June 17, 2011

Government Shutdown Will Affect State Construction Projects

The impending government shutdown will affect the state's construction projects.  If the shutdown occurs, Minnesota will suspend work on state-funded projects, including all highway and bridge projects, as well as work on Washington Avenue for the Central Corridor light rail and various biomedical buildings throughout the state.  Contractors will be forced to stop work by no later than July 1.  All materials and equipment will need to be safely secured or removed from the site and all workers will be precluded from further work at the site.  Contractors will also not be paid during the shutdown.

Contractors should consider taking a number of measures to reduce the impact of a shutdown.  Contractors, for instance, should begin making arrangements to remove their equipment from the job sites prior to July 1 because, according to the Minnesota Department of Transportation, wide-load permits will not be granted during the shutdown.  Contractors should also promptly submit their invoices for recently performed work and attempt to receive payment for any outstanding invoices in advance of July 1 because no further payments will be issued until work resumes on the projects. 

Before executing any new subcontracts and purchase orders on state-funded projects, contractors should consider including provisions that address the possibility of a government shutdown.  Contractors, for instance, will want to limit the amounts owed to subcontractors or suppliers in the event of a delay.  We typically recommend a provision stating that the subcontractors' and suppliers' claims are limited to the amounts recovered by the contractor from the state on their behalf.  Contractors will also want to include a provision stating that the subcontractors and suppliers must give notice of their claims to the contractor at least three days in advance of the time that the contractor is required to give notice of such claims to the state. 

Contractors should also be sure to carefully track the additional expenses incurred as a result of the suspension.  Once work resumes, contractors will want to consult their contracts with the state to determine the amount of additional compensation they are owed to cover the costs of the delay.  Contractors should pay particular attention to the deadlines required for giving notice of their claims so as not to waive their right to seek additional compensation.  Indeed, In some instances, contractors may only have seven days to give notice of their claim once work resumes.

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