Labor Shortages – What do You do When You’ve Got the Work, but Nobody to do it?

Category | Briefing Papers

Today, there is more construction work available to contractors than there are workers to perform the work. There are, literally, hundreds of unfilled calls into the local unions for electricians, plumbers, fitters, masons, carpenters and laborers. The shortage appears to be getting worse. Many contractors have stopped bidding work because they cannot adequately staff the projects. That is a smart decision. If you know that you are facing a labor shortage before bidding a project, then it will be very difficult to escape your obligation to perform on time by claiming that it is impossible or impractical to do so because of a labor shortage.

If, on the other hand, you bid a project based on the assumption that there would be an adequate labor supply and the subsequent labor shortage was not foreseeable, then you have an opportunity to obtain an extension of time to perform the work if it is delayed by a labor shortage. Many construction contracts include a “force majeure” clause which relieves the contractor from having to perform the contract if performance is rendered impossible by a force majeure event. A typical force majeure clause reads as follows:

Contractor’s performance under this contract shall be excused to the extent that it is delayed or prevented by riots, wars, flood, strikes, labor shortages, Acts of God or other events beyond the contractor’s control.

If the force majeure clause specifically identifies a “labor shortage” as a force majeure event (as it does in the illustrated clause), then a delay resulting from a labor shortage will almost certainly entitle you to an extension of time to perform the work if the labor shortage was not foreseeable when you bid the project. Under most circumstances, you will not be entitled to additional compensation. An exception to the “no-compensation” rule may exist if the labor shortage causes you to have to pay higher wages (i.e., due to a wage increase), work in inclement weather, or work in and around other trades. You also will be entitled to assert an acceleration claim if you are entitled to a time extension, ask for one, and are turned down.

Even in the absence of a force majeure clause which specifically identifies a “labor shortage” as a force majeure event, all is not lost. Common law recognizes that contract performance may be excused by supervening events which make performance “impracticable.”

Whether a labor shortage makes performance impracticable is a factually intensive issue, dependent upon: (a) the contract language; (b) whether an adequate labor supply was a mutual assumption underlying the contract; (c) the degree to which the labor shortage was or should have been foreseeable; (d) the extent or severity of the labor shortage; and (e) the extent or severity of the hardship caused by the labor shortage. The fact that it will cost you more money to hire and retain workers, in and of itself, will not excuse your obligation to perform on time in the face of a labor shortage. Your performance must be rendered commercially impracticable. You also must provide prompt notice of the labor shortage and its impact on your ability to perform the contract on time. If you snooze, then you will lose.

The labor shortage is here to stay, at least for the foreseeable future. Take heed of the problem when bidding future work and watch your schedules on projects that you bid before the shortage was foreseeable. If you are falling behind schedule, then consult knowledgeable construction law counsel about how to best protect your rights.

This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T