Suspension of Construction Sites: Who will Bear the Costs? A Few Points to Consider
On March 24, 2020, the Government of Quebec announced the suspension of all construction projects underway in Quebec except those related to the performance of "priority" services due to the global COVID-19 pandemic.
This suspension is likely to result in significant costs for the various stakeholders involved in the construction sector. These costs include those associated with delays in the work, the dismantling of construction sites, the storage of materials and machinery and the supervision of sites during the suspension.
The reopening of all construction sites announced on April 28, 2020, by the Québec Government could also result in significant costs. In addition to the cost of restarting projects significant financial resources will have to be allocated for the implementation of the health measures required by the Commission des normes, de l'équité, de la santé et de la sécurité du travail (CNESST). It is also likely that the cost of certain materials will increase due to their scarcity on the market.
This situation will inevitably lead to delays in the delivery of residential and commercial projects and it is expected that future owners of such projects will eventually claim compensation.
The question that will arise in the coming months, if not years, and that the courts will inevitably face is: who will ultimately have to bear these costs? It is clear that the current situation is unprecedented and that the answer to this question will depend on the circumstances of each case. Nevertheless, the purpose of this blog post is to provide some practical advice and insight.
The terms of the relevant contract
The starting point for any analysis of this issue is, of course, the contract.
The model proposed by the Canadian Construction Documents Committee (CCDC) for stipulated price contracts between owners and general contractors, which is frequently used in the construction industry, includes the following provision for circumstances where the contractor is unable to perform the work because of a stop work order issued by a competent government authority :
The following provision of CCDC 2, which deals with causes of delay due to force majeure, states as follows:
Although the latter provision does not explicitly deal with a "pandemic" or "epidemic", and it is difficult to assess how a court will tackle these questions as the impact continues to unfold, it is expected that some parties will consider its wording broad enough to include the current situation related to COVID-19.
The courts, which will be called upon to rule on the issue of costs related to construction delays, will therefore have to determine whether either of these two provisions should be applied in the context of a contractor's claim.
To that end, it will be essential to distinguish between costs incurred "because of” the delay, as provided for in Section 6.5.2 of CCDC 2, and costs that are related to the more difficult or onerous execution of the work after resumption, for example, because of the obligation to comply with certain sanitary measures ordered by the CNESST.
The latter obligation is likely to have material consequences for the contractor and the other parties involved, but will not necessarily result in delays and it cannot, therefore, be assumed that the contractor will be entitled to compensation under Section 6.5.2. of CCDC 2.
On the other hand, the extent of reimbursement to which the general contractor may be entitled under Section 6.5.2. of CCDC 2 is not self-evident. Indeed, the notion of "reasonable costs incurred" as a result of the delay caused by the stop work order is, in our opinion, broad and open to interpretation. We have not identified any recent case law that would allow us to identify the specific costs covered by this provision.
It will therefore be necessary to defer to the court’s interpretation of this provision in light of the current context.Finally, we also refer the reader to Section 10.2.7 of CCDC 2, which allows either party to submit a claim upon the occurrence of a legislative or regulatory change affecting the cost of the work:
Arguably, the courts will also be called upon to determine whether the sanitary measures ordered by CNESST can be qualified as "changes […] which affect the cost of the Work" allowing for the application of the claim process provided for in this provision.
Practical Advice: Document the Costs Incurred at once
Each construction industry stakeholder impacted by the COVID-19 pandemic should, as of now, document the various costs incurred and the economic impact of the current situation on their activities. In this regard, we suggest the following measures:
- Keeping a detailed record of each expense incurred in connection with the suspension of work and its impending resumption.
- Assessing the economic impact of the suspension of work, including potential claims from potential buyers affected by the delay in the work.
- Assessing the impact of the sanitary measures planned by CNESST for the resumption of work on the productivity and costs of the work.
- Keeping a record of the various subcontractors involved and sums amounts owed to them.
In addition to the above and if it has not already done so, the contracting party should establish a dialogue with the general contractor immediately in order to discuss the next steps of the project and related costs.
 CCDC 2 – 2008 Stipulated Price Contract