On March 11, 2020, the World Health Organization declared the Coronavirus a global pandemic.  Panic has ensued, states of emergency have been declared, international travel has been restricted, major sporting events and mass public gatherings have been cancelled, and employers have directed their employees to work from home.  The construction industry is unlikely to escape the ramifications of the pandemic and projects may experience work stoppages, loss productivity, inefficiencies and delays.  But who should bear the cost for associated delays?  Most construction contracts answer this question vis-a-vis force majeure clauses, which generally excuse a party’s non-performance when caused by a significant unforeseeable and uncontrollable event.

“Force Majeure” Defined: Force majeure clauses relieve a party of liability when the parties’ expectations are frustrated as a result of an event that is extreme and unforeseeable (i.e., one that is beyond the parties’ control and is without fault or negligence as to either party).  Typically, these clauses contain a list of events excusing performance under a contract including, for example: weather events (such as hurricanes, tornados and earthquakes), war, “acts of god”, and health crises.  To the extent the parties’ contract contains a force majeure clause and its performance is disrupted by an enumerated “force majeure” event, courts in New York and New Jersey will generally excuse a party’s inability to perform.

New Jersey’s Take: New Jersey courts construe force majeure clauses by considering the contractual language, the surrounding circumstances, and the underlying purpose of the contract.  When an unforeseen event affecting performance of a contract occurs, such clauses will be interpreted reasonably in light of the circumstances.  Where the clause employs broad exculpatory language (for example, a clause that excuses “other conditions or contingencies beyond its control”), courts will not construe such language to its widest extent.  Rather, such language will be narrowly construed and interpreted as contemplating only those events or things of the same general nature or class as the events enumerated in the clause.  Notably, the party seeking the benefit of the force majeure clause bears the burden of proving its applicability.

By way of example, the New Jersey Department of Transportation (“NJDOT”) specifications, in particular § 108.11.01(B)(2) entitled “Excusable, Non-Compensable Delays”, contemplates pandemics, such as the Coronavirus, and excuses delays caused as a result of same.  Specifically, the clause provides, in relevant part:

The Department will extend Contract Time but will not make payment for the delay costs incurred by the Contractor for . . . [d]elays caused by the State in its sovereign capacity, including but not limited to, epidemic or quarantine restrictions, states of emergency, and State shutdowns.

Because the Coronavirus is an epidemic that has caused New Jersey to declare a state of emergency, contractors working on NJDOT projects that are impacted by the outbreak may be entitled to a time extension.  Similarly, where a construction contract contains a force majeure clause that is not as specific as the subject NJDOT specification § 108.11.01(B)(2), contractors will be entitled to similar relief if the clause contemplates, as excusable, such uncontrollable physical phenomena or governmental action. 

Even if a contract does not contain a force majeure clause, New Jersey courts may still relieve a party of its duty to perform thereunder if performance is determined to be impossible or impracticable due to a pandemic like the Coronavirus.  The impossibility or impracticability doctrines are equitable in nature and are defenses to non-performance where a fact essential to performance is reasonably assumed by the parties but does not exist at the time of performance.  Contractors facing delays due to labor shortages or government-imposed restrictions should have a strong argument that their performance was rendered impracticable or impossible as a result of a pandemic like the Coronavirus.

New York’s Take:  Under New York law, force majeure clauses are to be interpreted in accordance with their purpose, which is to limit damages in a case where the reasonable expectations of the parties and the performance of the contract have been frustrated by circumstances beyond the parties’ control.  When the parties have themselves defined the contours of a force majeure clause (i.e., identifying specific events) in their agreement, those contours dictate the application, effect, and scope of the clause.  Similar to New Jersey, New York courts will narrowly construe broad exculpatory language of a contract to give effect to the parties’ reasonable expectations.  The party seeking to excuse its non-performance bears the burden of establishing that the force majeure clause applies. 

Notably, the New York State Department of Transportation (“NYSDOT”) specification § 108-04(B), entitled “Compensable Delays”, contains “catch-all” exculpatory language that may excuse a contractor’s non-performance and result in compensable delay.  Specifically, the provision states, in relevant part:

The Contractor will only be eligible for extra compensation caused by delay or interference affecting the performance or the scheduling of contract work for those instances arising out of . . . [s]ituations not referenced in this paragraph and which are not within the contemplation of the parties at the time of entering into the contract.

Based on the language of the specifications, contractors who have already commenced performance on a NYSDOT project without contemplating impacts due to a pandemic like the Coronavirus may seek to recover additional costs incurred as a result of delays caused in connection with same.  In doing so, however, contractors should be mindful to comply with NYSDOT specifications’ notice and recordkeeping requirements (§ 104-06).

Like New Jersey, New York courts also recognize impossibility or impracticability as a defense to non-performance.  The defense is applied narrowly and excuses contractual performance when the destruction of the subject matter of the contract or the means of execution makes performance objectively impossible due to an unanticipated event that could not have been foreseen or guarded against in the contract.  Given the uncontrollable negative impacts caused by the Coronavirus and the likely unanticipated restrictions imposed by federal and state governments, the impossibility/impracticability defense may be another viable mechanism to relieve Contractors of non-performance as a result of pandemic.

Takeaway:  Contractors should be mindful of whether their construction contracts contain a force majeure clause, whether it sufficiently enumerates an event like the Coronavirus (or the negative effects/governmental measures it may create) as an excusable event, and whether it provides for additional compensation and/or time.