Essential Construction Projects In California: Can You Keep Working And How?

Despite the COVID-19 pandemic and its severe impact on the construction industry, work on Essential Projects is permitted in certain instances, depending on the location and the type of the project. The question of what work is “essential” is key. Not surprisingly, the designation of Essential Construction is evolving and different requirements now exist at the state and local level which has led to confusion.

The following provides an overview of the current orders and local regulations affecting major metropolitan areas of California as well as the trends as a result of these orders. Those with additional questions beyond the information presented in this article are recommended to consult with a licensed attorney with construction law experience to achieve your compliance and workplace safety goals.

The Federal Guideline

The Department of Homeland Security for the Federal Government produced Guidelines identifying 16 sectors deemed “Essential” Businesses. These Guidelines are only recommendations – it is up to the individual local jurisdictions to draft their own ordinances.

Under the Guidelines, several areas are clearly covered as “essential” including infrastructure construction and restoration (fiber optic cables, wireless facilities, and other communications-related areas); work supporting the manufacture, distribution and provision and construction of computing-related services); business infrastructure; financial transactions/services; web-based services; and critical manufacturing.

For more information on the federal guidelines, please visit our prior article on this issue.

California State Guideline

On March 19, 2020, Governor Newsom’s Office issued Executive Order N-33-20 ordering all residents to “Stay at Home,” except as needed to maintain continuity of essential critical infrastructure sectors, including those designed by the State Public Health Officer. On March 22, 2020, the State Public Health Officer designated a list of “Essential Critical Infrastructure Workers” to help state, local, tribal, and industry partners as they work to protect communities, while ensuring continuity of functions critical to public health and safety, as well as economic and national security. The State Public Health Officer’s list of designated “essential” workers includes but is not limited to:

  • Construction workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects (including housing construction)
  • Workers such as plumbers, electricians, exterminators, and other service providers who provide services that are necessary to maintaining the safety, sanitation, construction material sources, and essential operation of construction sites and construction projects (including those that support such projects to ensure the availability of needed facilities, transportation, energy and communications; and support to ensure the effective removal, storage, and disposal of solid waste and hazardous waste)

San Francisco County and Bay Area (Marin, Alameda, Santa Clara, Contra Costa)

The San Francisco County and City ordinance is instructive as the counties in the Bay Area have worked together and been on the forefront of developing the definitions of Essential Projects. The same standards apply to Marin, Alameda, Contra Costa, and Santa Clara Counties.

The Order provides that only certain, limited types of construction are permitted to continue, including the following:

  • healthcare projects directly related to addressing the COVID-19 pandemic
  • housing and mixed use projects that includes at least 10% affordable housing
  • projects that provide services to vulnerable populations projects required to maintain safety, sanitation, and habitability of residences and commercial buildings
  • construction necessary to secure an existing construction site that must shut down

The Health Officer may issue guidance requiring construction site-specific health and safety plans. The Order also provides for San Francisco to limit public works construction to essential public works projects as determined by the City Administrator in consultation with the Health Officer.

All other construction is prohibited. Essential projects are further defined as:

  • Projects immediately necessary to the maintenance, operation, or repair of Essential Infrastructure;
  • Projects associated with Healthcare Operations, including creating or expanding Healthcare Operations, provided that such construction is directly related to the COVID-19 response;
  • Affordable housing that is or will be income-restricted, including multi-unit or mixed-use developments containing at least 10% income-restricted units;
  • Public works projects if specifically designated as an Essential Governmental Function by the City Administrator in consultation with the Health Officer;
  • Shelters and temporary housing, but not including hotels or motels;
  • Projects immediately necessary to provide critical noncommercial services to individuals experiencing homelessness, elderly persons, persons who are economically disadvantaged, and persons with special needs;
  • Construction necessary to ensure that existing construction sites that must be shut down under this Order are left in a safe and secure manner, but only to the extent necessary to do so;
  • and Construction or repair necessary to ensure that residences and building containing Essential Businesses are safe, sanitary, or habitable to the extent such construction or repair cannot reasonably be delayed.

San Francisco also recently developed guidance for construction “Best Practices” and “Field Safety Guidelines” for COVID-19 job site safety, including submission of Site-Specific Health and Safety Plans that conform to the guidelines. These guidelines are likely to be adopted by the Bay Area counties and beyond. Contractors and construction professionals should consult with an attorney on how to comply and submit the necessary plans to safely resume operations.

Los Angeles County

While the County of Los Angeles has not provided specific construction-related guidance, the City of Los Angeles has developed protocols for COVID-19 Safety for Construction Sites. The City’s plan requires a comprehensive COVID-19 exposure control plan, which includes control measures such as social distancing; symptom checking; hygiene; decontamination procedures, and training. Failure to comply with this guidance shall be deemed as creating unsafe conditions and may result in withheld inspections or shutting down the construction site until corrected.

Unlike the San Francisco ordinance, the City of Los Angeles’s guidance does not distinguish between different types of essential construction and instead relies upon the state and federal guidance principles. However, the protocols for construction sites includes directives to maintain a minimum 6-foot distance from other workers at all times, provide personal protective equipment (PPE) such as gloves, goggles, face shields and face masks, and stagger the trades as necessary to reduce density and maintain minimum 6-foot separation. These types of workplace conditions will continue to affect job sites throughout Los Angeles. Notably, some cities in Los Angeles County are looking at their own, more stringent regulations on construction projects.

San Diego, Orange, Riverside County

San Diego, Riverside, and Orange Counties presently do not have independent guidance or reporting requirements beyond those provided by the State and Federal Guidelines. We continue to monitor for additional updates, but expect these Counties to adopt some standard protocols, reporting requirements, and construction site and job guidance like those from San Francisco or Los Angeles.

Sacramento County

San Diego, Riverside, and Orange Counties presently do not have independent guidance or reporting requirements beyond those provided by the State and Federal Guidelines. We continue to monitor for additional updates, but expect these Counties to adopt some standard protocols, reporting requirements, and construction site and job guidance like those from San Francisco or Los Angeles.

Key Take Away: Keep Up To Date And Monitor Your Projects

Clearly, a high premium has been placed on housing. Originally San Francisco was in line with the Federal Guidelines and was allowing all housing construction to go forward. However, as it has begun tightening up on permissible activities, San Francisco now requires an affordable component to allow the construction to go forward. It will be interesting to watch as other areas make decisions on this issue whether the trend will be towards being more restrictive in allowing residential construction and how “affordable” is defined.

The Federal Guidelines are more developed with respect to Public Works and Infrastructure work. However, the document is meant to give guidance to the local agencies who may choose to follow San Francisco’s lead and specifically designate what projects can go forward rather than leave it open for interpretation.

It is important for the Construction Industry to pay close attention to what work is permissible during this crisis and what work must be delayed. Unfortunately, we anticipate that the trend will continue to be more restrictive until a better comfort level is achieved with the future of the virus. This means close attention should be paid to each project and to carefully evaluate if notices of potential delays should be issued and to evaluate if the contractor can obtain any relief for affirmative extended general conditions, efficiency claims, or other additional compensation or remedies.

Los Angeles Construction Site Safety Guidance, (March 31, 2020)
Orange County Amended Health Order and Guidance, (March 18, 2020)
Sacramento County Stay At Home and Essential Services Order, (March 19, 2020)
Santa Clara County Order of the Health Officer, (March 31, 2020)
Alameda County Order of the Health Officer, (March 31, 2020)
Contra Costa County Order of the Health Officer, (March 31, 2020)
Marin County Order of the Health Officer, (March 31, 2020)
Riverside Essential and Criticial Services Guidance, (March 22, 2020)
San Diego Social Distancing and Sanitation Protocol, (April 2, 2020)
San Francisco Guidance for Construction Related Essential Business, (March 31, 2020)

Six Northern California Counties Have Issued New Shelter-in-Place Orders Impacting Construction Industry

Effective 11:59 p.m. on March 30, 2020, Alameda, Contra Costa, Marin, Santa Clara, San Francisco and San Mateo Counties shelter-in-place rules will be more detailed and restrictive. The construction industry will be significantly impacted. The order only allows the following kinds of construction projects to go forward:

  • Projects immediately necessary to the maintenance, operation, or repair of Essential Infrastructure
  • Projects associated with Healthcare Operations, including creating or expanding Healthcare Operations, provided that such construction is directly related to the COVID-19 response
  • Affordable housing that is or will be income-restricted, including multi-unit or mixed-use developments containing at least 10% income-restricted units
  • Public works projects if specifically designated as an Essential Governmental Function by the lead governmental agency
  • Shelters and temporary housing, but not including hotels or motels
  • Projects immediately necessary to provide critical non-commercial services to individuals experiencing homelessness, elderly persons, persons who are economically disadvantaged, and persons with special needs
  • Construction strictly necessary to ensure that existing construction sites that must be shut down under this Order are left in a safe and secure manner, but only to the extent necessary to do so
  • Construction or repair necessary to ensure that residences and buildings containing Essential Businesses are safe, sanitary, or habitable to the extent such construction or repair cannot reasonably be delayed

A significant amount of construction that is currently ongoing will now have to stop. It will be much more difficult to argue that certain projects should go forward due to ambiguity in the order.

Construction companies should be sure to carefully review the orders and work with counsel to evaluate their options and potential needs to issue notices of delays in order to protect claims for additional time and damages.

Visit our COVID-19 Hub for ongoing updates.

COVID-19 Construction Jobsite Considerations & Safety Suggestions

In light of the CISA update that includes Construction as part of the country’s essential infrastructure activities, contractors must be wary and ensure that they are implementing all necessary safety measures on their construction jobsites.

Given that construction projects around the United States are continuing and most contractors and construction workers are exempted from “shelter-in-place” and “stay-at-home” orders, all parties involved in the construction process should continue to be vigilant and do their best to prevent the spread of the COVID-19. The following are some recommendations and tips that should be employed to assist in the effort to ensuring safety on the construction jobsite.

Overall Project Planning and Management

  • Implement and communicate your safety and jobsite management plan.
  • Minimize project staffing to the extent possible.
  • Require all personnel displaying flu-like or who have come in contact with someone who has COVID-19 to stay home.
  • Ensure that proper social distancing measures are implemented and post appropriate signage with instructions. For example, it may be appropriate to limit elevator occupancy to two (or fewer) individuals depending on the square footage.
  • Require all personnel to wear appropriate PPE (protective personnel equipment), such as gloves and masks.
  • Set-up additional hand washing stations on project sites.
  • Encourage all personnel to wash hands with soap and hot water frequently for a minimum of 20 seconds each time.
  • Perform daily environmental cleaning, such as sanitizing common surfaces, including workstations, countertops and doorknobs, provide disposable wipes.
  • Perform daily sanitization of small, handheld tools.
  • Avoid having any outside lunch vendors on the jobsite.
  • When required to travel in vehicles, if more than one person is required, try to keep to only one passenger and sit in the back seat on passenger side.
  • Implement a Daily Crew Assessment that includes checking on health to ensure ill workers are not reporting to work.
  • Use shoe sanitation (non-bleach sanitizer solution) prior to entering the jobsite if possible.
  • Do not use a common water cooler.
  • Encourage workers to bring their own water.
  • Identify specific locations and practices for daily trash including for paper, towels, food, boxes, containers, etc.
  • If possible, utilize disposable gloves; wash hands after removing.

Personal Responsibility

  • Stay Home When You Are Sick
    • It is important that if you are experiencing any of the symptoms of COVID-19 – fever, cough, shortness of breath or difficulty breathing, as well as tiredness, aches, runny nose, sore throat — that you notify your supervisor immediately.
  • If any employee or worker appears to be sick, he or she should be reported to management immediately. That individual should be asked to remain home until they are symptom-free and/or released by a doctor.
  • Workers should also stay at home of they have been exposed to someone with COVID-19. If you notice that a fellow worker is experience these symptoms – report it!
  • Wash Your Hands
    • Be sure to wash your hands frequently, especially after using the restroom, before and after eating, and after blowing your nose, coughing, or sneezing.
    • Be sure to use soap and water for at least 20 seconds and use disposable towels to dry your hands.
    • If hand washing with soap and water is not feasible, use an alcohol-based hand sanitizer that contains at least 60-95% alcohol.

On the Jobsite

  • Practice Staged Working
  • For tailgate meetings:
    • Meet outdoors/in large, open areas
    • Avoid clipboards or pens for check-in; each worker to use his or her own pen.
    • Implement an app/web-based system if possible.
  • Perform meetings in shifts when possible, keeping the same group of workers together to limit exposures.
  • If on site, maintain a minimum of 6 feet distance between other people.
  • Do not eat lunch or take breaks indoors with other people – try to remain outdoors and maintain a 6 foot distance from others.
  • Cover your cough and sneeze with a Kleenex or on the inside of your elbow.
  • No hand-shaking, fist bumping, or other physical social greetings.
  • Use walkie-talkies or other communication tools to facilitate remote engagement.
  • Keep the Jobsite Clean
    • Ensure you are properly using PPE. Do not share PPE if possible. Sanitize any reusable PPE.
    • Wipe down common areas including office desks, tools, and doorknobs.
    • Sanitize all tools and equipment.
  • DO NOT SHARE
    • Tools
    • Water coolers or water bottles
    • Hand towels at hand washing stations
    • Food/Lunches
    • Personal Protection Equipment (PPE)

After the Jobsite

  • When you leave the jobsite, be mindful of tracking pathogens into the home.
    • Remove shoes and handle clothing carefully.
    • Do not shake out work clothes.
    • Wash work clothes separately in warm water with a sanitizing detergent.

Of course, decisions involving the jobsite are not always black and white, if you have further questions about how to handle a particular situation involving COVID-19, please contact Gordon & Rees’ COVID-19 Task Force. We are closely monitoring daily developments involving the construction industry and stand ready to assist clients with their questions and concerns.

Visit our COVID-19 Hub for ongoing updates.

Construction is an Essential Service in Massachusetts

As in other parts of the country, the state and local response to COVID-19 has been universal but not uniform. On March 23, 2020 Massachusetts Governor Baker issued Order No. 13 directing “brick and mortar” businesses to close their physical doors until April 7, 2020, encouraging them to continue operations online. The list of “essential services” that can continue to operate as usual includes construction projects, utilizing social distancing practices, of course.

Following up on this Order, in a March 25, 2020 Guidance to municipalities, the Governor confirmed that Order No. 13 was issued under the Massachusetts Civil Defense Act. As such, any inconsistent municipal rule, regulation, ordinance, or by-law is inoperative. In particular, the most recent Guidance makes clear that construction projects are continuous essential projects requiring uniform, statewide management during this pandemic and should adhere to the state’s health and safety guidelines, rather than be subject to individual municipal requirements. The March 25, 2020 Guidance directs municipalities to follow the state’s guidelines for safety at construction sites allowing work to continue across the state.

The lack of uniformity comes with the fact that Boston Mayor Marty Walsh had earlier directed that construction in the City of Boston must cease, except for essential construction related to transportation and gas hookups. Mayor Walsh’s March 16, 2020 directive would seem to be superseded by the Governor’s Order No. 13 and March 25 Guidance.

In response to the Governor, Mayor Walsh affirmatively extended the City of Boston’s order pausing “non-essential” construction in the City. Such construction sites should have already been locked down by the time the Governor issued Order No. 13 on March 23, 2020, but may have been hoping to reopen.

Home Rule in Massachusetts was granted to cities and towns by constitutional amendment, and while viewed as very strong, the Commonwealth retained unlimited power to overturn local decision-making, which the Governor has exercised in this case. As such, the Governor’s Order is controlling, even in the City of Boston. The Mayor’s press release indicates that he is working with various partners including construction firms and the building trades to determine protocols that would allow these sites to safely re-open in Boston. The Governor’s office recommends that cities and towns implement guidance consistent with the state’s guidance to ensure safe and consistent practices.

Before restarting a construction project in the City of Boston, check the City’s Inspectional Services website for updates.

Please contact our Construction COVID-19 Task Force for assistance in developing your safety protocols or in any regard to assist in responding to the COVID-19 challenges on your existing projects or preparing your upcoming contracts and projects.

Visit our COVID-19 Hub for ongoing updates.

CISA Clarifies – Construction is Part of Critical Infrastructure Activities

After ongoing confusion by many over whether construction should be considered part of the “essential business,” during the COVID-19 pandemic, the Cybersecurity and Infrastructure Security Agency (CISA) issued an updated Coronavirus Guidance for America on March 28, 2020 to clarify construction’s critical role in supporting essential infrastructure. CISA’s initial advisory list referenced construction in regard to some areas such as energy and wastewater treatment, but it was unclear as to the whole of the construction industry. CISA’s update clarified that construction activities are included in its list of essential critical infrastructure workers. This new federal guidance should remove the ambiguity that led to varying responses by state and local officials halting some construction. The guidance clarifies that construction and related activities – including the manufacture and supply/delivery of supplies and equipment, permitting, safety, and inspections of projects – are covered as part of the critical infrastructure and economic activities.

The ongoing challenge will be for construction activities to proceed in a way that protects workers and the general public from the spread of coronavirus. However, contractors are always resourceful and have been implementing safety measures effectively on projects with an unwavering commitment to safety and are ready to meet this challenge. In addition to following the guidance from the CDC, we recommend that contractors implement a comprehensive safety program for their employees as well as for all parties that come onto the jobsite. It is critical that contractors have clear a clear plan for communications with their teams to ensure compliance with the CDC recommendations. This should include what has recently become standard protocol or social distancing, not hosting large group meetings and conducting meetings online or via conference call, maintaining a six-foot distance between people, discouraging hand-shaking or other contact, not sharing tools, and sanitizing reusable PPE. Contractors also should also be sure to place safety posters about “How to Protect Yourself” where they can be readily seen and encourage staying home when sick, cough and sneeze etiquette, and hand hygiene at the entrance of a jobsite. We also recommend heightened site security including interviewing anyone coming to the jobsite.

Contractors will also need to adjust on-site scheduling to avoid stacking trades, to manage their sites in a way that limits the number of people on a jobsite, and to allow non-essential personnel to work remotely.

Please contact our Construction COVID-19 Task Force for assistance in developing your safety protocols or in any regard to assist in responding to the COVID-19 challenges on your existing projects or preparing your upcoming contracts and projects.

Visit our COVID-19 Hub for ongoing updates.

COVID-19: Where is Construction an “Essential Business”?

With states and municipalities taking additional measures to limit the spread of COVID-19, including “shelter in place” and “stay-at-home” orders, which require non-essential businesses to close physical locations and limit operations to telecommuting the question for construction is, Are you an “essential business”? The answer will differ based on location and may change as states and cities continue to work in this fluid situation. It is important to verify before you proceed.

Essential Business

Some guidelines are available to assist businesses making this determination. First, the Cybersecurity and Infrastructure Security Agency (CISA) released a guidance document to assist state and local governments as well as businesses to determine which sectors’ workers should be considered essential, critical infrastructure workers. CISA has identified 16 sectors:

  • Healthcare / Public Health
  • Transportation and Logistics
  • Information Technology
  • Water and Wastewater
  • Food and Agriculture
  • Nuclear Reactor, Materials & Waste
  • Energy
  • Government Facilities
  • Defense Industrial Base
  • Emergency Services (Law Enforcement, Public Safety, First Responders)
  • Financial Services
  • Communications
  • Critical Manufacturing
  • Dams
  • Chemical
  • Commercial Facilities

The CISA Guide is a recommendation and ultimately is optional for states and location governments to use when adopting their own stay-at-home or workforce reduction orders. It is notable that, currently, there are six states that are following CISA guidance on the “essential business” definitions, nine CISA-modified, and eight with their own state-issued guides; the remaining states have not (yet) issued a stay-at-home order.

One of the most comprehensive assessments of the application of the CISA guidelines for an “essential” business has been compiled by MultiState Associates in its COVID-19 Policy Tracker. MultiState Associates’ Summary is a quick, ready-reference guide that also drills down in many instances to the local level.

However, there is still confusion as to whether and what types of construction projects fall under the “Essential Business” categorization.

A few states have made it very clear, but each local county and city may have their own regulations and restrictions. For example, in California, Governor Newsom’s Executive Order has clarified that construction (including residential construction) is an essential business, but the State has confirmed that the local governments may impose more restrictive measures. Each county and local jurisdiction is handling construction in its own way and therefore it is imperative to check before you proceed with your projects. On the other hand, New York has been more specific and limited the approved construction to include: skilled trades such as electricians, plumbers; and other related construction firms and professionals for essential infrastructure or for-emergency repair and safety purposes.

Gordon & Rees’ COVID-19 Task Force has been closely following each of the states’ and many key local jurisdictions’ guidance and stands ready to assist clients with compliance with the orders and determining where and what type of construction projects can continue.

Visit our COVID-19 Hub for ongoing updates.

COVID-19 Resources for the Construction Industry

The Gordon & Rees Construction team has been closely watching all of the developments with COVID-19 and the impacts on our construction clients. We have compiled various resources that may be useful for you and will continue to update our COVID-19 Hub with information as it is released.

General Resources:

California Resources:

Please contact our Construction COVID-19 Task Force for assistance in regard to interpreting your force majeure clauses, ensuring that you are getting out the proper Notice letters of potential delays, and in negotiating your new contracts to ensure that you are protected.

Force Majeure and COVID-19 in Construction Contracts – What You Need to Know

“Force Majeure” – While most construction contracts contain these provisions, they are often not understood  in relation to the implications they may have on construction projects. With the onset of the COVID-19 pandemic, we are all taking a closer look at many portions of our contracts.  The following is a brief primer on how to understand your construction contract and its potential implications on your business in this season of change.

What is a Force Majeure?

Construction contracts usually take into consideration that the parties want to agree at the outset on who bears the risk of unforeseen incidents that may affect the project’s progression.  These issues are generally handled in a “force majeure” clause.  Force majeure, according to Mariam Webster’s Dictionary is a “superior or irresistible force; or an event or effect that cannot be reasonably anticipated or controlled.”  To be deemed a force majeure, generally the circumstances must be outside of a party’s control which makes performance impossible, inadvisable, commercially impractical, or illegal. In addition to being unforeseeable, the circumstances must have external causation, and be unavoidable.  However, the key to understanding if COVID-19 will be deemed a condition that will excuse a contractor’s performance is the specific language in the provision.

Generally force majeure events are unavoidable events such as “acts of God,” most notably weather conditions including hurricanes, tornadoes, floods, earthquakes, landslides, and wildfires, as well as certain man-made events like riots, wars, terrorism, explosions, labor strikes, and scarcity of energy supplies.  However, there is not much case law or specifics on conditions similar to COVID-19.

What are the Key Aspects of a Force Majeure Clause?

While force majeure is a recognized concept in most legal systems, it usually does not have a precise legal definition. As a result, parties must generally look to the specific language used in the contract. Most contracts include a definition of force majeure and often include a non-exhaustive list of both illustrative force majeure events and events that do not constitute force majeure.  The contract interpretation will often turn on how the event of force majeure is characterized.

First, to be classified as a force majeure event, the event must be beyond the control of the contracting parties, it cannot be anticipated, foreseeable, or expected, and the event must be unavoidable.  The circumstances must also be found to be externally caused, unforeseeable, and unavoidable.  The specifics that you are looking to call the force majeure are important — what is the claimed impediment to performance?  Is the circumstance the outbreak of the disease, an order by the government trying to contain the spread of the disease, or lack of materials or manpower.  Once the event is determined and the specific force majeure is clarified, there must be found to be a sufficient causal link between the alleged force majeure and the claiming party’s non-performance. Finally, even if the declaration of force majeure is validly given, the amount of time that performance should be excused and the time at which the force majeure has ceased to exist will need to be addressed.

Can I trigger my Force Majeure Clause due to impacts from COVID-19?

The most secure means of ensuring that you can trigger your force majeure clause to excuse performance, or extend time for performance, is if your provision specifically calls out a pandemic or other similar serious disease, epidemic, or public health issue. However, most contract provisions do not contain that level of specificity.  The next step would be to see if the terms in your contract include sufficient examples that can be found to be analogous to a public health crisis such as we are currently experiencing. In many instances, the risk will rest on the contractor and not the owner for increased costs for material shortages and/or price increases unless another provision (such as price escalation clauses) apply.

The best course of action is to ensure that you negotiate as specific and clear language as possible to define the scope and effect of a force majeure clause to protect against unexpected liabilities. The following elements should be addressed in a force majeure clause:

  • What events are considered force majeure?
  • Who is responsible for suspending performance?
  • Who is allowed to invoke the clause?
  • Which contractual obligations are covered by the clause?
  • How should the parties determine whether the event creates an inability to perform?
  • What happens if the force majeure event continues for more than a specified period of time?

If you already have force majeure clauses in your standard contracts, we recommend a review of those provisions to ensure the terms provide clear, comprehensive, and adequate protections for the company and consider whether terms such as “widespread epidemic,” “pandemic,” and/or “public health emergency” should be added.  We have seen courts loathe to extend the interpretation of force majeure clauses beyond what is specifically listed in the contract.  While the impact of the COVID-19 pandemic is likely to be found to be unforeseen and externally caused, the key issue will likely be whether the impact was unavoidable.

You also should review the terms of your existing force majeure clauses in preparation for potentially needing to invoke them for COVID-19-related issues. In the event you are unable to assert a force majeure clause when faced with such events, the doctrine of impossibility and impracticability may be your next best bets. The common law doctrine of impossibility “allows a party to suspend or avoid performance when a supervening event beyond its control makes performance of the contract no longer capable of being performed.” (17A Am. Jur. 2d Contracts § 655 (2010).)  For example, where unforeseeable severe material shortages or an embargo render the materials necessary to complete a construction contract completely unavailable, impossibility is probably a viable defense. However, the more likely effect of an embargo or a material shortage is that it will significantly increase the cost of completing a contract, but not render it impossible. In such a scenario, a party’s best defense may be the doctrine of commercial impracticability. However, the terms of the contract must be carefully consulted to determine whether any waiver or assumption of these risks were included.

Many courts have moved beyond the requirement of “absolute impossibility” and recognize the doctrine of commercial impracticability, which allows a party to be excused from performance where, although performance of the party’s contractual obligations is technically possible, changed circumstances have rendered performance commercially unreasonable.  The doctrine of commercial impracticability is codified in the Uniform Commercial Code § 2-615 “Excuse by Failure of Presupposed Conditions” (however, the U.C.C. only applies to commercial goods). When deciding U.C.C. cases involving commercial impracticability, in addition to U.C.C. § 2-615, courts often also expressly discuss the Restatement of Contracts (Second) § 261, which sets forth the common law application of the doctrine of commercial impracticability.  Thus, the holdings of these U.C.C. cases should be generally applicable to non-U.C.C. construction contracts involving the provision of services.  (15 J.L. & Com. 213, 214-15 (1995).)

Generally, in order to prevail on a defense of commercial impracticability, a party must show the following: “(i) a supervening event, either an ‘act of God’ or an act of a third party, made performance impracticable, (ii) the non-occurrence of the event was a basic assumption upon which the contract was based; (iii) the occurrence of the event was not the party’s fault; and (iv) the party did not assume the risk of the event’s occurrence.”  (L.W. Matteson, Inc. v. U.S., 61 Fed. Cl. 296, 320 (2004).)   Whether non-occurrence of a particular event “was a basic assumption” generally depends upon the foreseeability of the event. (15 J.L. & Com. 213, 214-15 (1995).)   “If a disruptive event was foreseeable and the promisor failed to protect himself by means of an express provision in the contract (a force majeure clause), then the promisor will be deemed to have assumed the risk of the disruptive event.” (Id.)

However, “a severe shortage of raw materials or of supplies due to a contingency such as a war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost” or prevents performance altogether is likely sufficient for an impracticability defense under the U.C.C. (See U.C.C. § 2-615.)  The Restatement’s comments echo those of the U.C.C. and provide that such circumstances would also probably be sufficient for an impracticability defense in a contract for services.  (See RESTATEMENT (SECOND) OF CONTRACTS § 261 (1981).)   Accordingly, it appears that the doctrine of impracticability can relieve a party from its contractual duties when faced with price increases caused by severe material shortages or an embargo, or even arguably when faced with a health pandemic affecting global commerce.

In conclusion, there may be steps you can take now to protect yourself and to negotiate an agreement with your contracting partners as to how to weather this storm as well as to ensure that you comply with any notice requirements or mitigation efforts required. At a minimum, consult with an experienced construction lawyer to evaluate your risk and determine what risk management and mitigation steps you should be taking while this situation unfolds.

Visit our COVID-19 Hub for ongoing updates.

Reporting Requirements for Architects under California Business and Professions Code Section 5588

Below is an overview of the changes to California Business and Professions Code Section 5588 and its effect on the reporting requirements, for architects, in the construction industry.

Section 5588 Prior to 2005 Legislative Changes

Section 5588 of the California Business and Professions Code sets forth the reporting requirements for many business professionals including architects. Since 1979, Section 5588 has required architects and their insurers to report to the California Architect Board (the Board) “any settlement or arbitration award in excess of five thousand dollars ($ 5,000) of a claim or action for damages caused by the license holder’s fraud, deceit, negligence, incompetency, or recklessness in practice.”1

The language of the code section left open for interpretation the question of what types of settlement claims must be reported to the Board. Thus, in 2004, the Attorney General of the State of California published an opinion stating that a reportable settlement includes “any agreement resolving all or part of a demand for money which is based upon an insured architect’s alleged wrongful conduct.”2 He then went on to conclude that the only qualifications placed on the term “claim” for purposes of Section 5588 is that “(1) the demand be premised on the license holder’s alleged ‘fraud, deceit, negligence, incompetency, or recklessness in practice,’ and (2) the value of the claim, as measured by the settlement amount or arbitration award, exceeds $5,000.”3

The Board’s Recommendation to Amend Section 5588

In response to the Attorney General’s opinion, the Board directed the Regulatory and Enforcement Committee (REC) to determine the standard for reportable events. On December 7, 2004 the REC met and the consensus was that the Board should use “formal action (i.e., actions associated with any civil action judgment, settlement, arbitration award, or administrative action) as the standard for reportable events”.4

In order to set forth the standard for reportable events, the REC recommended, and the Board approved, amending section 5588 to require that “only settlements precipitated by legal action or arbitration awards that exceed $5,000 and allege wrongful conduct (fraud, deceit, negligence, incompetence, or recklessness) with respect to the architectural services being provided must be reported to the Board.”5

Thus, in 2005 Section 5588 was amended to states that “A licensee shall report to the board in writing within 30 days of the date the licensee has knowledge of any civil action judgment, settlement, arbitration award, or administrative action resulting in a judgment, settlement, or arbitration award against the licensee in any action alleging fraud, deceit, negligence, incompetence, or recklessness by the licensee in the practice of architecture if the amount or value of the judgment, settlement, or arbitration award is five thousand dollars ($5,000) or greater.”6

The Impact the Changes to Section 5588 has on Reporting Requirements

An enforcement analyst of the Board stated that “it is the policy of the California Architects Board to only require reporting of formal settlements. That is, settlements reached through court action, arbitration or administrative action. Settlements reached through informal compromise or through voluntary mediation are not reportable.” Furthermore, he concluded that this interpretation “follows from the intent expressed by the Board while considering its response to the 2004 AG opinion.”

Thus, whether a settlement is either formal or informal is one of the necessary factors to consider when determining whether the Board will require a settlement to be reported. Therefore, although the amendment to Section 5588 occurred in 2005, the distinction between reporting requirements for informal and formal settlements continues to remain relevant within the construction industry.

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1 REVIEW AND APPROVE BPC SECTION 5588/5589 TASK FORCE RECOMMENDATION REGARDING MODIFICATIONS TO BPC SECTIONS 5588 AND 5589, REPORT OF SETTLEMENT OR ARBITRATION AWARD
2 87 Ops. Cal. Atty. Gen. 121
3 Id.
4 REVIEW AND APPROVE BPC SECTION 5588/5589 TASK FORCE RECOMMENDATION REGARDING MODIFICATIONS TO BPC SECTIONS 5588 AND 5589, REPORT OF SETTLEMENT OR ARBITRATION AWARD
5 REVIEW AND APPROVE BPC SECTION 5588/5589 TASK FORCE RECOMMENDATION REGARDING MODIFICATIONS TO BPC SECTIONS 5588 AND 5589, REPORT OF SETTLEMENT OR ARBITRATION AWARD
6 Cal. Bus. & Prof. Code § 5588

Standard of Care

One of the key concepts at the heart of Board complaints and civil claims against a design professional is whether or not that design professional complied with the applicable standard of care. In order to prevail on such a claim, the claimant must establish (typically with the aid of expert testimony) that the design professional deviated from the standard of care. On the other side of the coin, to defend a design professional against a professional malpractice claim, defense counsel attempts to establish that – contrary to the claimant’s allegations – the design professional, in fact, complied with the standard of care. Obviously, it becomes very important in such a claim situation to determine what the standard of care is that applies to the conduct of the defendant design professional. Often, this is easier said than done. There is no dictionary definition or handy guidebook that identifies the precise standard of care that applies in any given situation. The “standard of care” is a concept and, as such, is flexible and open to interpretation. Traditionally, the standard of care is expressed as being that level of service or competence generally employed by average or prudent practitioners under the same or similar circumstances at the same time and in the same locale. In other words, to meet the standard of care a design professional must generally follow the pack; he or she need not be perfect, exemplary, outstanding, or even superior – it is sufficient merely for the designer to do that which a reasonably prudent practitioner would do under similar circumstances. The negative or reverse definition also applies, to meet the standard of care, a practitioner must refrain from doing what a reasonably prudent practitioner would have refrained from doing.

Although we have this ready definition of the standard of care, in any given dispute it is practically inevitable that the parties will have markedly different opinions as to: (1) what the standard of care required of the designer; and (2) whether the defendant design professional complied with that requirement. The claimant bringing a claim against a design professional typically will be able to find an expert reasonably qualified (at least on paper) who will offer an opinion that the defendant failed to comply with the standard of care. It is just as likely that the counsel for the defendant design professional will be able to find his or her own expert who will counter the opinion of the claimant’s expert and maintain that the defendant design professional, in fact, complied with the standard of care. What’s a jury to think?

The concept of standard of care is intertwined with the legal concept of negligence. In the vast majority of law suits against design professionals, a claimant (known as the plaintiff) will assert a claim for negligence against the design professional now known as the defendant.1 As every first year law student learns while studying the field of “Torts,” negligence has four subparts. In order for a defendant to be found negligent, the claimant must establish four elements: (1) duty; (2) breach; (3) causation; and (4) damages. In other words, to establish a claim against a defendant design professional, a plaintiff must demonstrate that the defendant owed the plaintiff a duty of care but breached that duty and, as a result, caused the plaintiff to suffer damages.

This formulation of a negligence claim is universal – it applies to claims against reckless drivers as well as claims against design professionals. In a situation in which a claimant is bringing a claim against a design professional the concept of the standard of care applies in the first two elements (i.e., duty and breach). Take for example a typical construction accident in which a worker is injured during the construction phase of a project. Depending upon the severity of the injury, a lawyer for the injured worker will sue some or all of the participants in a construction project.2 Imagine a situation in which an iron worker falls off a beam during construction, drops ten feet to the floor below, and breaks some bones. This worker will have a worker’s compensation claim against his employer regardless of fault. Even if the worker fell from the beam as a result of his dancing drunk, he is entitled to receive worker’s compensation benefits. After processing the workers compensation claim, the injured worker’s enterprising lawyer will often look to other participants in the design and construction process and assert what is known in the industry as a “third party claim.” If this lawyer sues either the architect or engineer (typically structural), he will make an argument that the design professionals owed the worker a duty (i.e., the first of the four negligence elements) to ensure that the work site was reasonably safe. The lawyer will craft an argument that the design professionals failed to meet this duty by either designing an unsafe building (a difficult argument to make especially if the accident happened during the construction phase) or will argue that the design professionals breached their duty by “allowing” a dangerous condition to exist on the site. In either case, to prevail on his claim, the plaintiff’s lawyer will have to establish that either one or both of the design professionals owed a duty to the worker as a result of application of: (1) the standard of care; or (2) as a result of contractual obligations.

As most design professionals would agree, it is extremely rare throughout the country that a designer is responsible on a project for site safety or for controlling the means, methods, sequences, techniques, or procedures of construction. Thus, it would be extremely difficult for a plaintiff’s counsel to locate a qualified expert who would venture an opinion that the standard of care required an architect or engineer to protect the injured iron worker.

This example of the injured iron worker highlights an important aspect of the concept of duty. As most design professionals understand and appreciate, standard form agreements typically emphasize the fact that design professionals have no obligation to ensure construction means and methods or to ensure site safety during the construction phase. Typically, the contactors (i.e., the entities most capable of controlling construction and site safety) are exclusively responsible therefore. What this means in practical terms is that in any construction accident case the best defense for a design professional is typically found in the construction agreements for that project.

Just as contractual provisions protect a design professional; the wrong provisions can also inadvertently create exposure for a design professional by, among other things, heightening the standard of care. This issue is not present in most cases in which standard form agreements are used. In cases in which an owner has modified a standard from agreement or uses his or her own contract language, be wary of contractual provisions that specifically increase the standard of care applicable to a design professional. For example, some owners insert in their contracts provisions requiring that the design professional perform its services consistent with the “best” practices employed in the design community or must use “superior” or “maximum” efforts. Contract provisions such as these are problematic for a number of reasons. First, such provisions can effectively increase the standard of care applicable to a design professional over and above what would apply in a specific situation. Looked at using the legal terms referenced above, by agreeing in a contract to use “best” or “superior” efforts, a design professional will increase or heighten the duty which he or she owes on a particular project. In such a situation, it is no defense to a negligence claim to argue that a design professional complied with the applicable standard of care and did exactly what a reasonably prudent practitioner would and should do. If by contract a design professional is obligated to use “best” efforts, then anything less (even if it complies with the standard of care) would represent a breach of the contract and, as a result, would create exposure for the design professional.

These types of contract provisions which heighten the standard of care are also problematic as they may inadvertently jeopardize insurance coverage. Most professional liability policies cover a design professional’s negligence. As noted above, generally speaking, a design professional is negligent when he or she fails to comply with the standard of care. When a claimant asserts a claim against a design professional, the insurance company will review the allegations in the complaint to determine if the claimant is alleging that the insured design professional was negligent or is alleging something else such as an intentional wrong (not covered), breach of contract (not covered), or violation of a consumer protection act such as chapter 93A (not covered). If a claimant asserts a claim that the design professional failed to comply with its contractual obligations to use “best” or “superior” efforts, then the insurance company has a valid argument that there is no insurance coverage. An insurance company in such a situation could deny coverage on the basis that the design professional is not being accused of negligence (a covered claim) but, instead, is being accused of breaching its contract (not covered). In this regard, most professional liability policies include a provision specifically excluding from coverage any obligation assumed by the design professional in its contract.3

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1 For reasons that are not entirely clear, in the context of an arbitration proceeding, the person asserting the claim is the claimant, while the target of the claim is the respondent.
2 Unfortunately, there is typically a direct relationship between the severity of an injury and the number of parties whom the plaintiff will sue. In other words, the greater injuries, the more defendants will be included in the law suit.
3 Other examples of such exclusion are indemnity provisions. Design professionals have to be extremely careful when agreeing in a contract to defend or indemnify the client or a third-party. Unless the indemnity provision is carefully written, it can create an obligation on the part of the design professional which is not covered by professional liability insurance.