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Construction delays could trigger liability for contractors

Few construction contracts include specific provisions for site shutdowns caused by a pandemic

Building contractors should be reading their construction contracts carefully to see what penalties they could face if delays caused by COVID-19 open them to liability.

Contractors are typically bound by contract to complete work according to fixed deadlines. Missing a contractual deadline usually results in legal liabilities, with financial damages, for both contractors and subcontractors. Commercial property owners can claim compensation for lost rent, the cost of alternative accommodations for tenants, lost profit, increased financing costs, increased insurance and other damages.

In large condominium projects, suits can also filed by individual owners of pre-sold condos, as well as the developer, if the building does not complete on time.

Satinder Sidhu, a partner with Clark Wilson LLP in Vancouver, said not all contracts contain force majeure clauses that can remove liability due to natural and unavoidable catastrophes, such as, say, a global pandemic that is killing thousands of people.

“There is no such legislation in B.C.,” Sidhu noted. “Construction contracts are private.”

On March 17, the Council of Ontario Construction Associations (COCA) called for Ontario provincial legislation “to protect contractors and subcontractors from liability for project delays to the extent that they are caused directly or indirectly by the pandemic and pandemic response measures.”

Costs can be fatal to a contracting business, COCA noted.

“Delay claims against contractors and by contractors against subcontractors usually exceed the price of the contract or subcontract in issue. These losses are typically uninsured,” stated COCA president Ian Cunningham.

Most standard construction contracts in Canada permit an extension of contract deadlines where delays are due to forces beyond the control of contractors.

“We would hope that private agreements could be reached during this current crisis. After all, we are all in this together,” Sidhu said.