Managing construction delays: force majeure and beyond

 
These clauses dictate who receives relief in situations where a “supervening” or “delay” event prevents a contractor or owner from fulfilling their end of the bargain.

To benefit from a force majeure clause, a party must satisfy the requisite elements of the clause. Depending on the language of the clause, it may be necessary to demonstrate that:

• the delay was caused by an event beyond the party’s control;
• the delay created schedule impacts;
• the prescribed threshold of impact or materiality was met;
• there was a direct causal link between the event and its impact;
• all mitigation obligations were met; and
• all notice requirements were satisfied.

This article addresses four steps parties can take to best position themselves on force majeure claims both (a) when negotiating project agreements, and (b) during the performance of the project agreement.

Force majeure considerations prior to entering the project agreement

When negotiating a project agreement, the parties will want to carefully consider the unique nature of the project they are designing and constructing and the possible causes of delay specific to their project. Relying on a force majeure clause from a previous project or precedent exposes parties to the possibility that the allocation of risk does not appropriately address the current circumstances. Some examples of delay that could arise and should be allocated for are:

• Weather: this may dictate when construction can take place. For example, if the project involves exterior concrete pours or painting, heavy rain may delay when this work can occur. If the project involves outdoor construction work in the summer months, heat or forest fire risk may be sources of potential delay for the project. Involving those with responsibility for project scheduling at the contract negotiating stage is important.
• Land access: this is important for remote projects that might cross Indigenous lands and territories. It also arises in northern projects that require frozen ground to move heavy equipment. Delays may occur if there are impediments to accessing the areas critical to the project.
• Supply chain: tariffs, political unrest or pandemics, which once seemed remote and now seem all too familiar, may cause supply chain issues. Tariffs do not just add cost to a project—they can have the effect of delaying necessary project inputs while contractors seek to procure from new suppliers. Depending on the project, parties should consider whether the issue needs to be accounted for in the current political climate.
• Labour: the non-availability of labour can be the result of labour unrest, strikes or pandemics. These circumstances can cause delay because it can lead to a shortfall or absence of workers with required skills and experience.

Force majeure considerations during performance

The following steps can position parties for a good outcome when a project delay arises:

• Real-time paper trail. Documenting developments in real time pays important dividends in any eventual dispute. The aim should be to collect information and evidence that meet the requisite elements necessary to engage (or establish the non-engagement of) the force majeure or supervening event clause in the contract. Gathering documentation in real time—and organizing it in a manner that can be understood by a stranger to the facts should there later be a dispute—are tasks that will be useful down the road, when project personnel have moved on and access to first-hand knowledge diminishes. Project owners may want to consider sending personnel to the site to monitor events and record observations in real time. Similarly, contractors will want to consider whether standard records, such as daily project reports, are accurately capturing events as they unfold.
• Early expert advice. Engaging an industry expert and legal counsel early on can help with identifying issues, evidence needed, and the most efficient paths to resolution. Mid-project construction disputes move quickly. If a party brings a dispute before the Ontario Disputes Adjudication for Construction Contracts or another interim dispute board, the timeline from commencement to hearing, including the presentation of evidence, can be a few weeks. Having a detailed record and an expert ready to go improves a party’s litigation position.
• Mitigate before you litigate. Real time mitigation is important. When a delay occurs, parties will want to start considering solutions to keep the project on track. This may require sourcing alternate goods or services. This is not only important for the project’s sake; it may also be required in order to engage the project agreement’s force majeure clause.
• Read the fine print. Working cooperatively with contractual counterparties is important to keeping projects moving forward. At the same time, parties should still carefully review standard course agreements that arise mid-project. For example, standard change orders releases should be considered for any potential impact on live issues the parties are still negotiating.

Applying a litigation lens from the outset of a project