On March 27, 2020, the Bureau of Land Management (“BLM”), within the Department of Interior, published its Final Environmental Impact Statement (“FEIS”) on The Alaska Industrial Development and Export Authority’s (“AIDEA’s”) proposal to build a 211 mile industrial access road linking the remote Ambler Mining District to the closest existing road, the Dalton Highway in the southern foothills of the Brooks Range of north central Alaska.. BLM selected AIDEA’s planned route as the preferred alternative, and found that the road could go forward without significant environmental impacts. BLM’s environmental findings are important because they will be used as the environmental record by the Department of Interior in making its final decision, as well as the Army Corps of Engineers and the Coast Guard in their permitting processes. Certainly, with the FEIS’s completion, Alaskans are a critical step closer to development of the road which should spur Alaskan jobs, economic opportunities and resource development
Economic projections about the project are impressive. AIDEA estimates the project will create an annual average of 486 jobs during construction and up to 68 full time jobs over the road’s life. Plus. in the private sector, mining development is expected to create additional highly valued jobs and economic opportunity for the region, as well as for the State as a whole. The private toll road will be built with concerns about impacts on subsistence users and local communities paramount. The timing couldn’t be better. This project could be “shovel ready” this year when Alaskans need to boost and diversify our economy. This project will be one of the major developments in Alaska’s economic future.
Many Alaskans have looked forward to developing these opportunities for many years. Early in its history, the State identified the Ambler area’s prime mineral development potential, which had been explored and evaluated for more than a century. Mineral resources include copper, lead, zinc, gold, silver, cobalt molybdenum and possible rare earth minerals. Senator Ted Stevens and other Alaskans pressed Congress for years to recognize the State’s interest in encouraging resource development in the area. As a result, Congress authorized a right of way through the Gates of the Arctic National Park and Preserve (“GAAR”) in the Alaska National Interest Lands Conservation Act (“ANILCA”) passed in 1980, to ensure transportation access to the Ambler Mining District.
The road will have important multiple purposes. By connecting this remote resource rich area of the State to the existing highway, the road will make mining exploration and development more economically feasible. AIDEA’s proposal furthers its mission of increasing job opportunities and encouraging the State’s growth through development of its natural resources. AIDEA’s plans include use of installing fiber optics to provide better security, communications and potentially bringing broad band to remote communities.
Throughout the EIS process, BLM consulted extensively with Alaskans and people in the Lower 48, including community meetings, tribal consultations, public input, and federal and state cooperation over the past 3 years. BLM said that its outreach efforts “contributed to its comprehensive analysis that will help pave the way for Alaska to responsibly develop its natural resources and create jobs.”
Selection of AIDEA’s Proposed Route
Based on the purpose and need for the project, the BLM identified potential alternatives from a number of sources, including alternatives proposed by AIDEA, routes studied by the State and others, and routes and concepts suggested by the public during and after formal scoping. To determine whether an alternative was reasonable, the BLM employed a 2-phase screening process: (1) an initial screening of transportation modes, including road, standard rail, blimp/dirigible, pipeline, elevated rail, narrow-gauge rail, ice road, and barge, and (2) a screening of routes associated with the reasonable modes. The BLM considered an alternatives effectiveness at satisfying the purpose and need, technical and economic feasibility, the practicality of the alternative, and whether the alternative substantially duplicated others evaluated.
The BLM EIS analyzed three reasonable alternatives in addition to a no-action alternative as a benchmark:
Alternative A is AIDEA’s proposed route accessing the District from the east. It begins at Milepost (MP) 161 of the Dalton Highway and runs almost directly west for 211 miles to the District across primarily State-managed, BLM-managed, and GAAR lands. This route crosses GAAR farther north than Alternative B.
Alternative B is a 228-mile road with its eastern terminus at MP 161 of the Dalton Highway. It follows the same alignment as Alternative A except it loops to the south to pass through GAAR at a location that crosses less National Preserve land and is farther from the Park and Wilderness boundary. But it could have more significant environmental impacts.
Alternative C is a 332-mile road with its eastern terminus at MP 59.5 of the Dalton Highway. It approaches the District from the southeast, primarily across BLM managed lands.
After analyzing the range of alternatives, BLM determined that AIDEA’s Alternative A is the preferred route for the right-of-way and proposed environmental mitigation measures to provide additional protections. Access can be provided in a manner that encourages development of Alaska’s resources and economic development, while also preserving and protecting the natural environment.
The project proposed by AIDEA includes a 211-mile, all-season, industrial access road to the Ambler Mining District in the southern foothills of Alaska’s Brooks Range. The road will provide access for mineral exploration, mine development, and mining operations by connecting the District with the Alaska Pipeline Haul Road (Dalton Highway), an area currently without any road or surface access. Local communities may have commercial access to the road when it is built. Under AIDEA’s proposal, approximately 25 miles of the proposed road will cross BLM-managed lands.
AIDEA’s proposed project is only the industrial road. At the moment, there is no formal proposal for a specific mine and therefore no agency is currently considering authorizing mining in the District. However, the FEIS addresses reasonably foreseeable mine development.
While the Final EIS identifies a range of alternatives, the Secretaries of Interior and Transportation will need to determine a route through the gates of the Artic National Park and Preserve. BLM will prepare and release a Record of Decision which may be published no earlier than 30 days after the FEIS Notice of Availability. The Record of Decision may likely adopt mitigation measures suggested in the FEIS and may further address comments from the public and State. Birch Horton Bittner and Cherot encourages broad public involvement in these types of Alaskan development projects which is why we share this with you.
The tourist-dependent city of Las Vegas was effectively shut down on March 17, 2020, when Nevada Governor Steve Sisolak halted all “nonessential businesses” due to the spread of Novel Coronavirus COVID-19. The edict was of particular concern to the contractors working on the new Allegiant Stadium, a $1.8 billion NFL stadium due to open in July 2020. Fortunately, two days later the contractors were informed that construction would not be placed on hold.
Other contractors have not been so lucky. COVID-19 shut down construction projects in every state, sometimes without even giving builders a chance to demobilize from the jobsite. In most cases, there is no telling when the delay will end and work will resume. While outdoor projects like horizontal construction might be able to continue, interior construction and remodeling ground to a halt.
The situation has left contractors and owners scrambling to revisit their original contract. Many of them will find an “excusable delay” provision. It excuses the contractor from the performance completion date established by the contract if the work is hindered by a delay that is not the fault of the contractor. A good example of an excusable delay provision is the one used in federal construction contracts, found at FAR 52.249-14. It specifically names an “epidemic” as a source of excusable delay. In contract law, an epidemic is often considered a force majeure event—something no contractor or owner has control over. And while it may be comforting to assume that the delay in work is nobody’s fault, excusable delay can be a minefield for contractors and owners alike.
Defining the Delay
A prime contractor faced with a total work stoppage due to an epidemic such as COVID-19 has a lot of things to worry about. The most obvious one is whether the delay is going to jeopardize the completion date. For a contractor with a fixed date of completion, the only way to extend the completion date is a written change order. But how long should that date be extended? The American experience with COVID-19 is that there is no way of estimating with any accuracy when new restrictions on normal business operations will change. In the meantime, the prime contractor has subcontractors and suppliers standing by. Each one will want delay damages in the form of standby costs and daily overhead. These parties will make their demands regardless of whether the prime contractor can recover such delay damages for itself.
In order to demonstrate an excusable delay, the contractor has to prove that the delay is both (1) beyond the control of the contractor and (2) unforeseeable. In the case of a work stoppage due to COVID-19, the first element should be easy. No contractor has any control over a global epidemic. But proving the epidemic unforeseeable might be difficult. If the contractor agreed to perform after having knowledge of a potential work stoppage due to COVID-19, the owner might argue that the delay was perfectly foreseeable. For example, in Matter of AFV Enterprises, PSCNA No. 2691, 01-1 B.C.A. ¶ 31388 (Apr. 11, 2001), the Postal Service Board of Contract Appeals determined that a particularly rigorous review by a town planning board did not create “excusable delay,” because the contractor should have been able to foresee the challenge it faced ahead of time. Considering the massive and widespread media attention given to the COVID-19 Epidemic, an owner may conclude that a contractor should have known the risk of a stoppage, depending on when the contractor first agreed to perform.
Impact on the Bottom Line
If a contractor can demonstrate that the COVID-19 Epidemic is an excusable delay using the two-prong test above, it will be entitled to an extension of the work schedule and be able to claim any associated losses. Perhaps more critically, the contractor will also be able to avoid potential liquidated damages or the loss of retained funds held by the owner.
But it is important to remember that an excusable delay is not always the same thing as a compensable delay. A compensable delay is a delay that entitles the contractor to reimbursement for damages sustained on account of the delay, such as maintaining an on-site workforce or a job trailer but not being able to use them. Compensable delay occurs when the contractor requests suspension or termination of the work, or a re-sequencing of the work to mitigate damages, and the owner refuses. For example, if an owner insisted that a contractor maintain a presence on the jobsite during a shutdown caused by COVID-19, the contractor could demand the associated costs. Forcing a contractor to stand around for an indefinite period of time is often unreasonable.
Not all delays are the same. Bad weather can be expected to pass. An epidemic is a much more uncertain affair. When an excusable delay is indefinite, such as the case with COVID-19, the most practical resolution is the immediate termination of all contracts. The contractor and owner can negotiate a termination for convenience, reimbursing the contractor for all work performed up until the date of termination, and for the costs associated with termination such as demobilization. Importantly, the contractor usually cannot demand profits on work not yet performed.
Returning to the Federal Acquisition Regulations, the force majeure clause at FAR 52.249-14 also includes “acts of the Government in either its sovereign or contractual capacity” as a basis for excusable delay. In March 2020, governments worldwide “locked down” their citizenry, halting construction projects under penalty of law. Federal contractors will have little difficulty arguing that their work was delayed or halted due to a sovereign act.
But “sovereign acts” is a two-edged sword. The Sovereign Acts Doctrine is a longstanding defense that the federal government has used to excuse actions that impede prosecution of work. It is rooted in the fact that the government is both a sovereign and a customer. When the government is acting in its “sovereign capacity” rather than in its capacity as a customer, the resulting delay to the contractor may not be excusable. On the other hand, if government action is targeted at a specific contractor or a specific project, the government is acting as a customer, and cannot raise the Sovereign Act Doctrine to defend itself from a resulting claim.
For example, in Appeal of Garco Construction, Inc., ASBCA No. 57796 (Sept. 22, 2015), the Armed Services Board of Contract Appeals considered a contractor whose subcontractor could not deploy its typical labor force to an air force base because of a preexisting policy barring pre-release convicts from working on the base. The contractor argued that the policy had never been implemented in the past, and the subcontractor was unfairly targeted. The Board concluded that there was a policy in place prior to performance, and that the policy was implemented by individuals at a lower level than the contracting officer. Because the policy was therefore a security measure and not a contracting decision, the Sovereign Acts Doctrine barred a claim against the government for the costs resulting from implementation of the policy.
The Sovereign Acts Doctrine plays an obvious role in shutdowns caused by the COVID-19 Epidemic. When all “nonessential businesses” are shut down, a contractor cannot claim that it is being unfairly singled-out. There is a causation problem here—what or who is responsible for the shutdown? The answer might be that the shutdown is “directed at the contractor” because it is within the power of the government to define “nonessential business” and make exemptions where it chooses. In the case of COVID-19, even where the government claims that its actions are justified or for the sake of the public good, it cannot claim that it subjected the contractor to a rigid policy that preexisted the delay in performance. The future will tell whether the Sovereign Acts Doctrine is invoked and, more importantly, whether it is successful.
UPDATE ON EMPLOYMENT-RELATED CORONAVIRUS LEGISLATION
In response to the unprecedented spread of the Coronavirus (also known as COVID-19) and the immense impact this pandemic has had on the U.S. and world economies, the U.S. Senate passed the Families First Coronavirus Response Act (“FFRCA”) In addition to providing emergency funding for food service programs, unemployment benefits, and agency response funding, the included Family and Medical Leave Expansion Act and the Emergency Sick Leave Acts afford additional paid time off benefits for some eligible employees. These provisions go into effect April 2, 2020, and remain in effect through December 31, 2020.
Covered employers under the Acts include any employer with fewer than 500 employees. The U.S. Secretary of Labor, however, retains the authority to exempt or exclude small businesses with fewer than 50 employees where requirements of the Acts would jeopardize the business as a going concern. The Department of Labor has yet to issue any regulations limiting or clarifying the Acts’ coverage and application, but it is anticipated such regulations will be issued concurrently with the Act’s effective date. Under the Acts small businesses and some municipalities will incur new regulatory requirements, and be required to cover additional costs of absent employees, for absences related to the Coronavirus pandemic. Small businesses may be able recoup costs of leave through tax credits included in the bill.
The Emergency Family and Medical Leave Expansion Act
The expanded mandate under the Act now includes paid leave for a “Qualifying Need Related to a Public Health Emergency,” for eligible employees who are unable to work or telework due to the need to care for a son or daughter under the age of 18 whose school or place of care has closed, or where their caregiver is unavailable, due to coronavirus precautions. Eligible employees include those that have been employed for at least 30 calendar days. The first ten days of necessary leave may be unpaid, although the employee may elect to substitute other employer-provided paid leave, such as PTO, vacation or sick leave. The following 10 weeks of leave must be paid at 2/3rds the employee’s regular rate, up to a cap of $200.00 per day. After exhaustion of leave, or in the event the employee is able to return to work sooner, an employee is entitled to restoration to their position except where the employer has fewer than 25 employees, the position no longer exists due to Coronavirus, and the employer attempts to find an equivalent position.
It is important to note that other aspects of the Family Medical Leave Act (“FMLA”), providing for unpaid leave, continuation of benefits, and job restoration, in specific circumstances, remain intact and may also be applicable to eligible employees.
The Emergency Paid Sick Leave Act
Employers are also required by the Act to provide an additional 80 hours of paid leave (in excess of any paid leave policy in place) to full time employees who cannot work or telework for the following reasons:
1. A federal, state or local quarantine or isolation order related to coronavirus;
2. Direction from a health care provider to self-quarantine because of coronavirus;
3. Employee has symptoms of coronavirus and is seeking medical diagnosis;
4. Employee is caring for an individual subject to quarantine or isolation;
5. Employee is caring for a son or daughter whose school or place of childcare is closed, or childcare provider is unavailable, due to coronavirus precautions;
6. Employee is experiencing substantially similar or related conditions as may be recognized by Secretary of Health and Human Services.
The amount of pay required for eligible leave is capped at $511.00 per day (or $5111.00 for the two-week period of 10 working days) for leave taken for reasons 1-3, and capped at $200.00 per day (or $2000.00 for the two-week period) for reasons 4-6. Part-time employees may be paid on pro-rata basis.
Related Legislation and Continuing Developments
As noted above, additional legal guidance and coronavirus-related legislation is likely to be forthcoming. When making employer leave or separation decisions, employers must carefully consider the rapidly changing landscape in the context of governmental orders, public health directives, and other related employment laws including OSHA, Worker’s Compensation, the Americans With Disabilities Act, the Workers Adjustment and Notification Act (relating to layoffs) and State and Federal Wage and Hour laws.
BHBC is actively monitoring events that may impact the legal obligations and business decisions of our clients, and remains available to assist in navigating any new developments. If you have any questions, do not hesitate to contact us.
We are currently facing very turbulent times with the rapid spread of the novel coronavirus (“COVID-19”) that was first reported in Wuhan, China at the end of 2019. On March 11, 2020, the World Health Organization declared COVID-19 to be a pandemic. State officials responded immediately, declaring state-wide emergencies and mandating certain closures and restrictions. In the State of Alaska, Governor Dunleavy issued a state-wide emergency declaration the day the WHO identified COVID-19 as a pandemic. While it is too early to tell, it is certainly possible that COVID-19 will have a significant and long-term impact on trade and commerce, which could irreparably damage businesses, large and small. These unanticipated economic impacts may require certain companies to evaluate whether they can follow through with certain contractual obligations. In such a situation, close attention should be paid to whether there is a “force majeure” clause in the contract.
Force Majeure is a French term meaning “a superior force.” It has it’s roots in French and English law and has existed as a legal concept in America for centuries. For example, a West Virginia court in 1881 described force majeure as an “extraordinary convulsion of nature or a direct visitation of the elements, against which the aids of science and skill are of no avail.” In laymen’s terms, force majeure generally happens when unforeseeable circumstances make it impossible to meet contractual obligations. In modernity, the doctrine of force majeure is typically found as a provision in most major contracts.
The application of a force majeure clause will relieve a party from their obligations under the contract. An event that would trigger this clause would be an occurrence that is outside the party’s reasonable control and which prevents that party from performing. A party’s ability to claim relief for a force majeure event will depend on the specific terms of the contract and the type of event that has caused the non-performance. Force majeure provisions are express terms and will not ordinarily be implied into contracts.
The “test” for the applicability of force majeure clauses usually requires the satisfaction of three distinct criteria: (1) the event must be beyond the reasonable control of the affected party; (2) the affected party’s ability to perform its obligations under the contract must have been prevented, impeded, or hindered by the event; and (3) the affected party must have taken all reasonable steps to seek to avoid or mitigate the event or its consequences.
When determining if an event triggers a force majeure clause, it is very important to look at the language of the contract itself. Many contractual provisions set out a specific list of force majeure events, which are deemed to be events beyond the control of the parties, such as “pandemics,” “epidemics” or “diseases.” A specific reference to a “pandemic” will make it easier to bring a force majeure claim related to COVID-19, but a party will still have to satisfy the other criteria set forth above.
If the force majeure provision does not include language specifically referencing a “pandemic,” it could still be a force majeure event if the clause includes language referring to an “act of God” or an “action by government.” In most situation, a pandemic would properly be seen as an “act of God.” A pandemic could also result in actions by governments, such as limiting people from gathering or restricting travel, which would likely qualify as a force majeure event. It is important to bear in mind that the relevant force majeure event need not be COVID-19 itself. The consequences that actions taken to protect against COVID-19 or that result in reaction to COVID-19 may also warrant coverage under the force majeure provision.
The existence of a force majeure event is not enough to guarantee coverage under a force majeure provision. In order to qualify for relief, a party must also show a causal link between the impacts of COVID-19 and its inability to perform. For example, if a company is unable to fulfill its contractual obligations because the employees needed to perform the contract have all been placed in government-ordered quarantine, that would likely be sufficient to show this causal link. On the other hand, a disruption that merely impacts the profitability of a contract will likely not be sufficient to trigger a force majeure clause.
Finally, a party seeking to rely upon a force majeure provision will usually have to show that it has taken all reasonable steps to avoid or mitigate its damages, and that there are no alternate means for performing under the contract. What constitutes a reasonable mitigation measure is fact-specific and depends upon the nature and subject matter of the contract in question. For example, if a company is required to quarantine those workers that would have performed under the contract, this company would have to show that there were no other workers, not under quarantine, that could have been hired to fulfill the contract. In determining if a party did all they could to mitigate their damages, the reasonableness of the mitigation measures will be considered.
As our global and domestic economy struggles to react to the implications COVID-19, companies must prepare for varying scenarios. As the situation continues to unfold, the following proactive steps may assist small and businesses alike in weathering the COVID-19 crisis:
• Review your company’s contracts to determine whether they include a force majeure provision and, if so, carefully review the definition of force majeure to determine whether there are any express events, such as pandemics or “acts of God,” that would apply. If there is no specific language, look to see what the general language or “catch-all phrases” say with regard to what event would trigger the force majeure clause.
• Consider and review what steps you are taking as a business to avoid, or at least reduce, the possible effects of COVID-19 upon your company’s work force and it’s ability to continue to perform the obligations of your contracts. It will be important to be able to show that your company has taken all reasonable measures and followed all official guidance.
• Review financing or other related documents to determine whether there are any notice provisions that must be complied with in relation to anticipated or actual force majeure claims.
• Determine whether insurances, such as business interruption insurance or force majeure insurance, may cover any of the expected losses.
Hopefully, the impact of COVID-19 will not be as severe as currently expected. However, either way, it is important to understand your company’s contractual rights and responsibilities and to use all of the provisions in its contracts to its advantage.
If you have any specific questions about how to construe a force majeure clause in a specific situation, please don’t hesitate to contact Birch Horton Bittner & Cherot for assistance. Our attorneys are working diligently to understand the legal ramifications and risks created by COVID-19 and to use existing laws to protect our clients and our community from these risks.
In order to provide our clients with the highest level of service, BHBC continues to add to its team of professionals.
BHBC is pleased to announce that Michelle Nesbett has joined our ranks. Michelle is a well-respected attorney, who focuses her practice on federal white collar criminal defense. She also handles civil cases, including professional negligence and complex litigation. She received her law degree from the University of San Francisco School of Law in 2006. After working as a prosecutor, she transitioned into private practice. In 2019, she was awarded the designation of “Super Lawyer,” which recognizes those lawyers who have attained a high degree of peer recognition and professional achievement. Michelle also participates in her community, including serving as the Chair of the Board of Directors for Anchorage Neighborhood Health Center. Michelle is a valuable addition to the Firm.
BHBC is also proud to welcome George Pitts, who expands the firm’s bankruptcy department to three lawyers. George has practiced in the areas of bankruptcy and financial litigation for more than 30 years, building up remarkable tenure at some of the most prestigious firms in Washington, D.C. He counsels individual business persons encountering financial difficulties as well as companies, both as creditor and debtor. The firm’s bankruptcy lawyers (George, Austin Barron, and Jim Lister) all have substantial big law firm bankruptcy experience. George resides in the Firm’s D.C. office and will assist the Firm’s Anchorage office as well as attend to his practice, which is national in scope with cases all over the country.
BHBC also is adding to its ranks of more junior professionals. Nicole Bayne has joined the Washington, D.C. office as a first-year associate following graduation from George Washington University’s law school. She will assist the Firm’s regulatory and regulatory litigation practices including small business and natural resources. She is particularly interested in the field of water rights law.
Finally, Ella Morozova has joined BHBC’s Anchorage office as a paralegal. Ella received a Bachelor of Arts degree from the University of Nevada, Las Vegas; she received an Associate of Applied Science degree from the College of Southern Nevada; and she studied law at California Western School of Law in San Diego. She has worked as a paralegal in Las Vegas since 2010, but recently relocated to Alaska, and is now a valuable member of the Firm.
These professionals join a team of very accomplished lawyers. Michelle, George, Nicole, and Ella will make sure that BHBC continues to offer exceptional legal services to our clients. We welcome them all to the team.