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Law360 (April 2, 2020, 1:52 PM EDT) --
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| Robert Alfert |
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| Lacey Corona |
Gov. Ron DeSantis — right or wrong — has finally chosen to use his executive powers to issue a statewide edict, effective at 12:01 a.m., on April 3 and expiring on April 30, restricting business and personal activity, but still declaring construction as an essential service.
This order expressly references and incorporates the guidance and orders issued by the U.S. Department of Homeland Security and Miami-Dade County, in their definition of essential services and listings of what services fall within such definitions. In all of this guidance material, construction is included, as are related and ancillary services, including surveying, architecture and engineering.
This statewide order does not explicitly preempt any local government orders except to the extent that they permit an activity that is precluded by this statewide order. Thus, if any cities, counties or independent authorities issue more strict guidance, construction within the jurisdiction of these governmental bodies must comply with the stricter order as well. Various cities across the U.S. have done exactly that, so it is important to follow the local jurisdiction announcements with regularity.
This article intends to provide the most up-to-date guidance on how the executive orders issued in Florida are treating construction when limiting business activity, and sets forth some practical guidance and recommendations on how the construction and development industry can best confront this challenge posed by COVID-19.
The Statewide Order and Labyrinth of Other State and Local Executive Orders
The Florida safer-at-home order, Florida EO 20-91, considers essential services to mean those detailed by the Department of Homeland Security guidance and the businesses and activities designated by Florida EO 20-89 (which includes a list of essential services identified by Miami-Dade County Orders).
Miami-Dade County Order 07-20, which is attached to Florida EO 20-89 (and which is incorporated by reference into this safer-at-home order) considers "open construction sites, irrespective of the type of building" and "contractors and other tradesmen who provides services that are necessary to maintaining the safety, sanitation, and essential operation of residences and other structures," to be essential.
This article interprets the term "open" to mean active, ongoing construction projects with physical activity at the site. The Department of Homeland Security guidance also identifies the following as essential workers: "Workers supporting essential maintenance, manufacturing, design, operation, inspection, security, and construction for essential products, services, and supply chain and COVID 19 relief efforts."
In short, if the original Miami-Dade County Order (07-20) and its three amendments consider it to be essential, the statewide order considers it essential also. Services directly related to construction, such as architecture, engineering and surveying, in addition to inspections, are also expressly permitted to continue.
The statewide order is generally broad to encompass, not only construction activities, but also professional and businesses services that are directly supporting or managing the construction project. The statewide order considers administrative support necessary to perform essential business to also be essential businesses.
The statewide order identifies "architectural, engineering, or land surveying services" as "essential" services allowed to continue operating. However, the Broward County order explicitly lists businesses providing architectural, engineering, or land surveying services, as essential, but only with regard to ongoing construction projects where construction has already commenced, and provided that such businesses operate in full compliance with all measures advised by the Centers for Disease Control and Prevention regarding social distancing.
Thus, it is still important to review any local orders issued by your jurisdiction. Some ancillary services that assist on construction matters, including law firms, carry some exemptions as well. For example, the statewide order identifies legal services as essential, and thus able to operate.
Even though construction is considered an essential service under the statewide order, it is not business as usual for our essential Florida construction industry. These orders and COVID-19 may still have direct effects on construction.
For example, the Miami-Dade County Department of Regulatory and Economic Resources closed its permitting and inspection center until at least April 7 due to employees testing positive for COVID-19. The backlog and missed milestone dates could reverberate long after, even though construction is technically exempt from the county's earlier order and the statewide order. The RER is implementing temporary permitting and inspection procedures have been put into place, such as allowing certain inspections to be performed by Florida licensed contractors. Final inspections, however, must still be performed by Miami-Dade County, and thus will not occur until inspection services resume.
Mega-employers like The Walt Disney Co. and SeaWorld Entertainment Inc. have ceased all construction, even though there is no mandate to stop work. On the other hand, the Orlando International Airport's multibillion-dollar new terminal program continues. It may be advisable for project owners and construction company executives to consider issuing a very simple safe-passage letter to their employees, identifying the employee as an essential employee, just in case there are questions by law enforcement officials during the employee's commute to or from work.
Those in the construction sector need to stay abreast of local and statewide developments on a daily basis. The statewide oder clearly indicates further guidance could be issued, and across the country some local jurisdictions have used stricter limitations on construction. Cities of Atlanta and Boston have largely limited construction work to public infrastructure weeks ago, while most other executive orders largely exempted all construction.
Tighter restrictions on construction work is becoming a growing trend throughout the country. For example, New York recently modified its original stay home order to now require all nonessential construction across the state to shut down, except emergency construction. Previously, most construction was considered essential. This past Tuesday, California Bay Area counties tightened their previous stay home order by announcing that most construction, residential and commercial, is now halted.
Each jurisdiction still has limited exceptions, such as public works projects (but, for the Bay Area, only if specifically deemed essential by respective agencies), construction of health care facilities (but, for the Bay Area, only if directly related to the COVID-19 response), homeless shelters and affordable housing, among others.
Consequently, even essential businesses, like construction, need to be proactive and carefully evaluate how these orders can impact their business and contractual obligations. Since some impacts and delays are possible on any construction project in this climate, and as government restrictions can change and become even more limited — the next part of this article adds some practical guidelines to consider.
Practice Guidelines for Construction Projects
Below are a few key issues of primary consideration for project owners and contractors as they navigate these uncertain and changing times.
Contract Documents
Almost every construction contract has a force majeure provision, one that allocates relief and risk among the parties in events such as natural disasters, war, terrorism, labor strikes, "other causes beyond the parties' control," and in some provisions, pandemics. Although force majeure provisions are no longer boilerplate, they generally provide for schedule extensions, and in some cases, extended general conditions costs and other remedies.
State-specific treatment and interpretation of force majeure clauses should also be considered, as this can vary greatly from state to state. In Florida, force majeure clauses are typically narrowly construed. However, force majeure clauses broader than the scope of impossibility are also enforceable under Florida law, including those allowing foreseeable, as well as unforeseeable, events to excuse timely performance.
Accordingly, new contracts entered into since the COVID-19 pandemic should take great care to explicitly address if or to what extent COVID-19 related impacts are covered by the force majeure clause. Force majeure provisions must also be read in conjunction with other related provisions, such as terms for delay, suspension and termination.
For example, the standard American Institute of Architects Documents A201-2007 and A201-2017 allow the contractor to terminate the contract if the work is stopped for 30 consecutive days because an act of government requires all work to be stopped through no fault of the contractor; the AIA documents also permit the owner the unequivocal right to terminate for convenience if it decides to terminate and not proceed with the project for any reason whatsoever.
Most sophisticated construction parties modify these standard AIA terms to tailor to the project, and many use their own customized forms, but most cover the same subjects. Florida courts strictly construe these construction contract provisions, making timely compliance crucial.
Funding and Loan Instruments
Rights, remedies and consequences under all funding, grant or loan instruments should also be evaluated before taking any affirmative action to suspend or terminate a contract. These types of funding instruments may place limitations or restrictions, or simply require the third party's approval, before any action is implemented to suspend or terminate a project.
These funding agreements may also have limitations on what costs are covered, so it is essential to ensure that the agreements are coordinating, and if not, then to understand whether a cost impact under the construction agreement will require funding from another source.
Insurance Policies
It is unlikely that standard coverage instruments for construction projects, even builder's risk with loss of use and business interruption provisions, provide coverage for pandemics. Most of these coverage instruments are triggered by actual physical loss or damage to the project. Nevertheless, owners and contractors should gather all insurance instruments for a coverage review by a skilled insurance professional. Timely notice to the carrier of any possible claim is highly recommended. Consider as well, consent of surety, or at least notice to surety, before any major action on the project is taken.
Notice Requirements
Because Florida courts strictly construe construction contract provisions, timely compliance is critical. Accordingly, all parties to the contracts and instruments discussed above must strictly follow any notice requirements on issues ranging from knowledge of an impact, a project delay, or any requirement to suspend or stop work. Some contracts have exceedingly short notice windows, like five days (20 is more the norm).
Notices of impacts may already be coming this week, and any response and reaction needs to be evaluated in accordance with the requirements of the contract, the needs of the project and participants, and honoring any time requirements. Bear in mind that many construction instruments have specific and very short time periods for notice and presentation of a claim, and failure to follow these explicit requirements could constitute a waiver by either party.
Project Documentation
It is more important now than ever for all parties to maintain accurate, detailed and up-to-date project records on a daily basis and documenting things like: (1) site and weather conditions; (2) manpower; (3) project schedule and any deviation to the schedule and impacts to the critical path; (4) inspection requirements, dates and how handled; (5) project cost data; and, (6) anticipated or actual material or supply delays potentially due to COVID-19.
Photo-documenting or video-documenting the project status and progress could be helpful as well. These records will become critical in post-event circumstances, whether that be in claims settlement, litigation or perhaps in justifying state or federal assistance.
Safety and Security
As always, but especially in times of heightened concern, all parties need to put the safety and security of their laborers, workers and the ongoing project (especially if the project is occupied or operational) first, in order to minimize risk of personal injury or property damage. Many of the Florida orders have specific guidance, as does the CDC, on how to minimize risk of infection and transmission, the basic precepts of which should be incorporated into the work protocols.
Conclusion
Available options, strategies and remedies are fact-specific and time-dependent. Construction project owners and contractors should immediately prepare their ongoing construction projects now, if they have not already, to address the statewide order and any other COVID-19-related order in their county or city to avoid or minimize schedule disruptions and cost implications and also to assess their rights, options and obligations.
Robert Alfert Jr. is a partner and Lacey Corona is of counsel at Nelson Mullins Riley & Scarborough LLP, which does business in Florida as Nelson Mullins Broad and Cassel.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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