“Pandemic Provisions” Mitigate Risk during Pandemic

By Roshni Master, Staff Writer

Photo courtesy of pixabay.com

Since the world came to a screeching halt in March 2020, Americans have struggled to adjust to the “new normal” of supply chain issues. Americans are finding their favorite food brands in short supply and the homes they began to remodel two years ago still incomplete.

When the government issued stay-at-home orders in March 2020, many industries, such as the automotive industry, were forced to delay production.[1] However, production did not immediately restart once the restrictions were lifted. In fact, the automotive industry continued to struggle due to lack of inventory.[2] Additionally, with the increase in both do-it-yourself home remodeling projects and the surge in the housing market, the price of products, such as lumber, spiked substantially.[3]

It has been two years since the first stay-at-home orders were issued, and manufacturers are still struggling to replenish their inventories. According to a West Virginia based manufacturer, the main constraints have been staffing and shipment delays.[4] Both shipping times and shipping costs have substantially increased.[5] What used to take two to three days to ship now takes two or three weeks.[6] Some manufacturers have even reported waiting as long as two months.[7]

Recently, Canadian President, Justin Trudeau, mandated the Covid-19 vaccine for all United States truck drivers crossing the border from the United States to Canada, leading to major protests from truck drivers.[8] Beginning January 28, 2022, four thousand trucks blockaded the Ambassador Bridge, a crucial trade route between the United States and Canada.[9] As a result, some businesses were forced to temporarily close.[10] With continued protests to government mandated Covid-19 protocols and significant delays in travel time, it is no surprise Americans are not seeing their favorite brands in the grocery store and are still working with contractors to finish what should have been a one-year home remodel. 

Despite the unpredictable nature of Covid-19 and its variants, the inclusion of a “pandemic provision” in construction contracts can mitigate the increase in supply costs and delays.[11] Such a provision would address any risks associated with the two most important variables in any construction project, time and money. By negotiating these terms prior to entering a contract, parties can avoid litigation over who bears the costs resulting from supply delays.  Traditionally, requiring a contractor to work quickly can result in premium costs, such as overtime, extra shifts, or night work accommodations. On the other hand, project delays can result in an undesirable increase in overhead, including costs for extending leases for rented construction equipment and other job site accommodations. 

The pandemic has greatly changed the way project owners and contractors are willing to apportion risk.[12] Marc Felozzola, an attorney at Babst Calland who handles construction-related disputes, noted that when stay-at-home orders lifted, both project owners and contractors were more willing to accept risks of delays from potential Covid-19 shutdowns and agree to “no damage for delay” terms.[13] As part of “no damage for delay,” both parties agree to accept and bear their own costs associated with the immediate impact of the pandemic, including any government mandated closures.[14]

However, Felozzola also noted project owners and contractors may not be as willing to take risk when it comes to bearing the costs associated with uncertainty in receiving materials.[15] Thus, to avoid project delays resulting from disagreements between project owners and contractors, it is useful to include a “pandemic provision” in the contract. Including a “pandemic provision,” to address the risk of unavailable materials or situations where the material cost increases beyond a certain percentage, can facilitate timely completion of projects and prevent litigation.[16]

[1] https://www.clevelandfed.org/en/newsroom-and-events/publications/cfed-district-data-briefs/cfddb-20210226-covid-19-and-supply-chains.aspx

[2] Id.

[3] Id.

[4] Id.

[5] https://www.clevelandfed.org/en/newsroom-and-events/publications/cfed-district-data-briefs/cfddb-20210226-covid-19-and-supply-chains.aspx

[6] Id. 

[7] Id.

[8] https://www.cnbc.com/2022/02/17/freedom-convoy-trucker-protests-worsened-us-supply-chain-issues.html

[9] Id.

[10] Id.

[11] https://www.babstcalland.com/news-article/impacts-of-covid-19-on-existing-and-future-projects/

[12] Id. 

[13] Id.

[14] Id.

[15] https://www.babstcalland.com/news-article/impacts-of-covid-19-on-existing-and-future-projects/

[16] Id.

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