According to AccuWeather, the damage and economic loss suffered by Texas and Texans from the February 2021 winter storms could reach $130 billion. For perspective, Hurricane Harvey caused an estimated $203 billion in damage and economic loss in 2017.
The February 2021 winter storms, like the many severe weather events that preceded them, did not come without warning. There was limited time between the storms’ forecast and arrival for contractors to take precautionary measures to best position themselves, from a legal perspective, for the possibility that the storms would damage or delay their pending construction projects.
Here are seven mitigating steps taken by proactive contractors, which should serve as lessons for the future to prepare for severe weather impacts on ongoing projects.
1. They reviewed their prime contracts with owners. As soon as the winter storms were forecast, wise Texas contractors reviewed their prime contracts with clients concerning pending projects. They did so to identify the contract terms that could be relevant if the storms delayed or damaged those projects. Naturally, they first looked for a force majeure clause to see what their contracts required of them to find protection under that clause, and if the winter storms were qualifying events.
They also ensured that they knew what their contracts required of them to properly document and account for delays or damages caused by the storms; and whether the contracts dictated the requisite timing and form of notice of anticipated delay or other economic loss. Aside from the force majeure clause, wise contractors reviewed other potentially relevant contract clauses so they could take the necessary actions before, during, and after the storms.
2. They reviewed their downstream contracts with subcontractors and vendors. Equally important for these contractors were downstream contracts with their subcontractors, vendors, and suppliers. Fearing progress on pending projects could be stymied, or equipment and materials stored on site could be damaged, these contractors confirmed what their obligations were to their subcontractors and suppliers—and vice versa: Was the general contractor obligated to protect the equipment, materials, and supplies of its subcontractors and vendors? Were subcontractors and vendors required to do so? What were suppliers’ responsibilities if the storms impacted their ability to timely deliver supplies or materials to the contractor or its subcontractors to maintain the project’s critical path? Who was required to give notice to whom about resulting delays and damage from the storms? Would indemnity provisions be triggered? If so, what documentation and notice was required to preserve contractual indemnity rights?
3. They provided timely and compliant notice. Having evaluated the relevant clauses in these contracts, wise contractors proactively communicated with their trade partners; and, where needed, provided timely notice to their counterparties regarding the storms in compliance with contractual requirements. Deciding it was better to be safe than sorry, these contractors—where appropriate—placed their subcontractors, vendors, and suppliers on formal notice of the potential impact on pending projects and the contractual obligations applicable to the affected parties.
4. They documented loss and preserved all evidence. Knowing what their pending projects’ contracts required from them regarding documenting damage and economic loss caused by severe weather, wise contractors prepared to provide that documentation. If visual evidence was required, they sent staff to record videos and take photos of the project site before and after the storms. If field notes were required, they made sure the proper staff was on site to prepare those notes. If a forensic consultant report was required, they made the necessary arrangements. By knowing what documentation was required, wise contractors proactively assembled the resources necessary to preserve potential contractual rights.
5. They reviewed their insurance coverage. Before the winter storms’ arrival, wise contractors consulted their builder’s risk insurance policies, and, if necessary, spoke with their insurance agents and lawyers concerning how best to avail themselves of insurance protection, if needed. They did so to determine their rights and responsibilities under those policies if the winter storms caused damage to structures already under construction, as well as to on-site materials, supplies, or equipment that could not be removed before the storms struck.
Wise contractors sought to ensure they knew their obligations concerning notice, documentation of damage or loss and whether the damage or loss suffered would support a claim under their project insurance plan. This familiarity with their builder’s risk policy was beneficial to their conversations with owners and trade partners concerning financial responsibility for projected losses.
6. They identified challenges early and attempted to mitigate loss. By understanding what was required of them by their contracts regarding pending projects and their insurance policies, wise contractors determined, before the storms struck, the challenges the storms might cause to pending projects; and how they could mitigate the damage or losses caused by them. Mitigating damage and losses by engaging in self-help, such as moving subcontractors’ supplies or materials indoors, narrowed the scope of outside assistance contractors needed from contractual counterparties and insurers. Wise contractors’ loss-mitigation efforts boosted the strength of their post-storm negotiation positions with owners, their trade partners, and their insurers by serving as proof that they employed reasonable efforts to prevent delay, property damages and/or financial loss.
7. They reevaluated contract terms for future projects. After the storms, wise contractors considered how their contracts and insurance coverages could be improved for future projects. They asked themselves, “Given what we now know about the protections our contracts and insurance for ongoing projects afforded (or in all too many cases, did not afford) us, should we revisit our contracts and insurance provisions to mount better protections against potential future events?” If the answer was “yes,” they did exactly that.
Unfortunately, severe weather is increasingly common in Texas and across the United States. But, in most instances, contractors have the benefit of foresight thanks to advances in weather forecasting technology. Wise contractors should use the proverbial “calm before future storms” to ensure they protect themselves legally concerning the potential project delays, property damage and economic loss severe weather seems to be causing with growing frequency.