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Legal Notes: The assignment of risk in post-COVID contract bids and tenders

John Bleasby
Legal Notes: The assignment of risk in post-COVID contract bids and tenders

It’s taken a global pandemic to draw attention to clauses in construction contracts that had slipped under the radar for years.

Force majeure, government-mandated work slowdowns and stoppages, suspension, supply chain interruptions, notice, price protection and enhanced workplace health and safety are terms that have now entered the everyday lexicon.

The lasting effect of the COVID pandemic, especially issues concerning additional risk and compensation, are certain to be part of future tender and bidding processes.

Will owners and contractors expect compensation assurances from one another in the event of a future virus attack? Who will be responsible for PPE and other health measures? Will such risks and associated expenses be insurable, and if so, at what cost?

“These types of issues and considerations are going to be with us forever,” says Rob Kennaley of Kennaley Construction Law. “We now have this huge unknown allocation of risk that has not been allocated properly under previous contract forms.”

Douglas Sanders of Borden Ladner Gervais LLP expects governments to use construction spending as a post-COVID economic recovery tool. If he is correct and a tsunami of new projects follows COVID-19, it will become critically important for both owners and contractors to pay close attention to any fast-tracked, shovel-ready projects.

Sanders points out that, “the largest failed projects are those that were rushed out the door to get shovels moving. Speed should be balanced against the risk of premature release of projects.”

The increased focus on risk allocation in these future contracts will emphasize the need for every bidder to be treated fairly right from the start of the tender and bidding process, says Kennaley, particularly in light of changes to Ontario’s Construction Act related to adjudication and prompt payment.

He says attention must be given to disclosure criterion and non-compliant bids.

“There is a duty of fairness in the tendering process to protect the integrity of the bidding process that requires the application of assumptions evenly,” he says. “Only compliant bids should be considered by the tendering authority. Only disclosed factors should be considered.”

That, in turn, brings focus to the question and answer (Q&A) portion of the tender process, says Kennaley.

“The Q&A process offers the opportunity for contractors to come forward and ask questions of the owner, such as, ‘What about COVID-19?’ ‘What about the potential for stop work orders?’ ‘What about the potential for delays?’ ‘What does this mean in terms of who pays for what?’” 

Answers given to one bidder must be distributed to all bidders.  

“If the bidders don’t get the answers they want and they don’t get the changes required, then they should not bid the job,” he says. “At the end of the day, if they do bid that job, they are likely to be locked into the terms and conditions in that contract.”

At the same time, owners need to be careful how they assign risk.

Kennaley says piling all the risks onto contractors could mean no bids at all, or that only a single high bid will be received.

“The goal is to find that sweet spot where you reasonably allocate the risk for something like COVID-19 in a way that keeps you out of the courtroom, and so that going forward you get the work done on time and on budget at a reasonable price,” he explains.

This continues throughout the construction pyramid, says Kennaley.

He cautions against contract gaps regarding costs and responsibilities both up and down the ladder.

It’s really important to dovetail the contracts. You want the people underneath you to be playing by the same rules that you are playing by while you are looking up to the owner.

“If there was ever a time to rethink and look at formal tender packages and forms of contracts and subcontracts and so on, now is the time,” Kennaley concludes. “COVID-19 simply adds more fuel to the burning necessity to get this done.”

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