be cleaned and disinfected before allowing employees in that space.  Contact tracing of people that the sick employee came in contact (within six feet) during the time the employee had symptoms and two days prior, it also recommended.

Steps to Protect Your Business From Negative COVID-Related Impacts

In addition to employee safety, the long term viability of your business success can hinge on your plans for COVID impacts.

Contract Review and Notices

Supply chains are impacted and lack of a workforce may lead to increases in owner claims, terminations for convenience, or force majeure.  Review Project contracts for language that may alleviate costs and time to respond to Owner delays, government impacts, or illness interruptions.

Whether the Project is negotiated on the AIA forms, or a private form, contracts may contain remedies that require notice within certain time frames.  Failure to timely submit a claim can result in the waiver of certain rights and remedies.  Force majeure clauses are generally a time only extension.  For Projects experiencing delays with increased safety monitoring, supply chain deliveries, or manpower reductions, a thorough review of the Project contract could reveal a claim for increased time and costs.  Notices should be sent to all contracting parties (including the architect if under an AIA form) to document delays, disruptions, or increased safety compliance costs as permitted under the contract.  When disputes arise, parties must look to efforts to mitigate damages.  Often times, the duty to mitigate is expressly mentioned in the contractual relationship.

Following the Law

We are already seeing the issuance of warnings and citations by local law enforcement for failure to adhere to local mandates. Such citations may be a default of your contract and grounds for termination. Appropriate responses for addressing local law enforcement, Texas Department of Public Safety officers, or other government personnel vested with authority to enforce COVID-19 restrictions on projects should be considered.   At all times, best practice is to comply with the requests of government directives.

Protect Your Employees and Your Company

Document safety on the Daily Job Report with links of photo images, test or health inspection reports, sanitization, and other enhanced cleaning processes, and other COVID-19 and OSHA guided health safety processes.  Project files and software should maintain a COVID-19 response folder with daily updates to include city or county orders, compliance with such orders and any entity-directed change to such orders, through written or photographic evidence, and CDC and OSHA guidance. Many software sites are offering free software additions tailored to COVID-19.  Written and published protocols for deliveries to jobsites, employee health status, and disclosure of COVID-19 infections should be circulated to those entering the work site daily.  As regulations change, be prepared to update any protocols accordingly.  If third parties are conducting testing, ensure timely disclosure of any health issues to comply with possible contract notice requirements and government regulations.  Each of these steps can be evidence of best efforts to mitigate damage claims by various entities.

Explore whether you can establish policies and practices, such as flexible worksites (e.g., telecommuting) and flexible work hours (e.g., staggered shifts), to increase the physical distance between employees, as well as between employees and third parties if authorities recommend the use of social distancing strategies.  Likewise, you should review human resources policies to make sure that policies and practices are consistent with public health recommendations and are consistent with existing state and federal workplace laws, including newly implemented Families First Coronavirus Response Act (visit the Department of Labor’s and the Equal Employment Opportunity Commission for updated opinions on employer responsibilities).

Hiring a Third Party to Administer Health Checks

Ensure the contract language suits Project-specific needs and protects your company if the third party makes an error in reporting or sharing employee health information.  Testing irregularities occur and can adversely impact or shutdown operations at the Project.  Cleaning and sanitizing the Project can be costly.  At the same time, most contracts require notification of a safety threat to the Project.  Again, each contract can alter the manner in which claims or costs can be recovered by owners, contractors, and subcontractors.

Project Cessation

If the Project is stopped, be prepared to ensure safety of the jobsite while the Project is closed.  Locked jobsites with security and monitoring should be implemented for any work stoppage.  Provide for fencing and protection of supplies and materials stockpiled at the jobsite. For prolonged periods of abandonment (infected job site, government delays), consider use of abandonment in your contract or ensure your insurance coverage does not lapse if you intend to continue the work.  Abandonment claims generally arise after 30 days of ceased work.

Project Solvency Concerns

During this time, the financial viability of owners, general contractors, subcontractors, and suppliers may change.  Many contracts provide for assurances of financial viability upon request.  Ensuring the payment stream through a request to verify financial resources is recommended.

We at Cokinos | Young can help you manage the uncertainties of COVID-19 to mitigate and avoid future legal exposure.

[1] City of Austin, COVID Supplemental Guidance relating to Construction Businesses.

Stephanie H. Cook

M. Wilson Stoker