The winter storm that brought snow, freezing temperatures, power outages, frozen water lines and bursting pipes to Texas, shutting down most construction projects in the process, forced many contractors and owners to take a look that their contracts to determine who is responsible for the ensuing delays and the costs to repair any damage.
Force Majeure and Excusable Delays
While each contract varies, delays generally arising from unforeseen adverse weather conditions are typically considered either a force majeure event or an otherwise excusable delay. Excusable delays, including force majeure events, are different from compensable delays. Excusable delays are no one’s fault and are beyond the impacted party’s control. Accordingly, while the impacted party is generally entitled to additional time to perform the work, they are not entitled to additional compensation. Compensable delays are delays beyond the control of the impacted party that are the cause or fault of the other party. Compensable delays entitle the impacted party to additional time and additional compensation. Force majeure events are typically extreme or severe events, or “acts of God”, such as hurricanes, earthquakes and tornadoes and are often treated as compensable delays.
Whether the recent winter storm in Texas was a force majeure event is largely a question of fact and interpretation of the contract language. Regardless, the winter storm, even if not a force majeure event would be an otherwise excusable delay. Thus a contractor would be entitled to additional time to complete the work, but would not necessarily be entitled to additional money since the winter storm was beyond the control of both the owner and the contractor.
Importantly, events of force majeure and excusable delay do not relieve impacted parties of their obligation to complete the work, rather they simply provide additional time to perform. Customary force majeure or excusable delay clauses do not provide for additional money to address damage to the work in progress and stored materials. That is where builder’s risk insurance would play a key role.
Builder’s risk insurance, and the risk of casualty loss to work in progress, should not go unaddressed in construction contracts. While seemingly unlikely, some parties are either ignorant of the need for it, or feel they can adequately address a loss without insurance. In the absence of contract language to the contrary, the contractor generally bears the risk of a casualty loss since it has control over the work site and is thus in the best position to protect the in progress work. However, this may not be much comfort to a project owner if the contractor is not ultimately in a financial position to repair and restore the damaged work.
By obtaining a builder’s risk policy, the owner and contractor shift the risk of loss to the insurance company up to the policy limit (which is typically the replacement cost value of the work) for covered losses. Thus, instead of relying upon either the contractor or the owner to have the financial wherewithal to repair the damage the parties can rely upon the insurance. A builder’s risk policy however, is not a silver bullet. Care must be taken to review the policy to ensure that the coverage matches the possible risks during construction so that there are no surprises when the unexpected damage occurs.
The winter storm was a great reminder to review contract language to ensure that its provisions adequately address delays and damage arising from severe weather events. Be sure to engage counsel with proper construction law experience to help ensure you are adequately protected for the next event.