The ongoing COVID-19 pandemic represents unprecedented challenges to the construction industry, not just the immediate impact on labor, material shortages, and adapting to social distancing guidelines, but also the long-term impact on productivity and supply chain disruption. The following proactive steps may be taken to minimize and mitigate the impacts caused by COVID-19.
1. Review current contracts.
Downstream, upstream, and financing agreements potentially contain provisions that address the risk of this unprecedented challenge. While legal doctrines may fill in the gaps, contract provisions allocating risk will typically control.
For example, the agreements likely contain a “force majeure” clause that excuses nonperformance caused by unforeseen events beyond the control of either party that makes performance impracticable or impossible. For instance, AIA A201-2017 §8.3.1 provides as follows:
§ 8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by (1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor; (2) by changes ordered in the Work; (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 220.127.116.11, or other causes beyond the Contractor’s control; (4) by delay authorized by the Owner pending mediation and binding dispute resolution; or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.
Similarly, ConsensusDocs 200 2017, § 6.3.1 provides as follows:
§ 6.3.1 If the Constructor is delayed at any time in the commencement or progress of the Work by any cause beyond the control of the Constructor, the Constructor shall be entitled to an equitable extension of the Contract Time. Examples of causes beyond the control of the Constructor include, but are not limited to, the following: * * * (j) epidemics; (k) adverse government actions * * *.
Unless modified, these clauses allow for an extension of time in light of the COVID-19 pandemic.
Other equally relevant clauses are change-in-law provisions, delays/change order provisions, suspension and termination provisions. All of these provisions may address and provide remedies for delay and increased cost of construction. This is certainly not an exhaustive list of potentially relevant contract terms; every contract is different. The point remains: the first step to address the impact of COVID-19 is to identify the relevant contract provisions to determine what contractual protections are available.
2. Keep detailed records.
It is critical to keep accurate contemporaneous documentation on the impacts of COVID-19 for multiple reasons. First, the contract likely requires documentation and notice contemporaneous with the event giving rise to the claim. Second, in the event of a dispute, contemporaneous documents have much more credibility with a fact finder than after-the-fact recreations based on memory and assumptions. Third, contemporaneous documentation shows the cause and effect relationship between the event and the impact supporting entitlement to added time or compensation. It is insufficient to simply cite COVID-19 and expect an extension of time or added compensation. Rather, to be entitled to relief there must be a showing of the actual impact caused by the pandemic and the efforts to mitigate that impact.
3. Confirm compliance with social distancing and OSHA regulations.
Workforce safety has been a mantra in construction for decades. This pandemic presents a novel overlay to workforce safety. Designate in writing the person on site at each project who is authorized to implement and enforce mandated social distancing policies.
Further, after this pandemic passes we can reasonably anticipate new OSHA guidelines that will affect work sites and employment practices moving forward. A written infectious disease response plan along with staggered shifts and breaks, employee temperature checks, and top-to-bottom disinfections of jobsites, tools and machinery may be the new normal in workplace safety.
Relatedly, confirm whether your communications and technology platforms are adequately supporting your personnel during remote work mandates. COVID-19 has compelled people to figure out how to work remotely. Until a vaccine is found, some form of remote work will likely be required for the next 12 to 18 months. While people are adaptable, investing in new technology to make remote working easier will likely pay dividends in the future as remote working becomes the new normal for many in the construction industry, including engineers, architects, technologists, and project management personnel.
4. Reassess projects.
Re-evaluate your construction budget and schedule in light of the current impact on workforce availability, productivity due to safety mandates, material cost, and supply chain impacts. To do this, engage in a dialogue with the project team, the owner, the design professionals, the lenders, the general contractor, the subcontractors, and the key material suppliers regarding the impact of COVID-19 on the budget and schedule and the team’s efforts to mitigate the impact on the project. Verify in writing the team’s ability to perform and pass the verification, or lack thereof, upstream. No one will be alone or unaffected by the virus. A proactive dialogue upfront may go a long way to avoiding expensive disputes down the road.
5. Review your insurance policies.
Insurance on large projects is highly customized and could include coverage for “soft costs” including “time-element” or delay. Coverage, however, is typically triggered by physical damage to the project itself. Nevertheless, it is possible that “soft costs” coverage could be written in such a manner that it could be triggered by a “civil authority” directive to shut down the project untethered to specific physical damage. Moreover, for projects in the pipeline, talk with your insurance professional about available insurance products for your future projects. Review your insurance portfolios (or hire experienced coverage counsel to do so) to determine if there is coverage that can mitigate the impact of a construction delay or COVID-19-related shutdown of your project. Then, talk with your insurance professional about available products for future projects to see if there are insurance products available that make sense for the contractor and/or the future project.
6. Look to the future when negotiating contracts for future projects.
Safety mandates will add time to complete current and future projects. While proper scheduling and sequencing are important productivity factors, moving forward, scheduling and sequencing will take on a workplace safety component because there will not be allowed a lot of people in the same space at the same time. Scheduling, sequencing, and time constraints must be kept in mind when bidding new projects. Future projects will simply take longer, which should be taken into consideration when bidding.
Further, consider a “Pandemic Rider” for current contracts and draft a “Pandemic Clause” into future contracts that address the rights and remedies of the parties in the event this type of situation occurs again. An ounce of prevention is worth a pound of cure. Consult with your legal counsel to make sure the “Pandemic Rider” or “Pandemic Clause” addresses your needs on current and future projects.
No one can predict what the post-COVID-19 world will look like. However, taking steps now will position you and your project to succeed in a post-COVID-19 world.