PANDEMICS AND CONTRACTUAL ISSUES

Timothy R. Wyatt, Conner Gwyn Schenck, PLLC, Greensboro, NC

I. INTRODUCTION

Outbreaks of disease, such as the coronavirus disease 2019 (COVID-19) pandemic, have the potential to significantly impact the performance of all types of contract work.¹ Where such occurrences are rare and unexpected, it is unlikely that the contracting parties factored the occurrence into contract performance terms such as price and schedule, notwithstanding the significant impact that a pandemic could have on those performance terms. When contract performance is impacted by an unanticipated occurrence such as a pandemic, the contracting parties will naturally seek to shield themselves from the economic impact by attempting to shift the risk of the catastrophe to the other contracting party. The contract language and governing law will determine whether, and to what extent, either contracting party may be excused from strict performance of the contract terms, where the party’s ability to perform is impacted by a pandemic. This area of law is often commonly referenced as “force majeure.”

This report examines the impact of pandemics on the legal obligations of parties to contracts (particularly construction contracts) with state Departments of Transportation (state DOTs) and other transportation agencies, in the wake of the COVID-19 pandemic. Contract terms and the governing law have evolved over time, as succeeding generations have experienced different catastrophes, including not just pandemics but also war and terrorism, all of which have their own unique impacts on contract performance.² It is likely that both state DOT contracts and the governing law related to force majeure occurrences will continue to evolve in response to COVID-19, as legal claims and disputes arising from COVID-19 work their way through the courts and other dispute resolution forums.

COVID-19 was first identified in China in late 2019. On March 11, 2020, the World Health Organization (WHO) declared COVID-19 to be a global pandemic.³ On March 13, 2020, President Donald Trump declared COVID-19 to be a national emergency in the United States.⁴ Individuals were strongly recommended (and in some cases ordered) to stay-at-home to the extent possible. Places of business and government institutions closed across the country.⁵ What was originally anticipated to be a two-week quarantine or “lockdown” evolved into many if not most individuals not returning to their regular work locations for the next year. The future performance of contractual obligations incurred prior to the onset of the pandemic became questionable across all industries, as a nationwide work stoppage posed a fundamentally different environment than originally foreseen by contracting parties.

In most locations, construction (or at least public infrastructure construction) was deemed an essential service, not subject to the more general stop-work and stay-at-home orders.⁶ However, although construction was allowed to proceed, construction was seriously impacted by the pandemic.⁷ Staffing shortages resulted from infections and outbreaks at the jobsites and subsequent quarantining of individuals infected or exposed. Productivity was further impacted by protocols implemented on-site to avoid infection, such as disinfecting, screening, testing, social distancing, staggered work crews, and the use of

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¹ Alexandra L. Noetzel, Balancing Efficiency and the Public Interest: A Comparative Analysis of Force Majeure Defaults in Government Contracting, 87 BROOK. L. REV. 1351, 1359 (2022) (“Catastrophic events—such as the September 11 terrorist attacks and the Ebola virus epidemic—compound the common risks that come with conducting business in an ever-changing economy.”).

² 5 PHILIP L. BRUNER & PATRICK J. O’CONNOR, JR., BRUNER AND O’CONNER ON CONSTRUCTION LAW § 15:22 (2002) (“This path has been ever-shifting, forever redefined by each succeeding generation in response to circumstances that warrant enforcement of or relief from contractual obligations made burdensome by unforeseen circumstances fundamentally different from those contemplated by the parties when the contract was formed.”).

³ Jennifer Charlson, Interpreting Contractual Rights to COVID-19 Remedies: An Analysis of Cases, 14 J. LEGAL AFF. & DISP. RESOL. ENGINEERING & CONSTRUCTION, 4, at 06522002-1 (Nov. 2022); Krishna P. Kisi & Tulio Sulbaran, Construction Cost and Schedule Impacts Due to COVID-19, 14 J. LEGAL AFF. & DISP. RESOL. ENGINEERING & CONSTRUCTION, 4, at 04522024-2 (Nov. 2022).

⁴ Patrick A. McGeehin & John I. Spangler III, Coronavirus Delay and Disruption Claims, 41 CONSTRUCTION LAWYER, 2, at 18 (Spring 2021); Noetzel, supra note 1, at 1351.

⁵ Babatunde A. Salami, Saheed O. Ajayi & Adekunle S. Oyegoke, Tackling the Impacts of Covid-19 on Construction Projects: An Exploration of Contractual Dispute Avoidance Measures Adopted by Construction Firms, 23 INT’L J. CONSTRUCTION MGMT. 1196 (2023) (“In response to the March 2020 declaration by the WHO, governments around the world imposed . . . measure[s] to implement social distancing, ban travel, restrict movement of persons and finally a total lockdown where all are expected to stay home.”).

⁶ Michele Herrmann, A Path to Establishing Delay and Disruption Claims for Contracts Entered into Prior to the Start of the COVID-19 Pandemic, 15 J. LEGAL AFF. & DISP. RESOL. ENGINEERING & CONSTRUCTION, 2, at 04523008-1 (May 2023).

⁷ Ibrahim Osman & Hossein Ataei, Studying Construction Claims Due to COVID-19 for Road and Highway Projects, 14 J. LEGAL AFF. & DISP. RESOL. ENGINEERING & CONSTRUCTION, 1, at 06521004-1 (Feb. 2022) (“The outbreak of COVID-19 has touched almost every facet of the construction industry: specifically issues such as contract administration and in particular the project notices for delay, scheduling and schedule recovery; project suspension, termination, and reinstatement. . . .”).