To help our clients navigate the coronavirus (COVID-19) outbreak, Keane & Beane is providing numerous Legal Alerts on a variety of issues. The information contained in this Legal Alert is applicable as of today, March 28, 2020.
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On March 27, 2020, the New York State Development Corp. (“ESDC”) issued an Official Guidance that essentially halts all construction in the State of New York, except for emergency repairs, public transportation and infrastructure work, and certain limited categories of work that is deemed “essential” as defined by the Guidance. The Guidance is effective immediately.
To anyone following Governor Cuomo’s pronouncements in response to the COVID-19 outbreak, this latest measure was perhaps inevitable. On March 18, 2020, Governor Cuomo issued Executive Order 202.6 which imposed the first of several increasingly restrictive workforce reductions for private businesses, except for those that were deemed to be providing “essential” services.
At that time, the list of essential services/businesses that were deemed essential and therefore exempt from the initial workforce reductions included “Construction”. Although the ESDC’s Official Guidance originally made reference to construction activities that were undertaken for “emergency repair and safety purposes”, this language was illustrative in nature, and not in the form of a limitation.
In other words, while emergency repairs were certainly permissible under the earlier Guidance, so was essentially all other construction work, provided that appropriate social distancing could be maintained. Neither Executive Order 202.6 nor the ESDC Guidance expressly prohibited any particular construction work. To the extent that Executive Order 202.6 suggested that at least some limitations were reasonably implied, municipalities were not provided with any explicit enforcement authority to address instances of non-compliance.
Everything has now changed with respect to construction activities. Effective March 27, the ESDC’s Official Guidance has been revised and now states in relevant part:
- “All non-essential construction must shut down except emergency construction, (e.g. a project necessary to protect health and safety of the occupants, or to continue a project if it would be unsafe to allow it to remain undone until it is safe to shut the site).”
- “Essential construction may continue and includes roads, bridges, transit facilities, utilities, hospitals or health care facilities, affordable housing, and homeless shelters. At every site, if essential or emergency non-essential construction, this includes maintaining social distance, including for purposes of elevators/meals/entry and exit. Sites that cannot maintain distance and safety best practices must close and enforcement will be provided by the state in coordination with the city/local governments. This will include fines of up to $10,000 per violation.”
- “For purposes of this section construction work does not include a single worker, who is the sole employee/worker on a job site.”
ESDC’s Official Guidance does not provide any further details about the “coordination” of any enforcement efforts between state agencies and local governments (i.e., Building Inspectors, who will find themselves on the front line with respect to any enforcement issues). In any event, the limitations on construction work are now relatively clear: full stop, except for emergency repairs and “essential construction” such as “roads, bridges, transit facilities, utilities, hospitals or health care facilities, affordable housing, and homeless shelters.”
To the extent that construction on a particular project has advanced to a stage where it would be “unsafe” to immediately stop work, additional work may be performed, but only to the extent necessary to eliminate the safety risk. The ESDC’s Guidance does not make allowance for financial hardship or other difficulties that could arise from shutting down a job site.
The source of ESDC’s authority to make this dramatic change can be traced to Executive Order 202.6, which was issued on March 19, 2020. Executive Order 202.6 stated in relevant part:
“No later than 5 p.m. on March 19, 2020, Empire State Development Corporation shall issue guidance as to which businesses are determined to be essential.”
Having been delegated the authority to issue official guidance on which businesses should be deemed essential, ESDC could have reasonably concluded that it has the inherent authority to revisit and modify its earlier guidance, undoubtedly after consultation with the Governor’s office.
With respect to public works, we expect that municipalities and school districts may occasionally wrestle with the question of whether a particular project is “essential” within the meeting of the ESDC guidance. By nature, many public works projects are undertaken precisely because they will achieve some essential public goal.
We believe that a clear distinction as to “non-essential” projects can be readily drawn with respect to work involving recreational spaces or other amenities. While such improvements are vital to maintaining the general health and welfare of a community, such needs must temporarily yield in the face of State of Emergency and cannot reasonably be regarded as “essential” in this context.
Likewise, projects designed to achieve efficiencies, convenience and/or expand capabilities with respect to the delivery of public services should be suspended unless such services are directly related to improving “roads, bridges, transit facilities, utilities, hospitals or health care facilities, affordable housing, and homeless shelters” or something of comparable public importance. In contrast, renovating a public building or enlarging a maintenance facility would not fall within the same hierarchy of needs.
In sum, public and private owners with ongoing projects should ensure that if their contractors have elected to continue working, there is a sound basis under the ESDC’s Guidance for their determination. Although an open dialogue and cooperation between owners and contractors is to be encouraged, the ultimate responsibility for making the determination whether work must be suspended rests with the contractor. In most cases, the answer should be clear. To the extent that questions remain, additional guidance should be promptly sought from the ESDC.
Force Majeure Provisions
Right now, all owners and contractors should be reviewing their contracts to determine whether they contain force majeure clauses, and if so, the scope of their terms.
Force majeure provisions typically include a list of cataclysmic events, the occurrence of which will excuse or delay a party’s performance. Most construction contracts will include such provisions, but they can substantially differ from contract to contract. Under New York law, force majeure clauses must be construed narrowly, meaning no more broadly than their stated terms.
If a contract does not include a force majeure provision, the parties may be left to explore the murkier legal realm of “impossibility” (also known as “frustration”). Under this common law doctrine, performance may be excused in rare cases if an unforeseeable event has rendered performance objectively impossible.
Additional Recommendations
- Contracts should also be reviewed to determine whether they contain any notice requirements for the party seeking to invoke a force majeure provision.
- It is important to monitor and document the impacts of the work stoppage to minimize the risk of disputes when work resumes.
- Contracts should be reviewed to determine whether they impose obligations on the contractor to undertake commercially reasonable efforts to mitigate the impact of the delay.
We will provide an update on the ESDC’s Guidance if/when any new information becomes available. Should you have any questions about the status of a particular construction project, contact Edward J. Phillips, Nicholas M. Ward-Willis, Stephanie L. Burns, or any other attorney in our Public Sector Practice Group.
