This article was written for the ConsensusDocs newsletter and first appeared here.
Until this past year, we have enjoyed an era of relative labor stability. It’s true, however, that labor unrest frequently coincides with inflationary pressure on prices, something that we are currently experiencing. The recent nationwide rail workers strike was averted only through the extraordinary intervention of the federal government. More recently, thousands of academic workers in the University of California system went on strike. Underscoring this development was a November 2022 New York Times article reporting that polls showed the highest level of support for organized labor since the 1960s. The same article also quoted a professor of labor relations warning that the current economy presents a high potential for strikes. This recalls the sixties and seventies when increased costs due to inflation led to a multitude of strikes.
The construction industry has been historically strike-prone with approximately 22% of all strikes during the 1960s involving construction projects, contrasted with the fact that construction workers themselves accounted for only roughly 5% of the nation’s nonagricultural labor force. Incredibly, in 1969 alone, a record number of nearly 1,000 construction strikes occurred nationwide with 20 million worker days lost, more than five times the lost working time of the rest of the economy.
Given the current economic situation and outlook, it would be worthwhile to examine a phenomenon that has luckily not been on the construction industry’s radar in recent years: how a strike can affect a project’s schedule and what construction project participant, if any, is responsible for any delay impact.
Accordingly, owners and contractors should contractually address what party bears the risk of delays due to strikes and under what circumstances extensions of time are warranted. Doing so will allow for proper planning in order to best avoid future legal battles surrounding strike-related delay claims.
It is generally recognized that delay costs stemming from strikes are to be borne individually by each party to a construction contract. A project owner affected by a strike usually does not have grounds to demand that the general contractor provide compensation for the delay, just as the general contractor cannot recover its own delay costs from the owner. However, extensions of time typically can be obtained where a strike causes delays affecting the critical path of the project, or “substantially impair[s]” performance under the contract,” as long as the delay is considered “excusable.” The contractor has the burden to prove the delay is excusable by showing (1) “that the [strike] was beyond [the contractor’s] control and without its fault or negligence,” and (2) that “reasonable action to perform the contract notwithstanding the occurrence of [the strike]” was taken.
However, if the labor unrest was (1) reasonably foreseeable by the contractor at the time of contracting or avoidable during the performance (and, therefore, under the contractor’s control), or (2) was caused by the contractor’s unfair labor practices or bad faith, then the delay is not excusable. This means that the contractor is not entitled to an extension of time and may even owe the owner delay costs. Examples of such inexcusable delay include when a strike is caused by the contractor’s refusal to enter into collective bargaining with union members for a new contract (an unfair labor practice in violation of the National Labor Relations Act), or where the contractor was aware of the potential for labor unrest with a subcontractor at the time of contracting for the project.
Many construction contracts contain an excusable delay clause, which provides that there will be allowances of time, but not money, for certain delays, including strikes. For example, the ConsensusDocs contract forms provide for a time extension where the delay is caused by labor disputes not involving the contractor or general labor disputes impacting the project but not specifically related to the worksite. However, court cases have held that even under this clause, strikes are still not excusable when they were within the contractor’s control to prevent or were caused by the fault of the contractor.
There are exceptions where the delay is compensable, meaning an owner is liable for delay costs to the contractor as well as an extension of time. First, an owner is liable to a contractor where the owner intervenes during a labor dispute and provides directions that increase the contractor’s loss or expense. The owner’s liability here extends only to this increased loss or expense, however, and the owner is not responsible for any costs that pre-date the owner’s intervention. Second, an owner can be liable for the contractor’s costs where a strike is the foreseeable and probable result of the owner’s actions. This occurred in the case of T.C. Bateson Construction Co., where the Air Force employed non-union labor alongside the subcontractor’s union labor. The general contractor recovered costs from the government due to the resulting strike because the government’s actions were the foreseeable cause of the labor unrest.
A force majeure situation may also come into play. Force majeure is generally defined in contracts and at law as an event beyond the control of a party, such as disruptive weather conditions, war, or other government action. These clauses often specifically reference labor/supply disruptions. Concerning a labor strike at the project itself, force majeure, as typically written and interpreted, would not provide an excuse because the contractor has at least some kind of control: it could have retained a subcontractor that would not have labor disputes or it can employ workers who will not strike (because of a no-strike clause in a labor agreement or otherwise) to self-perform trade work. Contractors should not assume that force majeure will apply and should negotiate for appropriate allocation of risk in their contracts.
Another factor to consider is how labor harmony clauses affect liability. Construction contracts frequently include such clauses, which can take various forms, but aim to reduce the risk of labor disputes or shift who bears the cost of any disputes that occur. Typically, these clauses require the contractor to provide adequate manpower despite labor unrest, make the best efforts to avoid a strike, and employ labor that will not cause disruptions or work stoppages. Labor harmony clauses may also shift the risk of the effects of a strike. Some courts have refused to enforce labor harmony clauses that discriminate against non-union contractors or penalize protected activity. Therefore, it is of paramount importance for contractors to consider the effect of such clauses when bidding on projects and choosing subcontractors, and to avoid any clauses that impose liability regardless of fault or facilitate unfair labor practices.
Considering the potential for labor unrest, it may be prudent to negotiate terms allowing for escalation due to increased labor costs occurring mid-project and allocating the cost of delays due to strikes.
Strikes and labor unrest present challenging situations on construction projects where there is no guarantee of compensation for associated costs. However, by exercising due diligence in reviewing labor harmony clauses, negotiating appropriate contract provisions, and proactively working alongside labor to mitigate unrest, the risks can be managed.
For more information, please contact Cameron Lukas, Alan Winkler or Gregory Begg.