Who will bear the costs related to the delays in construction schedules caused by the COVID-19?

On January 30, 2020, the World Health Organization declared the outbreak of coronavirus a public health emergency of international concern. On March 11, 2020, faced with a sudden and exponential surge in cases, it confirmed that COVID-19 had grown into a pandemic.

On March 13, 2020, by Decree 177-2020, the government of Québec issued a declaration of public health emergency. Aiming to minimize the spread of the COVID-19 virus, the decree banned public gatherings of more than 250 people and shut down schools and daycare centres.

As a consequence, construction project schedules have been affected, especially seeing that workers are self-isolating at home for 14-day periods (quarantine imposed by the government and voluntary isolation). For some contractors, work is becoming increasingly challenging to coordinate.

On March 20, 2020, the two main trade unions in the construction industry wrote to Premier François Legault asking for the temporarily suspension of all projects in order to establish and implement health standards to protect workers [1].

In response, the government assured the unions that measures would be taken to safeguard workers but did not suspend construction sites. On the contrary, it was announced that public projects would be accelerated to offset the impacts of the closure of private sites [2].

Will Québec eventually shut down construction sites? The question remains unanswered. However, the following paragraphs should help you determine whether it could be argued that project delays brought about by the pandemic constitute a case of force majeure and provide information on who could ultimately be responsible for the costs incurred with the longer construction times according to different scenarios: delays caused by pandemic-related challenges, by project suspension by a client and by a possible shutdown ordered by the government.

PROJECT DELAYS

With regard to schedule control, contractors are, in most cases, under an obligation of performance. In the absence of results, a contractor is presumed to be at fault [3].

Based on this premise, there are three types of delays: inexcusable, compensable and excusable.

Inexcusable delays are caused by the contractor. In such situations, the client can seek compensation for the damages related to a delay.

Compensable delays are caused by the client, and a contractor may seek damages and extensions. A compensable delay may, for example, arise out of changes ordered by the client that disturb a project's critical path and increase costs.

Excusable delays are those that the contractor is able to prove are due to a force majeure brought about by a third party to the contract or unforeseen site conditions. Excusable delays enable the contractor to seek an extension. The client cannot seek compensation for any resulting damages, and the contractor will not be compensated by the client. We are of the opinion that delays caused by the pandemic may, in certain circumstances, be deemed excusable.

WHAT IS A FORCE MAJEURE?

DEFINITION OF FORCE MAJEURE UNDER A CONTRACT: Contracts often contain a clause that establishes a list of events considered to constitute force majeure. Pandemics and epidemics are generally included.

DEFINITION OF FORCE MAJEURE UNDER THE LAW: When force majeure is not established under the contract, it is under the law. Force majeure is "an unforeseeable and irresistible event, including external causes with the same characteristics" [4]. To argue force majeure, the following aspects must be demonstrated.

Unforseeability: an event is unforeseeable if a prudent and diligent person placed in the same circumstances could not reasonably have foreseen its occurrence.

Irresistibility: The irresistible event leads to the absolute impossibility for the debtor to fulfill its obligation or take reasonable measures to avoid the occurrence of the event.

Exteriority: Exteriority, or external causes, consist of the non-participation of the debtor in relation to the occurrence of the event. It must have occurred independently of the counterparty's will.

In light of these notions, can the pandemic be equated with a force majeure in the legal sense? Given the recency and singularity of the situation, Québec courts have yet to explore the question. However, they did in the context of the 2010 H1N1 influenza A pandemic.

In Lebrun v. Voyages à rabais (9129-2367 Québec inc.) [5] and Béland v. Voyage Charterama Trois-Rivières ltée [6], the Court was called upon to determine whether the outbreak of H1N1 influenza A in Mexico constituted a force majeure for airlines. Both instances involved travellers who were forced to cut their Mexican holidays short when carriers cancelled all their flights after the government of Canada issued a travel warning. In both cases, the Court of Québec deemed that there had been a force majeure for the companies, which were then relieved of their contractual obligations.

Even so, it is important to understand that, to be discharged of its responsibilities, a business must demonstrate that the pandemic does indeed meet the conditions of unforseeability, irresistibility and exteriority.

In the case of a force majeure event, a business must invoke compelling arguments and observe the procedure detailed in the contract. Contracts often include a clause that calls for the transmission of a notice to the other party within a specified timeframe.

POSSIBLE SCENARIOS FOR QUÉBEC CONSTRUCTION SITES

SCENARIO 1: Delays caused by measures ordered by the government

While construction sites were not covered by the order that came down from the government on March 20, 2020, work that is part of a project's critical path may be adversely affected by the government measures owing to factors such as the labour shortage due to mandatory and voluntary stay-at-home measures or difficulties securing material supplies.

With regard to the criterion of irresistibility, for delays to be deemed excusable, the pandemic must not only make it more challenging or costly to meet deadlines but indeed impossible. It must therefore be proven that the delays were impossible to avoid since no other workers could be called in or no supplier could provide similar materials without undue delay.

Delays caused by a contractor or subcontractor when work is suspended simply to accommodate workers would, in our opinion, be deemed inexcusable, and a client could then seek damages from the contractor.

SCENARIO 2: Delays caused by the client's decision to suspend the work  

At present, should a client choose to suspend work at a site, this decision is not backed by a government measure, direction or order and is therefore made on the client's own initiative.

In this particular situation, the contractor may seek compensation for the loss that is sustained. For the contractor, extended deadlines can lead to site expenses, lost profit, insurance and bonding fees and more.

SCENARIO 3: Delays caused by a government order to shut down construction sites  

While the Québec government announced that it seeks to keep construction sites open, the issuance of a measure to suspend construction work across the province still seems plausible in the coming weeks.

In the event that this type of order is issued by the government, any delays would be excusable. Clients could not ask for compensation from a contractor for any damages, and contractors could not seek compensation from a client.

The criteria of unforseeability, irritability and exteriority would certainly be met. The situation would be wholly outside the control of construction stakeholders, thus meeting the requirements of the very meaning of the concept of force majeure: release from obligations due to the absence of control over their fulfillment.

WHEN DELAYS OCCUR: READ THE CONTRACT AND ISSUE A WRITTEN NOTICE

How can a contractor or subcontractor argue that the delays incurred are excusable? First and foremost, it is important to read the contract and understand the terms that define force majeure. Then, to invoke a defence of force majeure, the contractor or subcontractor must follow the process outlined in the contract and send the required notices.

When circumstances constitute a force majeure, the client cannot seek compensation for any losses experienced due to the pandemic or withhold sums owing on the grounds that they are damages under a penalty clause. The contractor cannot obtain compensation from the client.

For many projects currently underway across Québec, clients took action against damages due to delays by establishing costly liquidated damages in their contracts. These penalty clauses are not applicable when delays result from a force majeure.

Finally, it is critical to stress the importance of analyzing the contract in each case. A contract could stipulate that a contractor may be compensated for delays caused by a force majeure event and require the contractor to issue a notice of claim to the client within a certain period. In addition, a penalty clause may specify that the contractor will pay liquidated damages whether or not the circumstances constitute force majeure. In this particular case, the contractor may argue that the penalty clause is unreasonable.

In view of this, clients, contractors, subcontractors and suppliers should go over their contracts to determine whether they are required to provide written notice in the case of a force majeure event.

**If you are facing legal challenges in the wake of the COVID-19 pandemic, it is recommended that you seek legal advice to find the right solutions for you.

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References

[1] Lia Lévesque, La Presse canadienne, March 18, 2020 : https://www.lapresse.ca/covid-19/202003/18/01-5265321-fermez-les-chantiers-disent-des-syndicats.php 

[2] Hugo Pilon-Larose, La Presse, March 20, 2020 : https://www.lapresse.ca/covid-19/202003/20/01-5265670-les-ecoles-devraient-etre-fermees-plus-longtemps.php 

[3] This performance obligation results from penalty clauses stipulated in the contract and the law. Section 2100 of the Civil Code of Québec states that "a contractor and the provider of services are bound to act in the best interests of their client, with prudence and diligence", and Section 1590 reads that "an obligation confers on the creditor the right to demand that the obligation be performed in full, properly and without delay."

[4] Civil Code of Québec, Section 1470; Québec (Ville de) v. Équipements Emu ltée, 2015 QCCA 1344, par. 241-242.

[5] 2010 QCCQ 1877

[6] 2010 QCCQ 2842