NAHB Advice to Home Builders: Evaluate Your Contracts
As the coronavirus disrupts supply chains and some cities suspend construction, the National Association of Home Builders recommends evaluating business contracts for clauses that account for delays caused by unforeseen circumstances. Clauses may allow for builders to have more time to complete a project, or it may allow the client to terminate the contract. In order to determine the best path forward in the event of a significant delay, builders must review their specific contract to see what steps they must take, such as notifying the client of the delay, and if the coronavirus fits under the kinds of events covered by the contract. The country may be in unprecedented times, but keeping tabs on contracts can help builders avoid an even messier situation.
Home builders should expect delays caused by supply chain disruption, workforce unavailability, and even permitting due to shelter-in-place recommendations to stem the spread of COVID-19 caused by a novel coronavirus. Companies should carefully review their contracts now for certain provisions that allow for such delays.
One of the principal roles of a commercial contract is to allocate risk between the parties. A force majeure provision allocates risk and provides notice to the parties of events that may suspend or excuse performance under the contract if specified events occur that are beyond the party’s control.
A force majeure provision allows a contracting party to mitigate its risk of breach due to events or circumstances it did not cause and could not have anticipated. In addition to allowing a builder additional time to complete the project, it might also allow for termination of the contract if performance is prevented beyond a specified period.