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Osler identifies five essentials for contracts in COVID era

Don Wall
Osler identifies five essentials for contracts in COVID era

COVID-19 has brought significant change to construction contracts in Canada in the past four months, with lawyers active in the sector finding innovative ways of dealing with the numerous uncertainties and impacts created by the pandemic.

Construction lawyers Elliot Smith, Rocco Sebastiano and Jagriti Singh of Osler Hoskin and Harcourt LLP identified the latest trending COVID-era contract essentials in an article prepared for the firm’s website, titled The Top 5 Things to Look for in Construction Contracts.

Significant among the trends in new contracts is that many construction lawyers are now grouping all relevant COVID-related provisions into one separate clause, rather than continuing to capture COVID effects in the force majeure section.

“This makes sense,” said the Osler team. “Even though many elements of a typical force majeure clause would apply to the pandemic, the remedies applicable to COVID-19 impacts as well as some contractual elements may be different.”

The contract will be easier to administer and “it will help make it clear that there are no other contractual remedies elsewhere for COVID-19 impacts. This prevents parties from trying to pick another clause that is more advantageous to them.”

“That will be something new to see,” explained the Toronto-based Singh in an interview, noting that contract interpretation will still be undertaken with typical cross-referencing of sections and remedies of the contract.

“If they are going to have a COVID-specific clause, it is not going to be in isolation…It is not like it is going to be in a silo.”

Osler identified the five notable issues trending in contracts as:

  • How are COVID-19 pandemic impacts addressed in the contract?
  • What’s the contractual remedy for COVID-19 pandemic impacts?
  • How are COVID-19 pandemic effects that are known as of the date of the contract being dealt with?
  • What type of COVID-19 pandemic impacts are contemplated?
  • What are the notice and supporting documentation requirements?

Among the major issues as parties draw up new contracts, Singh said, is that even after four months of pandemic there are still many uncertainties to address. Not only are there unknown future impacts to plan for, she noted, there are known impacts with unknown costs.

“I think most of the new contracts are addressing it to the extent they can address it,” Singh said of the unknowable factors.

“We don’t have a crystal ball. We really don’t know how things will play out in the future.”

The Osler article notes impacts that are known by the parties as of the date of execution of the contract are often excluded from relief clauses in construction contracts. Since they are known events, they should already be factored into the contract price and construction schedule.

To address the various types of unknown impacts, the authors say any clause dealing with COVID-19 should be clear as to whether known impacts are addressed in the construction schedule and contract price or if they will be addressed as a change order during performance of the work.

Alternatively, they wrote, “They may also be addressed through the implementation of a contingency allowance.”

Regarding additional compensation, there is the issue of what types of costs are compensable, such as additional out-of-pocket expenses for PPE or additional rental equipment.

In many cases the parties agree to share the costs, Osler noted.

“There is no disagreement that COVID-19 is a pandemic that nobody could have foreseen and there is an understanding that it will result in increased costs. So the parties are pretty co-operative,” said Singh.

On the point relating to documentation, Osler pointed out that unlike typical force majeure events such as a fire or winter storm, the pandemic may well have impacts that are chronic in nature and extend over the length of the contract.

“Accordingly, a one-time notice may not be sufficient or appropriate. Instead, regular reporting and updates on an ongoing basis may be more useful, with an established protocol for how relief may be provided,” the authors suggested.

 

Follow the author on Twitter @DonWall_DCN.

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