Due to coronavirus concerns, owners and higher-tier contracting parties may be considering pausing work on a project until the impacts of the virus are better known and under control. Suspension clauses typically confer upon one party a unilateral right to suspend contract performance (usually for a certain period of time) without materially breaching the contract.
Before issuing such a suspension directive, however, a party should take care to read and understand its contractual rights and obligations under the contractual suspension clause. Specifically, the party ordering the suspension should understand what additional amounts may be owed under the contract if that party chooses to suspend performance of the work and should be aware of at what point, if any, the other party would be legally justified in terminating the contract. Some suspension of work clauses allow termination of the contract after a prescribed period of suspension of the work. Note also that if the contract does not contain a suspension clause, the owner that suspends work on the project may be putting itself in material breach of contract.
Beware, however, that on a private works construction project, a government-mandated work stoppage may not fall within the scope of the standard suspension of work clause. That is certainly the case with the standard form of AIA and ConsensusDocs. However, the standard form contracts do contain terms authorizing a party to consider termination of the contract after a specified period of a government-ordered work stoppage not caused by the party wishing to rely on that provision.
Suspension contract provisions
For ease of discussion, we will discuss suspension of work clauses in a prime contract. Suspension clauses will differ in terms of what is able to be recovered by the contractor in the event of an owner-imposed suspension and under what circumstances the contractor may be within its right to walk off the project. Some suspension clauses will allow the owner to suspend work on the project for a certain amount of time with no increase to the contract price. Contracts that use the AIA A201 (2017) General Conditions are likely to have a suspension clause, found at §§ 14.3.1 and 14.3.2, that allows for the owner to order the contractor to suspend, delay or interrupt the work “without cause” for such period as the owner determines. The AIA Document A201 suspension clause allows for an adjustment of the contract price for increases in cost and time as a result of an owner-imposed suspension, and the price adjustment shall include profit. Note that no double-recovery will be allowed, and the contractor may recover the costs of the delay and profit only under one contract provision. Section 14.1.2 permits the contractor to terminate the contract if repeated suspensions of the work by the owner constitute in the aggregate more than 100 percent of the total number of days scheduled for completion, or 120 or more days in any 365-day period, whichever is less.
Other contracts may use the Associated General Contractors of America (AGC) Document No. 200 (2014) (also known as ConsensusDocs No. 200), which also contains a suspension provision at § 11.1.1. The ConsensusDocs provision allows for the owner to suspend performance under the contract at any time, and for any amount of time, for the owner’s own “convenience.” Upon receiving the owner’s notice in writing, the contractor must immediately suspend performance of the work. Sections 6.3.1 and 6.3.2 provide that the contractor may be entitled to an equitable extension of time to perform the contract, as well as an equitable adjustment in the contract price, if the contractor incurs additional costs as a result of the suspension. Sections 11.5.1 through 11.5.3 of ConsensusDocs 200 also provide the contractor the right to terminate the contract if the contract has been stopped for a 30-day period through no fault of the contractor, including for the owner’s rightful suspension.
The standard federal suspension clause, found at 48 C.F.R. § 52.242-14, also allows for the owner (here, the government) to suspend performance of the contract for any reason and at the government’s “convenience.” However, unlike in most private construction contracts, the contractor is only able to recover the increase in cost of performance of the contract (excluding profits) for the period of suspension that is “unreasonable.” Thus, unless the contractor can show that the federal government’s suspension of work on the project was for an unreasonable period of time, the contractor can recover nothing. The “reasonableness” of the government’s delay or suspension is determined on a case-by-case basis. Whether a government suspension of work due to the coronavirus and government mandates makes the suspension or delay a reasonable or unreasonable one is an issue yet unanswered. The AIA and ConsensusDocs contracts do not require such a showing for the contractor to receive compensation.
Because suspension clauses can materially differ depending on the type of contract (public or private) and the form used (AIA vs. ConsensusDocs, for example), owners should determine the rights of the parties pursuant to the specific language of the contract’s suspension clause.
Other important considerations
A party considering suspending work on the project should also take care to abide by any relevant notice provisions. Most contracts specify that the party must give formal written notice to the other party of the exercise of its right to suspend work on the project. Upon receipt of proper notice, the receiving party may then be obligated to immediately cease work on the project pursuant to the suspension orders. The contractual suspension clause may provide that the receiving party is also obligated to mitigate costs and damages for the duration of the suspension.
Even if a contract does not contain a suspension clause or set out one’s rights to suspend a project, a party desiring to suspend or delay work on the project in light of coronavirus developments may wish to consider extending the offer to open negotiations with the other party to determine the terms of a project suspension. In so doing, the party desiring to suspend the work can be more certain of who bears the risk from a suspension of contract performance, stave off litigation, and ensure that good relations are maintained with the other parties on the project who also undoubtedly have questions and concerns during this uncertain time.
While each party’s rights and obligations in light of a suspension of work on the project will likely differ depending on the specific contract language, a party considering suspending work on the project due to COVID-19 may consider the following recommendations:
First, it is always prudent to well-document the events leading up to the decision to suspend or delay the project. Particularly in the case of a government contract, if the suspension clause at issue provides that the government’s suspension must not be unreasonable, the contractor will want to consider a suspension of work claim and take steps to document its basis for additional time and costs.
In addition, a party desiring to suspend the work should consider whether its contract contains a notice requirement to the other party and should strictly abide by those notice requirements. The party suspending the work should keep in mind that a suspension will likely come with additional costs as well as extending the project duration.
Finally, depending on the form of contract used (example, AIA vs. ConsensusDocs), the party issuing a suspension order should keep in mind that the other party, after a period prescribed in the contract documents, may be within its rights to terminate the contract.