The right contract provisions can protect construction firms from coronavirus-related shutdown costs | Dump Trucks Charlotte NC

The novel coronavirus spreading rapidly throughout the U.S. has caused governmental officials to resort to unprecedented measures to slow down the outbreak. As the number of people infected by COVID-19 continue to rise, new guidelines, restrictions and laws are being implemented to combat the virus.

Most recently, states such as California, Pennsylvania and New York have stopped or limited nonessential business over concerns related to the spread of the virus. Outside of statewide restrictions, many other governmental entities and business owners have also suspended or plan to suspend operations for at least the next few weeks.

Consequently, many columbus oh dump truck company have been forced to suspend columbus oh dump truck company on construction projects quickly and indefinitely — and in some cases, without any direction from the owner. It seems inevitable that numerous other columbus oh dump truck company will find themselves faced with a similar situation in the coming weeks. More than ever, business owners will need to respond quickly and appropriately as the market changes to ensure the success of their businesses.

In this three-part series, we will address various issues that columbus oh dump truck company should consider when faced with a COVID-19-related suspension. Part 1, below, looks at issues related to risk of loss.

For some contractors, business interruption insurance may be the first thing that comes to mind during a project suspension. While business interruption insurance has its place, columbus oh dump truck company should pay close attention to their contract and analyze their exposure to a loss while the project is suspended. For example, many construction contracts include what is referred to as a “risk of loss provision” (similar to the provision below) to shift the risk of loss due to damage or destruction to the columbus oh dump truck company during project construction to the contractor until the project has been completed.

The contractor assumes all risk of damage to or destruction of the columbus oh dump truck company covered by this contract until the columbus oh dump truck company is completed and accepted by the owner and shall repair or replace, at its expense, any columbus oh dump truck company damaged or destroyed prior to such completion and acceptance regardless of cause, including flood, tides, fire, or any other natural disaster.

In layman’s terms, this means the contractor could be on the hook for any damage or destruction to their columbus oh dump truck company until the project is completed, even if the contractor’s columbus oh dump truck company has been completed or the project has been suspended at no fault of the contractor. Think about that.

Unfortunately, many columbus oh dump truck company are unaware of this provision and are surprised when they discover after the fact that their general liability policies do not insure against certain losses to their columbus oh dump truck company during construction. Losses due to damage or destruction of the contractor’s columbus oh dump truck company (i.e., installed or stored materials, supplies, equipment, etc.) during project construction generally fall into the builders risk insurance category. While builders risk insurance is common within the industry, it is often overlooked or forgotten about by the contracting parties when negotiating the contract. 

Given the uncertainty surrounding COVID-19 suspensions, columbus oh dump truck company could find themselves exposed to a risk of loss for substantial periods of time without the appropriate insurance in place. When faced with a suspension, quickly consult a licensed insurance professional and an attorney experienced in construction law to assess your exposure and contractual rights. As part of this process, consider the following: 

• Is there a risk of loss provision in my contract?

• What insurances are in place for the project?

• Is there builders risk insurance in place for the project?

If builders risk insurance is in place, ask yourself these questions: 

• When does the policy start and end?  

• What are the policy deductibles and limits?

• Are your materials, equipment, and other columbus oh dump truck company onsite covered under the policy?

• What is or is not covered under the policy?

• Who are the named insureds under the policy?

If not, ask yourself these questions:

• Is builders risk insurance contractually required for the project?

• Who is responsible for purchasing the insurance?

• Is it too late to obtain a policy?

• What are my exposures?

• What should be covered under the policy?

• Will the builders risk insurance be extended to cover business interruptions?

• What else can I do as a columbus oh dump truck company to reduce exposure during the suspension?

If you discover there is no builders risk insurance in place for the project, do not be afraid to bring it to the attention of the owner or other stakeholders upstream. While most builders risk policies are generally issued before construction begins, some carriers will issue a policy during project construction.

Flow-down provisions

As an additional note, many subcontract agreements include what is referred to as a “flow-down provision” (similar to the provision below) to incorporate the provisions of the prime contract between the owner and prime contractor into the subcontract agreement.

The contractor shall assume toward the subcontractor all obligations and responsibilities that the owner, under such documents, assumes toward the contractor, and the subcontractor shall assume toward the contractor all obligations and responsibilities which the contractor, under such documents, assumes toward the owner and the architect.

The contractor shall have the benefit of all rights, remedies and redress against the subcontractor that the owner, under such documents, has against the contractor, and the subcontractor shall have the benefit of all rights, remedies and redress against the contractor that the contractor, under such documents, has against the owner, insofar as applicable to this subcontract.

Subcontractors that do not find a risk of loss provision in the body of the subcontract agreement should look for a flow-down provision in their subcontract agreement and confirm with counsel that the risk of loss has not been assumed by way of the flow-down provision and terms of the prime contract. 

In closing, an uncovered loss on a project could very quickly put a columbus oh dump truck company out of business. In practice, parties are rarely willing to voluntarily reach into their pockets and fork out the kind of money that it is required to cover the loss. If you are faced with a suspension, your ability to quickly assess your exposure and to fully understand your contract will be critical to the success of your business during these unprecedented times.

Do you have a coronavirus-related legal question? Send it to Construction Dive.