COVID-19 and standard CCDC/CCA clauses
April 1, 2020
By Gerry Argento, LL.M.
At the time of this column’s writing on Mar. 30, 2020, Canada has reported 7,297 cases of COVID-19 (both presumed and confirmed). In a continued effort to ‘flatten the curve’ and slow the spread of the virus, the federal and provincial governments have introduced a series of emergency measures. So far, to varying degrees across Canada, these measures have included social distancing, limits on public gatherings, new highway checkpoints and the mandatory closures of all non-essential businesses.
The pandemic’s impact on business cannot be overstated and the construction industry has not been spared. In particular, the adverse consequences on the availability of the industry’s workforce and supply chains will challenge project teams and hamper effective project delivery.
In Quebec, with the exception of emergency repairs or services required to ensure public safety, all construction sites have been ordered closed until Apr. 13. There have been calls across the country for other provinces to follow suit.
In this uncertain and unprecedented context, many industry stakeholders are questioning whether COVID-19 could trigger any force majeure clauses provided in their contracts. This column will address such clauses found in the Canadian Construction Documents Committee’s (CCDC’s) and the Canadian Construction Association’s (CCA’s) standard documents.
As it pertains to the construction industry specifically, the widely used CCDC-2 Stipulated Price Contract and corresponding CCA-1 Stipulated Price Subcontract do provide a force majeure clause in GC 6.5.3.
This clause reads as follows (with italics indicating this author’s emphasis):
6.5.3 If the contractor is delayed in the performance of the work by:
.1 labour disputes, strikes, lockouts (including lockouts decreed or recommended for its members by a recognized contractors’ association, of which the contractor is a member or to which the contractor is otherwise bound);
.2 fire, unusual delay by common carriers or unavoidable casualties;
.3 abnormally adverse weather conditions; or
.4 any cause beyond the contractor’s control other than one resulting from a default or breach of contract by the contractor;
then the contract time shall be extended for such reasonable time as the consultant may recommend in consultation with the contractor. The extension of time shall not be less than the time lost as the result of the event causing the delay, unless the contractor agrees to a shorter extension. The contractor shall not be entitled to payment for costs incurred by such delays, unless such delays result from actions by the owner, consultant or anyone employed or engaged by them directly or indirectly.
While the term ‘pandemic’ is not specified in the list of possible force majeure events included in GC 6.5.3, COVID-19 may qualify as one under subsection 4, given the rather broad and open-ended language, i.e. “any cause beyond the contractor’s control.”
Under GC 6.5.3, the qualification of COVID-19 pandemic as an event of force majeure would entitle the contractor to an extension of time to perform the works, as recommended by the consultant (engineer or architect). The contractor, however, would not be entitled to claim payment for any costs incurred as a result of such delay. This arrangement, as provided for under GC 6.5.3, corresponds to what is generally referred to as “excusable but not compensable” delays.
Parties should also note, pursuant to GC 6.5.4 of the CCDC-2, the contractor’s right to claim an extension of time is subject to the communication of a written notice not later than 10 working days after the commencement of the delay caused by the force majeure event. The time limit for subcontractors under the CCA-1 is seven days.
Stop work orders
In light of the current, particular situation in Quebec, where the government has ordered a shutdown of most construction-related activities, GC 6.5.2 of the CCDC-2 and CCA-1 becomes highly relevant.
This clause reads as follows (again, with italics indicating this author’s emphasis):
6.5.2 If the contractor is delayed in the performance of the work by a stop work order issued by a court or other public authority and providing such order was not issued as the result of an act or fault of the contractor or any person employed or engaged by the contractor directly or indirectly, then the contract time shall be extended, for such reasonable time as the consultant may recommend in consultation with the contractor. The contractor shall be reimbursed by the owner for reasonable costs incurred by the contractor as a result of such delay.
Under this clause, delays resulting from a stop work order issued by a public authority, such as the one issued in March by Quebec’s government, are “excusable and compensable.” This implies contractors (and subcontractors) are not only afforded the right to an extension of time to complete the work, but also to be reimbursed for reasonable costs incurred as a result of the delay caused by the stop work order.
It is also noteworthy, in such circumstances and where the work is delayed for a period of 20 working days or more, CG 7.2.2 affords the contractor (and subcontractors) the right to terminate their agreement.
As mentioned above, stakeholders would be well-advised to pay close attention to GC 6.5.4 of the CCDC-2, which requires contractors to issue a written notice within 10 working days; while under CCA-1, the time limit for a subcontractor is seven working days.
Clauses and conditions
In the event a contractor is delayed in the performance of work as a result of the COVID-19 pandemic, it is likely—pursuant to GC 6.5.3 of the CCDC-2 and CCA-1—both the contractor and the subcontractor would be entitled to a reasonable extension of time to complete the work, as recommended by the consultant.
In the event a stop work order has been issued by a public authority, as is currently the case in Quebec, GC 6.5.2 of the CCDC-2 and CCA-1 likely entitles contractors and subcontractors not only to the extension of time, but also to be reimbursed for reasonable costs incurred as a result of such delay.
That said, it is important to note these clauses may be subject to amendments, notably by way of supplemental conditions agreed upon by the parties prior to the execution of the contract. As such, industry stakeholders should seek out legal advice and expertise to carefully review their contracts to determine whether such clauses are provided and whether and to what extent they may be applicable, in light of the specific circumstances of each case.
Gerry Argento, LL.M., is a partner at Miller Thomson LLP. For more information, visit www.millerthomson.com.