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Construction - Real Estate

The New Reality in Commercial Construction Due to COVID-19

Commercial construction has started back up again. Projects across the country are resuming and the industry continues to add jobs, with one study indicating that 56 percent of industry losses since the beginning of the pandemic have been recovered. Yet, challenges still exist with owners and contractors facing new aspects of liability due to the COVID-19 environment.  While many contracts account for the effects of force majeure events, the unique nature of this year’s disruptions and return-to-work adaptations may open the door to some equally unique claims or litigation. New, and frequently changing, parameters across the industry will require all parties, including developers and contractors, to adopt a targeted approach to their preparedness while maintaining flexibility to stay successful. 

One of the riskier things a party to a construction project can do right now is view a return-to-work as a return-to-normal, whether disregarding safety and health protocols or failing to be on top of the primary issues impacting others across the industry. With so much uncertainty about longer-term impacts as a result of the situation we all find ourselves in, communication is essential through every level of the project to make sure all team members are meeting the changing parameters. Adapting operations and expectations is worth the time and consideration in order to help reduce a project’s risks.

While factors outside of personal control continue to influence all facets of the work, a large part of making sure that COVID-19 related liabilities don’t continue to limit real estate development is careful oversight of vendors and contractors. Though many of the risks facing each are specific to their own work, the nature of litigation means all parties involved in the building project are susceptible to being brought into a suit. Their lapses are not separate from the project itself, particularly if developers have also failed to set the tone through their own preparedness for the potential impacts on the project.

What does preparation to successfully navigate the effects of the pandemic look like under current, and potentially ongoing, circumstances for your team and project?  

For ongoing projects, begin with a thorough documenting of the project’s progress as well as any disruptions and delays that were a result of the pandemic’s impact to establish a clear record. This includes segregating known or claimed impacts from pre-shutdown to those impacts created solely by the shutdown due to varying issues, fact patterns and facets of recovery under each contract. For upcoming projects, accept the new reality that time and cost of performance may be higher than in the pre-Covid era. For example, contractors may claim that what was reasonable planning prior to the pandemic in terms of durations to perform certain work tasks are no longer valid due to safety precautions that absorb time and affect labor productivity. Likewise, all parties need to confirm that equipment or material to be provided are not impacted due to supplier ability to deliver to the terms agreed or contractors having sufficient labor forces as was the case pre-pandemic.  

This auditing, while reflecting a snapshot of the pandemic’s impact, likely varies from expectations established during bidding and design. New obstacles and/or limitations have developed in the current environment and some requisite parameters have changed. Now is the time to review all contract documentation to confirm the specific details of contracts and coverage, rather than assuming you’re protected or won’t be affected. One point of agreement by all is that time extensions will be granted due to any period in which a project was shut down to construction. Or, one may opt to “buy back” this time at a cost (through acceleration of work efforts), but at what cost is always the burning issue. Contractors may find they’re only entitled to an extension of time versus recovery of extended general conditions.  On the other hand, under a suspension of work provision, a contract might allow for an extension of time for a reasonable period, but then permit recovery of both time and money once it is determined that the period of delay is “unreasonable.”  If you’re not sure what your contract calls for, you won’t know what liability you have. 

Without adequate protection in your contract, the only remedy is to come to an agreed settlement with your contractor that is formalized in a change order that captures all time and cost aspects which will serve as an “accord and satisfaction” to these issues. Too many times, all issues are not addressed, and a change order seemingly thought to cover all aspects of the impact (at least in the owner’s mind) turns out not to be as ironclad as believed, meaning the issue may rear its ugly head again down the line.

Further, remember that your agreements don’t exist in a vacuum and that federal, state, and/or local directives may continue to alter plans in spite of your own attention to detail. Prepare to the best degree possible by establishing plans of action that properly address the required changes for COVID-19 compliance while remaining flexible as conditions or parameters change. Make sure that you are knowledgeable of guidelines or regulations imposed by the governmental entity applicable to your project locale. Take the time to reach out to experts like consultants, brokers, and lawyers to clarify your understanding of the impacting external factors and prepare for possibilities you hadn’t previously considered. While it may be the contractor’s responsibility to implement steps to follow and enforce these requirements, that may not take the owner “off the hook” if not followed.

But, perhaps most importantly, you are only as good as your people, so you need to protect them by creating an environment (to the extent possible) in which they can safely work during the pandemic. Ensuring that sites limit worker numbers during a shift so that each person can safely social distance sets in motion other important elements of compliance throughout the project. Access to proper PPE (personal protective equipment) and handwashing/sanitizing stations are crucial to health protections, but so are minimizing the sharing of tools and disinfecting high-touch areas. An unhealthy employee or worker not only risks that person’s own well-being, but also could impact the health of others. Projects are still constructed by people, not machines, so surviving each project with minimal economic harm is dependent upon administrative, management, supervisory, and craft personnel being available to work.

As so many elements of the construction industry have already been impacted, from cost and schedule to personnel, we know the new risks will be an ongoing consideration this year. Despite pronouncements to the contrary, there’s great possibility such effects will also continue into 2021 and beyond. Don’t risk further liability by not preparing—incorporate into your planning periodically re-visiting preparations, and be ready to modify preparations for existing and planned construction.

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