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Legal Notes: 2020 hindsight will guide future construction contracts

John Bleasby
Legal Notes: 2020 hindsight will guide future construction contracts

At its outset, the COVID-19 pandemic was seen as a short-term problem that might cause site closures lasting only a few weeks. However, as it became clear that the pandemic had staying power, the attention of owners, developers, contractors and suppliers jumped immediately to what were once the more obscure sections of standard construction contracts.

Notably, the formerly arcane contract clauses surrounding force majeure (FM) came under review, with questions landing on the desks of construction law experts in rapid fire. Who pays for the added costs associated with work interruptions? What level of compensation is available to contractors when regular material supply chains or labour sources are cut, and higher cost alternatives must be found? How is the labour force affected and what are their rights?

Making Ontario lawyers even busier in 2020 were recently enacted amendments to the province’s Construction Act affecting prompt payments and dispute adjudication.

Legal experts weighed in with detailed strategies to help the construction industry navigate what was becoming an increasingly complex legal landscape. Many began offering educational webinars and daily electronic updates that continue to this day.

The new attention given to force majeure clauses in existing contracts and any associated compensation claims, for example, met with a fairly unified response from construction law specialists.

In fact, one result might be to step away from any reliance on force majeure clauses as a pandemic settlement device entirely, write Rocco Sebastiano and Jagriti Singh of Osler Hoskin & Harcourt.

“Post-COVID-19, the trend has been to move COVID-19 out of the force majeure clause to its own section.”

One reason is because force majeure clauses are typically interpreted narrowly, writes law firm Torys LLP.

“An attempt to rely on an FM clause is a high-risk manoeuvre.”

They explain the affected party must be able to establish an actual and direct impact on their ability to meet contract obligations, not merely price fluctuations.

Documentation of any delays and the efforts taken to mitigate the interruptions to worksite progress under existing contracts is universal advice. By instituting a high level of record keeping as part of normal processes, particularly as it relates to any compensation clauses in new contracts, parties might be able to avoid triggering force majeure clauses in the future.

Specific to this pandemic, Torys construction specialists David Outerbridge , Jessica Lumière Steven Slavens and Nic Wall write that, “Organizations should formulate and implement a COVID-19 prevention, mitigation and response plan which, among other things, contemplates a review of key contracts for FM and related clauses, the potential for litigation, and the broader relationship with both upstream and downstream contracting parties.”

Richard Swan and Preet Bell of Bennett Jones LLP also advise contracted parties to conduct reviews and assessments of their business interruption insurance policies, continually monitor guidelines and directives from various government authorities and develop risk management plans.

The pandemic also resulted in government labour mandates impacting the obligations placed on employers for the health and safety of site workers. Visitor entry to project sites was monitored and restricted. Workers were questioned about their health and recent travel and had their temperature checked. Hand washing stations, PPE equipment like masks, and staggered shifts to reduce the number of workers onsite, all became standard practice, inspected by provincial authorities with powers to levy major fines.

Going forward Swan and Bell also suggest that employers should make workplace health and safety issues a priority.

Keith Burkhardt of Sherrard Kuzz LLP agrees, telling the Daily Commercial News that worker health and safety will play a major role in future collective labour agreements.

“As we approach the midway point of designated ICI sector collective agreements and collective agreements in other sectors of the construction industry in Ontario, it is worth considering, and preparing for, the potential impact of COVID-19 on bargaining in 2022.”

Even when the pandemic recedes, it’s hard to imagine these subjects fading into the background. The lessons learned in 2020 will live on in future contracts.

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

Recent Comments (1 comments)

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Robin Singh Image Robin Singh

Good Day John,
Very great information with such a professional writing skill. I really like it and it is worth to go through it. This COVID-19 issue will add soft costs unbelievable so i cross my fingers all new contracts should be matured by keeping this GIANT in the mind. I personally request all Construction companies to have a special person appoint just to avoid any gray area during any project.
Thanks, for such a helpful article.
Happy New Year
Thanks,
Robin

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