Analysis — Virus-Related Legal Issues – 7/15/20

Jul 15, 2020


RIVER EDGE, N.J. – With the heat of summer raging and the global pandemic spiking in some regions of the U.S., effects on construction law are coming into focus. Third Thursday sat down with Patrick J. Greene, Esq., senior partner, Peckar & Abramson, P.C., River Edge, N.J., to gauge the current climate, as well as get a feel for what may be in store.

Greene spoke last year at Construction Super Conference (CSC) in Palos Verdes, Calif., specifically on Use of the Termination for Convenience Clause. CSC is scheduled for Dec. 7-9, 2020 at the MGM Grand in Las Vegas.

 

Third Thursday: Are people being terminated for cause (or otherwise) as a result of the virus?
Patrick J. Greene: Generally speaking, we are not seeing a lot of terminations. Terminations for cause related to COVID-19 impacts would be unusual, as most contracts contain provisions that would extend time for performance because of the effects of a pandemic or government orders. In the absence of such provisions, legal doctrines such as impossibility of performance or frustration of purpose would typically provide an excuse for non-performance.

For material suppliers, the UCC generally excuses delays based upon the concept of “impracticability.” We have not seen many ongoing projects cancelled by use of termination for convenience clauses. However, we are aware of some projects that have paused performance, with others not yet started and now deferred, even potentially cancelled.

Third Thursday: What types of issues are emerging from the virus situation?
Greene: The virus has brought a host of new issues to the performance of construction contracts. New safety protocols are being implemented, including those based on guidance provided by OSHA and the CDC, and otherwise based on owner direction or local government orders. The guidance and orders have evolved significantly over time.

Ongoing projects have faced shortages of protective equipment, cleaning supplies, manufactured materials, and labor. Project closures have created the need for shut down procedures as well as ongoing security and maintenance. As projects reopen, new start-up plans and safety protocols have been and will be provided. We have been called upon to assist clients in developing their plans and communicating with other project participants.
The forgoing situations have required expenditure of additional costs and have caused projects delays.
The ultimate determination of who will bear the consequences of such additional costs and delays will turn primarily on the terms of multiple contracts – including project-specific and general business insurance policies.

Within the context of these developments, parties need to be fully aware of their contract language and take all steps necessary to protect their rights, including giving appropriate notice, compiling and providing scheduling information, and properly documenting any increased costs. We are assisting clients in all of these areas. Our corporate practice has also engaged with clients who have both applied for and received funds from the new loan programs created by the federal government.

Third Thursday: What types of virus-related situations do you anticipate?
Greene: The need for additional safety protocols, material and labor shortages, and productivity impacts will likely continue for the foreseeable future. Not only will these issues affect ongoing projects, but parties negotiating new contracts will be prudent to take these considerations into account. This will lead to novel contract language and difficult to estimate cost risks.

It would appear obvious that we will eventually see disputes emerge between contract parties related to the allocation of costs for additional work, delays, and impacts in connection with the pandemic.

More broadly, we may see a number of bankruptcies in the retail and commercial sectors that will affect the construction market. It will also be interesting to see the longer term effect of the pandemic on the economy and the availability of funds for future projects—especially in view of calls for infrastructure programs and advanced performance of projects as part of stimulus efforts.

Third Thursday: What types of cases have you been working on?
Greene: As the pandemic unfolded, I and other partners had recently concluded two significant arbitrations. The award in one of the arbitrations has been delayed due to COVID-19-related issues. Recently, we have had a jury trial delayed several times in a Federal False Claims Act case because of the virus. Other court cases have not proceeded as anticipated. On the other hand, we find ourselves counseling clients across the firm, as well as advising leading industry organizations, on a swath of unanticipated issues.

Third Thursday: How has your particular practice/workload been affected by the virus crisis?
Greene: The biggest impacts have been related to office closures as a result of stay-at-home orders. Aside from essential services, the partners, associates, paralegals and support staff all shifted to work-from-home.

While this move presented a few initial challenges, we have successfully and seamlessly employed technology and other creative solutions—and most importantly, retained all of our employees throughout the crisis. Across our 10 offices, a few have reopened, but the majority of our personnel continue to work from home.

Externally, COVID-related restrictions have resulted in the expanded use of remote depositions and, even, virtual arbitration hearings. In-court appearances have been virtually eliminated. Our local courts have been prioritizing work that can be done without lawyers in the room.

Third Thursday: In your opinion, how valid/relevant are in-person conferences in 2020?
Greene: Personally, I much prefer to attend in-person/live programs. I think you get more out of the presentations, perhaps because you are more focused. But, most importantly, the social interactions at the conference cannot not be replicated through remote attendance.