Are construction projects allowed to continue despite shelter-in-place orders?
Shelter-in-place orders in Illinois, California, New York and other states have nuanced differences, but contain the following common elements: (a) statewide mandatory restrictions that prohibit individuals from leaving home except for essential tasks (e.g. food, prescriptions, health care and commuting to jobs deemed essential); (b) certain specifically designated activities are deemed as essential services that are critical to maintaining the continuity of government services and other services that are necessary for public health and safety; and (c) certain construction activities have been designated as essential services that are exempted from shelter-in-place orders. For each state where an organization may have construction activities, organizations need to review the applicable state's shelter-in-place orders to determine if the construction activity falls into one of the specifically designated essential activities listed in the shelter-in-place order, or any supplemental list that may be published by the state's governor or public health officer. Below is a list of links to shelter-in-place orders and fact sheets for Illinois, California and New York:
What is the impact of the COVID-19 pandemic on deadlines in construction contracts with force majeure provisions? What about construction contracts without such provisions?
Contract obligations need to be performed with the full force of the law available to any party who suffers from a breach, unless something extraordinary occurs, such as the current COVID-19 pandemic, and accompanying state and federal orders that have been instituted to mitigate the spread of the COVID-19 virus.
There are three legal doctrines that should be considered in determining whether adherence to a construction deadline, or other duty in a construction contract, is excused by the circumstances created by the current pandemic: frustration of purpose, impossibility of performance and force majeure.
(1) Frustration of purpose (also known by other names such as "frustration of contract") is a legal defense under common law. Frustration of purpose occurs when an unforeseen event occurs (through no fault of either party) after a contract is made which undermines the principal purpose of the contract, and thereby excuses both parties from performance under the contract. Generally speaking, circumstances that merely make the original contract more expensive or complicate performance are not sufficient to trigger a defense of frustration of purpose.
(2) Impossibility of performance is another legal defense under common law which excuses nonperformance of certain contractual duties based on an unforeseen change in circumstances that makes performance of the excused duty impossible. Whereas frustration of purpose looks to terminate the entire contract, the doctrine of impossibility seeks to excuse only specific duties under a contract, while preserving the overall contract.
(3) Force majeure is a contractual remedy, and is therefore defined by the parties to the contract. Under a force majeure clause, the parties agree that upon the occurrence of certain specified events, performance under the contract may be excused or delayed as is reasonably necessary. An event that arises due to the acts or omissions of one of the contract parties is not an event of force majeure.
Where a government order prohibits a workforce from being on-site, failure to adhere to a contractual deadline may be excused by any one or more of the above-referenced doctrines.
Presently, as a result of the COVID-19 pandemic, a number of jurisdictions have instituted shelter-in-place or similar orders which limit or prohibit persons from public travel unless such person is engaged in an essential activity or service. In many circumstances, these orders may trigger force majeure clauses, or the doctrines of frustration of purpose or impossibility. Should a construction deadline, or any other duty under a construction contract, be impacted by an order issued by local, state or federal government, the following inquiries will need to be made:
- Does the construction activity qualify as an essential activity that is excused by the order;
- Is there a force majeure clause in the contract, and if so does the clause excuse a delay in performance or provide another remedy;
- Is the fundamental purpose of the contract undermined by the government order; and
Does the government order render performance of a deadline, or other duty under the contract, impossible.