COVID-19: How Can I Convert an Excusable Delay Into a Compensable Delay?

The global spread of COVID-19 is affecting all of us. The president declared a national health emergency.[1] The governor of Washington declared a state of emergency.[2] Businesses are innovating and experimenting with new ways to stay productive in these challenging times. As former president Lincoln put it in a time of great adversity: “The occasion is piled high with difficulty, and we rise to the occasion. As our case is new, we must think anew and act anew.” As lawyers, we are faced with challenges and we must rise to meet this one, too.

The first question contractors have when confronted with a COVID-19 delay or impact is whether the global spread of the virus (pandemic) is indeed a force majeure event (also referred to in this post as an “excusable delay”) entitling the contractor to an extension of time (a force majeure event generally entitles the contractor to a time extension, but not necessarily to compensation). Both the owner and contractor bear their respective costs associated with excusable delays.

For an excellent blog post as to whether an event is a “force majeure,” see:  “Force Majeure Under the Coronavirus (COVID-19) Pandemic.”

To obtain relief, a party will usually need to:

  • Prove that the event has materially impacted or rendered impossible the performance of the contract;
  • Prove that the event that has materially impacted, or rendered impossible, the performance of the contract, falls within the definition of “force majeure” or “excusable delay”; and
  • Comply with any notice provisions or pre-conditions (e.g., taking steps to mitigate its losses) specified by the “force majeure” or “excusable delay” clause.

If a contract does not contain a “force majeure” or “excusable delay” clause (or something similar), parties may seek to rely on the doctrine of “frustration.” The “frustration doctrine” will only be available in limited circumstances where the performance of the contract has become truly impossible or commercially impractical, or whether there has been a change or circumstances so fundamental that it would be unjust to hold the parties to their original bargain. Where a contract is frustrated, the contract will be terminated and the parties will be released form all future obligations.

Once the force majeure event has been established, and the contractor is able to show that the force majeure event produced an excusable delay, simply obtaining a time extension is often a hollow victory. Excusable delays are deemed to be “non-compensable” by traditional allocation of contract risk. Thus, the contractor is entitled to an extension of time to complete the construction and protection from liquidated damages, but is not entitled to money damages for any of the additional cost attributable to the force majeure event or the excusable delay event. The contractor must demonstrate the construction delay was both excusable and compensable to recover its costs caused by the delay. Thus, for a force majeure event to be compensable, it must be directly or indirectly caused by the owner. There are a number of legal theories under which an excusable delay event may form a basis of a contractor’s claim for compensable damages. Here are two creative ways to convert an excusable event into a compensable event:

  • Prior owner-caused delays cause the contractor to encounter the force majeure event. Where the contractor would have completed its work without having encountered the force majeure event, but for previous owner-caused delays, the contractor finds itself in the adverse force majeure event, the costs associated with working in the adverse conditions are generally compensable. To prevail, the contractor must show that the owner-caused delays were solely responsible for preventing the contractor from completing the scheduled construction before the onset of the force majeure event, and that the contractor incurred the extra costs as a result.
  • Force majeure events cause accelerated performance to stay on schedule. Where an owner refuses to grant a time extension for an excusable delay and the contractor is effectively ordered to accelerate performance, an increased cost occurs. A contractor may also recover on an excusable event-related claim. The contractor must prove that the force majeure event for which no extension of time was given actually would have impacted the contract completion date, but for the acceleration – or, at the very least, that the delay in project completion was minimized by the contractor’s acceleration of the work.

Comment:  As former president Lincoln put it, the COVID-19 challenges require contractors and their lawyers to think anew and act anew. Creativity in these trying times will  reward those who are prepared to meet the challenges.

[1] Proclamation on Declaring a National Emergency Concerning the Novel Corona Virus Disease (COVID-19) Outbreak issued March 13, 2020.

[2] Governor Inslee declares a state of emergency in response to new cases of COVID-19, directing state agencies to use all resources necessary to prepare for and respond to the outbreak (February 29, 2020).

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