Construction Delays due to the COVID-19 pandemic

Many of our commercial clients have been coming to our team with questions related to how their construction contracts and schedules are being impacted due to the COVID-19 outbreak.

The most important note for all parties to a contract is each contract will have specific conditions and supplementary conditions which will dictate the parties’ actions and highlight the necessary next steps

As COVID-19 continues to impact the construction industry, not only in terms of the health of its workers, but also in terms of project schedule and cost, The Brite Group would like to remind all our clients of the importance of keeping detailed daily records of the events and their impacts on your projects.

You have likely seen the term ‘Force Majeure’ on numerous occasions recently. Most contracts have an ‘any cause’ clause beyond control of the parties. It is unusual for general contracts to reference the term ‘pandemics or epidemics’. In each instance it will be a matter of interpretation that depends on the contract language and the facts of the claim. If pandemic or other similar events are not specifically covered in the contract, a party may still claim force majeure under another type of event, specifically the ‘any cause’ clause.

In all cases, it is important to establish causation between the event and a party’s obligations under the contract. The circumstances must be beyond a party’s control and cannot have been foreseeable to have been avoidable with reasonable steps.

Over the past few weeks, we are aware that construction projects have experienced issues as a result of the COVID-19 pandemic, such as:

• Manpower challenges – higher levels of absenteeism due to sickness, isolation, or concern of contamination;
• Material challenges – late or no deliveries from suppliers;
• Lost time due to the implementation of new health and safety measures and procedures, along with requirements for reduced workforces and social distancing;
• Union directives for workers to abandon work sites;
• Impact on crews in the event of a fellow worker testing positive for COVID-19;
• Delays to permits or other approvals resulting from altered work schedules at the government level;
• Reduced presence or absence of owners / owner representatives on site to make decisions, approve submittals, complete inspections, etc.;
• Delayed approval to start work;
• Delayed certifications and payments;
• Travel restrictions;
• Increased cost of materials;
• Governmental ordinances, including partial or complete work stoppages; and
• Generalized loss of productivity due to the above.

As the situation worsens, governmental bodies, and in some cases owners, have already shut down across Canada. In this event, projects may incur additional costs, such as:

• Direct costs to decommission, secure, and demobilize sites;
• Site maintenance costs during the shutdown period (security, public safety, weather protection, signage, etc.); and
• Material and equipment storage and preservation.

When the situation stabilizes and on-site work can resume, the following impacts may also be experienced:

• Remobilization costs;
• New learning curve due to onboarding of new resources;
• Additional costs due to damages or vandalism;
• Resequencing of work, including seasonal considerations;
• Labor resource and material availability as the industry ramps up;
• Escalation of labor and materials costs; and
• Issues with the financial health of the industry (suppliers, subcontractors, and contractors).

Contemporaneous, accurate and complete records are the absolute cornerstone of any good claims management system, as is the expertise to recognize potential claims and act accordingly.

It is important that claims are prepared and submitted at the time of the event arising, even before the full extend of the delay event can be quantified. Records may be lost, recollections fade, personnel may move on and the claim itself may become time barred. Recognizing where a contractual right exists and where it does not, no matter how persuasive the argument, is fundamental and verifying the facts and circumstances is just as important. These claims are recognised as “interim” claims and are recognised as an understading of cost anticpitated costs at teh time of submission not withstanding a further updated claim submission at a later date. This interim claim can protect the contractual rights of the claimant within the boundaries of the contract and enable all parties to work on coming towards a mututal agreement.

Now is the time to effectively plan for strategies and issues for the future so when construction sites return to normal, or begin to do so, you will be in the best position. Consider:

• Liaising with contractors and construction managers to ensure employees and labour are scheduled appropriately;
• Engaging trade contractors and material suppliers to plan resources and delivery and mitigate risk;
• Taking account of new construction site working protocols;
• Updating and plan your construction schedule with multiple scenarios;
• Continuing to update your cash flow modeling; and
• Continuing record keeping in order to be prepared to defend claims.