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Overcoming Construction Contract Challenges During Covid-19

Nov. 30, 2020, 9:00 AM

We recently finished negotiating and drafting an EPC (engineering, procurement, construction) contract for a major infrastructure project. While much of the negotiations covered well- trodden ground, Covid-19 has introduced both new challenges and new opportunities to improve the course.

We share below what was different in the Covid-19 era, how we navigated these changes, and some key takeaways from this recent experience of negotiating a construction contract for major works in the pandemic, including:

  • Be realistic about the extra time it is going to take to conduct the negotiations remotely and be flexible in when and how you are going to convene.
  • Building connection and trust virtually requires some new approaches.
  • It’s much easier to whisper among yourselves on a messaging platform to assure internal alignment than it is when you’re in the same room with the other side.
  • Covid-19 presents risks to construction projects that parties are well-served to address in the negotiations.

Allow Triple the Time

In all, between the locations of the legal teams, technical consultants and clients, we were working from four different time zones, with a spread of eight hours between the two most distant locations. Between everyone’s various work and home commitments, this reduced the number of hours in a day where we could effectively work together to about 4-6 hours, and even less hours when we planned to have internal preparation or follow up sessions with our team, client and its consultants.

What might have taken a modest number of weeks of in-person meetings together with some preparation and completion days on both ends, ultimately took a couple of months. Because both sides were realistic about the inefficiencies associated with the inability to meet in person, however, we were able to navigate the extended timeline to completion with understanding and thoughtfulness.

As a group, we also strove to be very flexible around the timing of our discussions, with some joining at 6:00 a.m. in their respective time zone and others well into their evenings.

Factor in Time to Build Rapport and Trust

Because we couldn’t physically be in the same room, it took longer to build the rapport and trust that are necessary to bridging the gap on the more sensitive parts of the contract. On balance, we had more formal large group conversations and less of the one-on-one conversations that can expedite understanding.

While we eventually got to the levels of trust required to close the deal, among the lessons learned from this negotiation is that the time frame for achieving the connection required could have been expedited through a “get to know you” video session at the commencement of our negotiations and as well as more one-on-one check-in calls between the legal team leads for the negotiations on how things were going and whether there were adjustments that could be made to better facilitate progress.

Use Messaging Platforms for Internal Communications

At least one advantage came out of having to carry out the negotiation remotely: the ability to communicate internally without the other side necessarily being aware of our discussions.

Instead of interrupting a discussion to whisper among ourselves, our legal, client, and consultant team could message each other throughout the calls, including to prompt the “right” person to contribute to the discussions on a particular point.

This ability was especially helpful where we needed to assure coherence and alignment in our negotiation strategy and also to avoid telegraphing to the other side which points generated consternation on our side.

Consider the Contract Language for Covid-19 Impacts

From a substantive perspective, the pandemic presents risks—including in relation to future government mandated shut-downs, Covid-related ES&H requirements, and disruptions to labor, equipment and materials supply chains—that we had to decide how to address and allocate in the EPC contract.

Much is undoubtedly yet to be written on drafting options for dealing with these risks, but the impacts of Covid-19 on construction projects are here to stay for at least the next few years and parties are well-served to address them in the negotiation of construction contracts. Some may decide that the traditional construction contract clauses adequately cover these risks for the project in question, while others may determine that adjustments or even entirely new clauses are required.

For our project, both sides determined that we were not satisfied with how force majeure and change in law provisions addressed these risks. Accordingly, together we drafted a new provision to take Covid-19 impacts on the contractor’s performance out of application of these provisions and agreed on what Covid-19 impacts could be foreseen—and therefore allowed in the contractor’s price and program—and what thresholds to define for when the contractor could apply for relief as a result of new Covid-19 events occurring after the contract date that seriously impacted its ability to perform.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Meagan T. Bachman is a partner at Crowell & Moring in Washington, D.C., where she focuses on construction contract disputes and other complex commercial issues in both arbitration and litigation.

Denise McLaughlin is senior counsel at Crowell & Moring where she specializes in major construction, engineering and infrastructure projects, representing a range of project participants. She has practiced in multiple jurisdictions, gaining experience of major projects in MEA, the U.K., and Australia.