This feature is a part of “The Dotted Line” series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.
As a result of the novel coronavirus’ spread, construction industry players are preparing for permanent changes to the way they do business. Other changes that contractors likely will encounter moving forward through and after the pandemic, however, will be in their contracts, both between the owner and general contractor and between the general contractor and subcontractor.
There are a number of possible scenarios. Owners will probably look for more flexibility to accommodate pandemic-related disruptions, attorney Richard Reizen with Gould & Ratner LLP in Chicago told Construction Dive earlier this year. Contractors might be asked to work under certain types of contracts, like cost-plus, and could see contract terms that allocate costs differently should the pandemic or a future crisis shut a project down. And they could require beefed-up safety and security measures.
According to legal experts, pandemics could be added to those events that do not qualify for extensions of time under force majeure contract provisions. There also is the matter of transmission: How can owners and contractors protect themselves if someone on the project is infected with the virus or another contagious illness and spreads it to other workers?
Liability waivers are one thing that could limit risk, but there are questions about who should be required to sign them, how they should be worded and when they are enforceable.
Indemnity in standard contracts
In the American Institute of Architects’ A201-2017 General Terms for the Contract for Construction, contractors agree to indemnify the owner against certain claims, damages or losses that arise out of their actions or those of their agents like material suppliers or subcontractors.
Standard forms of agreement between a general contractor and subcontractor also contain similar indemnifications.
Contracts “will all be changed by this worldwide pandemic. There will be … indemnities and waivers and limitations based on infections.”
Attorney Richard Whiteley
Bracewell LLP in Houston
However, according to attorney Richard Whiteley with Bracewell LLP in Houston, those standard clauses might not be enough when it comes to maximum protection.
“It’s certainly better to be specific in those clauses and say ‘including the transmission of COVID-19,’” he said. “You can include those things in your contracts to protect yourself, and owners expect that. And, in general, contractors expect that of their subcontractors — that if one of their folks does something to cause damage, then they’re going to indemnify the general contractor for third party claims that arise out of that instance.”
Nevertheless, Whiteley said, no construction contract will be the same going forward.
“They will all be changed by this worldwide pandemic,” he said. “There will be … indemnities and waivers and limitations based on infections and all of that. So, this has changed contracts into the future forever I think.”
And, Whiteley said, these new COVID provisions aren’t totally uncharted territory because transmissions of a virus on the jobsite are like physical injuries in that there was an unsafe condition and someone was injured.
The difference, however, is that most physical injuries that happen on a project are readily identifiable and the associated liability hinges on seeing it and ignoring it or not doing enough to correct it.
“Where it’s uncharted with COVID is you have asymptomatic people that have no idea that they’re infected,” Whiteley said. “The employer is not aware. The general contractor is not aware. That’s what makes it harder to trace and harder to pin liability for it.”
The fear is that a third party that comes onto the jobsite will become infected and could take legal action against one or more of the companies that make up the project team.
Between companies, said attorney Daniel McLennon with Smith, Currie & Hancock LLP in San Francisco, mutual waivers between the owner and the contractor and between the general contractor and subcontractor can save a lot of headaches.
“We can do mutual waivers that say, ‘Look, I’m not going to sue you, and you’re not going to sue me if one of our employees comes down with the bug,’” he said. “’Let’s just not get into litigation over this stuff.’”
When it comes to enforceability, said attorney John Dannecker with Shutts & Bowen LLP in Orlando, Florida, employees are a different issue, and asking them to sign anything that relieves the employer of responsibility is likely a nonstarter.
It has become commonplace on many construction sites to see morning lineups of workers waiting to go through screening before they’re allowed to begin work. As part of that protocol, employers typically take temperatures and ask workers to answer and sign off on a series of questions to try to help determine if they could be a risk to the health of others on the job.
However, Dannecker said, employees shouldn’t be asked to indemnify their employers in the course of screening.
“Some folks may try it,” he said, “but it will probably be those who haven’t gone to a lawyer to get decent advice.”
The problem with asking employees to waive employer responsibility should they become infected is that firms are typically prohibited from making employees sign advance waivers of an employer-related risk such as COVID-19.
“There are workers’ comp issues,” Dannecker said. “There are potential issues with OSHA. It’s just not something I would advise any employer to do.”
Most employers are required by state law to cover their employees with workers’ compensation insurance, which will pay for on-the-job injuries or illnesses.
However, McLennon said, that doesn’t mean those employees can’t be asked to indemnify nonemployers. For instance, in addition to self-certifying that they don’t have symptoms and haven’t been in contact with anyone who has symptoms, a subcontractor’s employees could also be asked to indemnify the general contractor and owner.
In addition, Whiteley said, employees can be asked to agree to certain behaviors like not coming to work sick, wearing a mask, washing their hands and practicing social distancing.
“It’s an added layer of protection if that employee wasn’t following the guidelines they agreed to follow,” he said.
Contractors, McLennon said, could also require third parties like independent contractors, those who deliver materials, designers and other visitors to the site to agree not to take legal action against the project team should they become infected.
But the enforceability of such waivers, he added, could vary from state to state.
One of the best ways contractors can defend themselves against a coronavirus-related claim, Whiteley said, is to make sure they are in full compliance with Centers for Disease Control and Prevention (CDC), OSHA and local government guidelines and make sure to enforce them. Waivers and agreements could be meaningless without that oversight.
“If you don’t enforce them,” McLennon said, “they’ll have no teeth.”
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