Is COVID an act of God?
Is COVID-19 an act of God? That is one of several questions construction attorneys throughout Portland and beyond are wrestling with as they advise clients on fulfilling their business contracts, paying subcontractors and suppliers, and completing projects on time.
Acts of God traditionally have been defined as earthquakes, floods, hurricanes, tornadoes and other natural disasters that are unpreventable and make it overwhelmingly difficult, if not impossible, to fulfill a business agreement. Force majeure clauses in business contracts cover these forces of nature and other unforeseeable disasters to prevent breach of contract claims.
Bill Fig, a partner at Sussman Shank and chair of its Construction Group, said he and his colleagues had discussed the issue via email while working remotely. "It's interesting because nobody has really experienced something like this before," he said, adding he and colleagues also are considering how contracts would be impacted if Gov. Kate Brown issues an executive order that prohibits construction from taking place to slow the coronavirus' spread.
"Depending on how long this COVID pandemic goes on, or if it gets worse and comes back, that may be a big issue when it comes to large construction contracts," said Fig, who also chairs the Oregon State Bar's Construction Law Section.
Other uncertainties arise from House Bill 4204, which Brown signed into law June 30 and is retroactive to March 8 when Oregon's emergency period began. HB 4204 requires lenders to defer loan payments and refrain from enforcing default remedies on certain secured obligations through September 30, according to law firm Perkins Coie.
Fig said he and other construction attorneys are reviewing the dates they filed cases to determine if they are impacted by HB 4204. And, while the bill is scheduled to sunset in September and go off the books in December, those dates could change now that Gov. Kate Brown has extended Oregon's state of emergency through Nov. 3.
Fig described the bill as "not very clear, and the question has come up whether or not that bill applies to foreclosures arising out of construction liens. It was written perhaps by someone who does not fully understand foreclosures."
For example, the bill fails to address what will happen with cases involving construction lien claims dismissed between March 8 and June 30, before the bill was passed. "In the old world, if your case was dismissed, your lien claim was gone," he noted.
Fig said he and other construction attorneys are reviewing the dates they filed cases to determine if they are impacted by HB 4204. While the bill is scheduled to sunset in September and go off the books in December, those dates could change if Brown decides to extend it.
Another issue Fig has seen in his practice over the last few months relates to construction liens and claims in the context of receiverships or bankruptcies. The Oregon Receivership Code, which took effect Jan. 1, 2018, allows receiverships in Oregon state courts to be used in the liquidation or foreclosure of business assets and as authority for the sale of the assets free and clear of liens. It's similar to bankruptcy law and Fig said the code is intended to help reduce the expense involved in Chapter 11 bankruptcies.
"If a subcontractor doesn't get paid on a job, records a construction lien, and the general contractor or the owner is forced into receivership or files for bankruptcy, what happens then?" he said. "There are a lot of nuances because of Oregon's new receivership statute."
Some clients have asked for guidance on keeping employees six feet apart while working on projects, such as HVAC systems, where it's not possible to physically distance. "There really are no clear answers to that, and I advise them to just do their best to follow the guidelines," Fig said.
Construction activity in the Portland metro area continues to be robust, though Fig and others expect to see more economic impacts in the coming months.
"We're starting to see slow pay a little bit over the last two or three weeks, so although construction is strong, owners and general contractors are starting to feel the economic squeeze and are starting to slow-pay the subs, contractors and other suppliers. So far, the money has been found somewhere, but I will be curious to see what happens in the future," Fig said.
"I haven't seen a huge upswing in claims related to pay, but I think they are coming if things don't change. The people who are building are not going to be able to afford to build, and that's going to be a problem when owners feel the pinch because nobody is renting their space or their apartments," he added.
Alex Naito with Tarlow Naito & Summers, also a member of the state bar's Construction Law Section, said it continues to be business as usual for his small firm, which handles cases involving payment issues, changes in scopes of work and project delays.
He noted that he did see impacts from the 2018 Eagle Creek Fire in the Columbia River Gorge, when freight transportation slowed due to I-84 closures and construction in eastern Oregon was delayed because supplies were not delivered on schedule. A similar ripple effect could occur again this year, whether because of wildfires or other forces of nature.
"I would expect to see delay issues come up because of COVID. It hasn't yet, or it hasn't reached a point where it needs to be resolved by lawyers, but I wouldn't be surprised if we saw more of that," Naito said.
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