With the successful progress of the COVID-19 vaccine rollout, life in the U.S. is beginning to return to what many people will refer to as “the new normal.” While most of the country is preparing to return to “business as usual,” for those in the construction industry, business – for the most part – never really took a break from its usual pace. And while the regular pace of the construction industry is no stranger to delays and disputes arising from schedule disruptions, the construction industry, like many other industries, has and continues to face issues directly related to the COVID-19 pandemic. Such impacts include, for example, disruptions in the material supply chain, project site closures, and labor impacts. In the face of these unexpected new challenges directly resulting from the pandemic, those in the construction industry and particularly, construction lawyers, must consider whether such delays are excusable and, if so, whether they are entitled to compensation.
Whether a delay is excusable depends on the contract language and the circumstances surrounding the delay. For government contracts, the Excusable Delay clause (FAR 52.249-14) provides that any delay arising from “causes beyond the control and without the fault or negligence of the contractor” is excusable. The clause includes enumerated examples of circumstances that result in excusable delays like acts of God, fires, floods, epidemics, and even quarantine restrictions. Similarly, under the AIA’s Delays and Extensions of Time clause (section 8.3.1), a reasonable extension of time can be provided in circumstances where the delay was caused by something out of the contractor’s control like bad weather, labor disputes, or delivery delays. However, in order to be compensated for the delay under the FAR, the contractor must show that the Government was the sole and proximate cause of the delay. Likewise, under the standard AIA contract, the contractor must show that the owner solely caused the delay without any concurrent contractor delay. Examples of compensable delays include the Government’s failure to give timely work orders or an owner providing defective drawings; situations where the contractor can readily demonstrate that they had no fault in the delay.
In the case of the COVID-19 pandemic, it’s safe to say that such delays are beyond the reasonable control of and not reasonably anticipated by contractors. Still, that doesn’t necessarily mean that any delay in construction since the start of the pandemic in early 2020 can be deemed compensable or even excusable.
While there is no significant caselaw development specifically related to COVID-19 construction delays at this time, there’s plenty of guidance relating to government contracts from past unforeseeable events and their subsequent construction delays. In Ace Electrical Assoc’s, Inc., a contractor sought to change its termination for default into a termination for convenience by arguing that “a flu epidemic that had passed through its plant causing a 30% to 40% rate of absenteeism over a period of several weeks” had caused production delays. ASBCA No. 11781, 67-2 BCA ¶ 6,456. While accepting the notion that a flu epidemic could be cause for an excusable delay, the Board noted that the mere existence of a flu epidemic does not make a delay excusable per se. Id. Instead, the Board made clear that to establish an excused delay, the contractor must not only show the existence of the excusable cause for delay but also how the delay specifically affected the contractor, its work, and the efforts made to mitigate such delay. Id. Later, in Asa L. Shipman’s Sons, the Board faced a similar flu-related excusable delay claim and, in denying the contractor’s argument, made clear: “the essence of the ‘Ace Electronics’ test is the requirement that a defaulted contractor prove that an epidemic was the sole cause, not merely a contributing cause, of the performance delay.” GPOBCA No. 06-95, 1995 WL 818784 (Aug. 29, 1995). Similarly, in Crawford Development and Mfg. Co., a contractor maintained that its 4-week delay in production was caused by a flu epidemic that caused several key employees to become ill. ASBCA No. 17565, 74-2 BCA ¶ 10,660. The contractor’s records showed, however, that during the period the contractor was delayed, only two employees were absent and that the rest of the delay period was actually due to an industrial accident – not the flu epidemic. Id. Again, because the contractor failed to precisely establish how the flu epidemic materially affected its ability to perform, the Board denied the claim. Id.
Past flu epidemic excusable delay cases suggest that contractors claiming a delay in performance due to the COVID-19 pandemic should be prepared to establish, with specificity, how the pandemic directly caused their delays. Merely pointing to COVID-19 as a cause for delay will likely be insufficient, especially because – unlike past flu epidemics – the COVID-19 pandemic has impacted industries across the country for longer than just a few months. In other words, while certain Stay-at-Home Orders that did not identify construction workers as “essential” is likely cause for an excusable delay, lack of manpower due to employee illness may require more detail.
Legal precedent suggests, however, that contractors should not hold their breath for delay-related compensation. As mentioned earlier, the FAR and standard AIA contracts are very particular when it comes to a contractor’s right to delay-related compensation (i.e., the owner or government must be the sole cause of the delay to justify compensation). Contractors will have a difficult time arguing that delays resulting from COVID-19 were foreseeable by the government or owners in a way that would entitle them to compensation. In Pernix Serka JV c. Department of State, a contractor was unable to meet certain deadlines due to the Ebola virus outbreak in Sierra Leone. CBCA No. 5683, 20-1 BCA ¶ 37,589. The contractor was given time extensions by the government agency but was ultimately terminated due to the continued delays. Id. The contractor brought suit, seeking compensation for the costs it incurred to protect the health of its employees by arguing that the government agency’s expectation that work continue during the Ebola outbreak constituted a constructive and cardinal change. Id. The Civilian Board of Contract Appeals denied the claim, noting that the government agency never changed the scope of work expected of the contractor and that, even though the Ebola outbreak was unexpected, the government agency did not direct the contractor to make any changes as it related to the construction to justify compensation. Id. Using this example, contractors may be expected to show an actual owner or government ordered revision to the schedule or scope of work in lieu of the pandemic, which would then entitle the contractor to compensation. Additionally, contractors should note that any delay in their own project management during the pandemic may provide the government or owner with a concurrent delay counterclaim that could eliminate the ability to receive compensation.
In conclusion, contractors and their counsel should understand that COVID-19 related excusable delay claims must be equipped with detailed documentation that establish the causal link between the pandemic and the specific delays. Contractors should also be able to identify the precise ways in which they attempted to mitigate such delays in order to avert owner or government claims of concurrent delay. Moving forward, contractors should consider inserting more delay-related protective provisions and should consider expanding the definition of Force Majeure in their contracts to shield themselves from future problems associated with unforeseeable pandemics and the need for greater (and more costly) safety measures for their employees. As the country begins to reemerge from the chaos of the pandemic, we will likely see more caselaw specifically on these issues and continue to update our clients.
In a decision issued by the United States Court of Federal Claims, Anthem Builders, Inc. v United States, 121 Fed. Cl. 24, the Court considered a Contracting Officer’s right to deny a bid on a project based on an entity’s use of an unacceptable individual surety. Proper bonding is essential, because without a safety net, the government is left with no protection if the contractor fails to meet its contractual obligations. Under FAR 28.203 an entity can use an individual surety, instead of a corporate surety, for all types of bonds, with the exception of position schedule bonds. Anthem bid on a government construction project and the bidding package included a bond secured by an individual surety. The Contracting Officer rejected the bid as “nonresponsible.”
Contractors have been careful about using an individual surety to secure bonds because of the difficulty in verifying assets and the questionable practices of some individual sureties. Since these problems arise with an individual surety a Contracting Officer is given wide latitude under FAR 28.203(a). FAR 28.203(a) gives the Contracting Officer the right to find the individual surety “nonresponsible.” The right of a Contracting Officer to reject an individual surety was cemented in Anthem Builders. The Court found that even though pursuant to FAR 52.228–15(d), the bond was supported by an individual surety, the Contracting Officer had the right to deny the bid if the individual surety was “nonresposible” and the funds were not guaranteed.
For Contracting Officers, the validation that a bid does not have to be accepted if the individual surety raises severe financial red flags for the project provides some much needed relief and mitigates a common fear of having to accept fraudulent transactions. Entities bidding on a federal government project should try and obtain bonding from a surety listed on the Treasury Department Circular. If an entity is using an individual surety as security for the bond, the entity could take steps to avoid Anthems’ fate in this case. The entity should ensure that the individual surety provides an escrow account where the Contracting Officer has the sole and unrestricted right to draw on the funds, provides proof of unencumbered assets, or provides an Irrevocable Trust Receipt that is issued by an FDIC insured financial institution.
As more business is conducted via text messaging, new legal problems will continue to arise. Recently, a court addressed whether a letter of intent was binding based on an exchange of e-mails and text messages between real estate brokers. In St. John’s Holdings, LLC v. Two Electronics, LLC, No. 16 MISC 000090 RBF the court examined whether the parties merely engaged in negotiations regarding the purchase of certain property, or whether their text messaging gave rise to a binding and enforceable contract for the purchase and sale of the real estate.
Because this was a sale of real estate, the issue at hand was whether the text messaging was sufficient to satisfy the Statute of Frauds. To resolve this issue, the court looked at whether (a) a text message can be a writing under the Statute of Frauds, (b) whether the alleged writing contains sufficiently complete terms and an intention to be bound by those terms, (c) whether the text message is signed, and (d) whether there is an offer and acceptance.
The factual timeline in St. John’s Holdings, LLC involved a number of drafts of the letter of intent sent from the Buyer to the Seller. None of these drafts were signed by the Buyer. Eventually, the Seller’s agent sent the Buyer’s agent a text asking the Buyer to sign the letter of intent and provide a deposit. The Seller’s agent included his name at the end of this text message. The Buyer signed the letter and provided the deposit, and then texted to the Seller’s agent: “Tim, I have the signed LOI and check it is 424[pm] where can I meet you?” Thereafter, the Seller’s agent met the Buyer’s agent and accepted the signed letter and deposit. After this exchange, the Buyer’s agent sent a text message requesting a copy of the letter executed by the Seller, but was informed via text message, “[Seller] was out of town today. He will get back to us tomorrow.” The Buyer was later informed that the Seller had accepted a separate offer from a third-party, and did not close on the deal with the Buyer.
The court found that the text messages, read in the context of the negotiations and exchanges between the parties, contained sufficient terms to create a binding contract between Buyer and Seller. The court found sufficient support that multiple writings relating to the subject matter of the agreement may be read together as long as they contain all of the material terms of the agreement and are eventually authenticated by signature. Therefore, the text messages, together with the previous negotiations and draft letters exchanged, satisfied the writing element of the Statute of Frauds. The ultimate factor for the court was that “[t]he way in which the parties handled the transaction was sufficient for them to appreciate that the text message would memorialize the contractual offer and acceptance.” Therefore, the court embraced a contextual approach to effectuate the intent of the parties.
Once determining that the text messaging constituted a writing, the court liberally construes the “signature” element and inferred from the Seller’s agent adding his name to the end of the text message that it was intended to create a binding signature. The court found that “the use of his signature at the end of the February 2nd text message is evidence of his intent to have the writing be legally binding.” Therefore, the court found that the text message from the Seller’s agent, asking the Buyer to sign the letter of intent and provide a deposit, was a binding contract.
While this case concerns the purchase of real property, and therefore involves the Statute of Frauds, it does provide instruction for construction projects in the 21st century. As more and more communication is conducted informally via text messaging, parties need to be aware that text messages can and will have legal ramifications. A text message may not be as informal as one thinks, at least in the eyes of the law. Further, this case shows the importance of preserving documentation. While e-mail is routinely stored and backed-up, text messages are more prone to deletion or being lost. It is important to remember that steps must be taken to preserve text messages, as a claim could survive or fail based on text messaging documentation. Law firms should instruct clients on the need to preserve all relevant documentation, including text messaging. Issues can arise if team members are discussing change orders or potential claims via text messaging, which may also raise notice issues.
Ultimately, cases such as this remind us that the law must continually adapt to modern technologies and business practices, and that parties must be aware of how modern communication methods will be interpreted by courts.
Moore & Lee partner Robert D. Windus was recognized in the Official Educational Journal of the American Subcontractors Association, The Contractor’s Compass, for his peer review of the 2018 edition of Mechanical Contractors Association of America, Inc.’s (MCAA) publication Change Orders, Productivity, Overtime: A Primer for the Construction Industry. Specifically, Mr. Windus was credited for helping ensure that the content and data in 2018 edition was correct, reasonable, and applicable to the current state of construction management and construction law. The American Subcontractors Association recently joined the Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA) and the National Electrical Contractors Association (NECA) in announcing its full support and formal endorsement of the 2018 edition of MCAA’s publication. Read the full article here.
Moore & Lee is pleased to announce that Tara Hosseini and Zackary Rogers have joined the firm as Associates. Tara graduated from The George Washington University School of Law in 2020. Zackary graduated from the George Mason University School of Law in 2020. Tara and Zack worked as Summer Associates at Moore & Lee in 2019.
Moore & Lee is pleased to announce that Rachel Bauer has joined the firm as a Law Clerk. Rachel graduated from the American University Washington College of Law in 2019. She worked as a Summer Associate at Moore & Lee in 2017.
Moore & Lee was once again selected as Tier 1 for Construction Law and Construction Litigation in both the National and Washington, DC Metro Area Rankings of the U.S. News & World Report’s Best Law Firms.
Charlie Lee was featured in a recent issue of The Virginia Lawyer…
“Devastating, isn’t he?” That’s an ESPN announcer describing 22-year-old Charlie Lee in the center of a boxing ring, performing his taekwondo routine in 1986 Atlanta. “Lee is noted for his strong, solid stances,” the announcer says. “Every block, every punch is perfectly clean, solid, and strong.” In the YouTube clip, Lee slices and kicks at the air with precision before a large crowd, his routine set to the music of The Twilight Zone.
The announcer notes that Lee is a marketing major at Virginia Tech. “I wanted to go out to Hollywood and be the next Bruce Lee after I graduated,” says Lee, now 55. “But my very traditional Korean mother said, ‘No, you’re going to law school.’ So, you know, you don’t disobey your mother.”
But Lee didn’t just follow his mom’s advice. He became a lawyer, but he also found a way to make his passion an ongoing part of his life. Today, he is co-founder and partner at Moore & Lee LLP in McLean, and he crisscrosses the United States representing clients in cases ranging from healthcare to corporate litigation to construction law. Read the full story
Moore & Lee is pleased to announce that John Bertino and Danielle Lubin have joined the firm as Associates. John graduated from The George Washington University School of Law in 2018. He worked as a Summer Associate at Moore & Lee in 2017. Danielle graduated from Suffolk University Law School in 2018.
In a recent decision by the Government Accountability Office (“GAO”), AutoFlex, Inc., B-415926, April 19, 2018, the GAO considered a challenge to the agency’s termination of a contract for the convenience of the government where the termination flows from a defect the contracting agency perceived in the award process.
In this bid protest, service-disabled veteran-owned small business (“SDVOSB”) AutoFlex, Inc. (“AutoFlex”), protested the termination of its contract for the lease of executive vehicles with the Department of Veterans Affairs (the “Agency”) and subsequent award of a contract to small business concern District Fleet, LLC (“District Fleet”). AutoFlex alleged that the Agency unreasonably terminated its contract, failed to set aside the procurement for SDVOSB concerns, and failed to provide AutoFlex with a debriefing. On November 30, 2017, the Agency issued the solicitation as a small business set-aside for the lease of four 2018 Chevrolet Suburbans for a period of one base year and four option years. The solicitation indicated award would be made on a lowest-price, technically acceptable basis.
District Fleet submitted the lowest-priced quotation, which the Agency initially found unacceptable. AutoFlex, the incumbent contractor, provided the next lowest-priced quotation and the Agency awarded the contract to AutoFlex on December 20, 2017. Subsequently, District Fleet filed an agency-level protest of the contract award to AutoFlex. Upon further review, the Agency determined that the evaluation of District Fleet’s quotation was erroneous and found the quotation to be technically acceptable. As a result, the Agency terminated AutoFlex’s contract and awarded the contract to District Fleet. AutoFlex then protested the termination of its contract to the Government Accountability Office (“GAO”).
In its decision, GAO noted that the GAO generally will decline to review the termination of contracts for the convenience of the government as those actions are matters of contract administration. However, the GAO will review the propriety of the termination where the termination stems from a defect perceived by the contracting agency in the award process. In which case, the GAO will analyze the award procedures underling the termination for the limited purpose of determining whether the initial aware may have been improper, and, if so, the appropriateness of the corrective action advanced by the agency in remedying the impropriety. Even if the agency’s corrective action is not the most advantageous to the government, the GAO will not object as long as the corrective action taken is appropriate.
Here, the GAO found no basis in the record to object to the agency’s termination of AutoFlex’s contract. The Agency reasonably concluded that it had misevaluated District Fleet’s quotation and corrected the error. Additionally, the GAO found AutoFlex’s challenge to the Agency’s determination to set the procurement aside for small business concerns as opposed to SDVOSB concerns as an untimely challenge to the terms of the solicitation. During the solicitation phase, the Agency posted a response to a question as to whether the solicitation was in accordance with the Veterans First Contracting Act by stating “[t]his requirement is being solicited in accordance with the Veterans First Contracting Program.” The GAO found no basis in the record to conclude that the Agency’s response was misleading. The Agency did not amend the solicitation to change the set-aside designation, nor did the Agency add VA Acquisition Regulation clauses 852.219-11, VA Notice of Total Veteran-Owned Small Business Set-Aside or 852.219-10, VA Notice of Total Service-Disabled Veterans-Owned Small Business Set-Aside to the solicitation. The solicitation clearly designated the requirement set-aside for small business concerns. The GAO found that in viewing the matter in a manner most favorable to the protester, the Agency’s response could be construed as a patent ambiguity. A patent solicitation ambiguity exists where the solicitation contains an obvious, gross, or glaring error apparent from the face of the solicitation. As such, a patent solicitation ambiguity must be protested prior to the closing time for receipt of proposals or quotations to be considered untimely. Finally, the GAO also dismissed AutoFlex’s protest of the Agency’s failure to provide it with a debriefing since the adequacy and conduct of a debriefing, including the failure to provide a debriefing are procedural matters that do not involve the validity of an award.
Decisions such as AutoFlex serve as two important reminders to both contractors and agencies alike. First, the GAO will not object to an agency’s response to a defect in the procurement process as long as the corrective action taken is appropriate. Additionally, contractors should closely adhere to GAO timeliness regulations when determining whether to protest a patent solicitation ambiguity. The untimeliness of such a challenge may prevent a contractor’s success on the merits without even a chance of its allegations being heard in such instances.