With governments shut downs of non-essential activities and employees forced to stay home, many Florida projects will be either halted temporarily or be delayed by supply shortages and other issues. In this post, we offer clients some perspectives on how to meet these challenges, starting with ensuring the health and safety of employees.
Health and Safety
The risk of exposure to COVID-19 is the same for employees of construction owners, contractors, and suppliers as for the general population. Owners, therefore, are required to consider the physical well-being and safety of all project team members, stakeholders, and participants on their construction projects and follow reasonable precautions and recommended guidelines of governmental authorities and healthcare professionals. As experience has shown, confirmed cases of COVID-19 expand exponentially if health and safety controls are not implemented.
Accordingly, construction owners should enforce all health and safety procedures on their construction sites including sanitary procedures and protocols, proper hygiene, social distancing, use of appropriate personal protective equipment (PPE), morning toolbox talks on special COVID-19 requirements, readily-available hand washing stations, and prompt reporting of health issues related to COVID-19 by construction workers. Current safeguards include keeping exposed employees away from construction sites for at least 14 days after the last potential exposure. Some Florida project owners are actively encouraging sick workers to stay home, curtailing face-to-face meetings, staggering shifts and lunch/break times, increased cleaning of common offices and lunch areas, and—for large projects—expanding the capacity of on-site industrial hygiene, health and safety and medical personnel and facilities.
OSHA also recommends that employers develop an Infectious Disease Preparedness and Response Plan. This should spell out where, how, and to what sources of COVID-19 might workers be exposed; non-occupational risk factors at home and in community settings; workers’ individual risk factors; and controls necessary to address those risks. For more information on current OSHA guidance, see the publication entitled Guidance on Preparing Workplaces for COVID-19.
Completion and Disruption Risk
Due to the potential of widespread impacts of the COVID-19 pandemic, most construction projects will experience delays and disruption. Florida is one of several states that have exempted the construction business from its shelter-in-place order halting most business activity. Washington state said no to construction. So did New York. Both made exceptions for “essential” projects, including repair work and hospital construction. California is allowing construction to proceed, though some areas such as San Francisco have stopped many projects. In a tight labor market, construction firms were already struggling to find the workers to complete projects on time.
In Florida, Gov. Ron DeSantis’ order, which took effect April 3, relied heavily on an earlier stay-at-home order imposed in Miami-Dade County. That order specifically listed construction as an essential business. DeSantis also relied on recommendations from the Department of Homeland Security — references to construction are scattered throughout those recommendations.
COVID-19 is also causing supply-chain disruption, cash- flow concerns, and funding/financing restrictions in Florida. As a result, critical construction activities may need to be extended or rescheduled, and contractors may need to adjust their schedules for performing work to comply with governmental instructions and mandates.
Construction owners must act quickly to identify, assess, and mitigate completion risks on their construction projects and programs. This may require owners to conduct detailed schedule reviews, especially those in early to middle stages of completion. Project calendars within scheduling programs like Primavera P6 can be adjusted to reflect lost productivity by putting affected work activities on customized six or seven-hour workday calendars. In addition, owners and contractors should consider putting specialized staff in place to measure actual subcontractor productivity so "measured mile" comparisons can be made if they receive any notices of claims related to reduced worker productivity due to COVID-19.
Commercial Risk and Disruption
COVID-19 impacts also include commercial risks, such as material price increases, labor-cost escalation, extended general conditions costs, and higher financing costs. If contractors face higher costs for concrete, steel, lumber, and drywall from suppliers due to COVID-19 interruptions, owners may be asked to foot the bill. Labor costs may also be higher if contractors are forced to choose from a limited pool of workers due to COVID-19. If project completion dates are extended, owners are also exposed to higher costs for internal management staff, third-party owners representatives, and consultants. Such delays and disruptions are likely to result in increased financing costs, management fees, and developer costs.
Owners can prepare for commercial risk on construction projects by actively engaging with contractors and stakeholders in early discussions on the potential COVID-19 impacts on their projects. Owners and contractors are strongly encouraged to assign personnel and develop processes to accurately document all commercial impacts for which contractors may later seek economic recovery. Most importantly, owners should advise contractors, suppliers, consultants, and others that notice provisions in contracts will be strictly enforced and that COVID-19 impact costs will not be considered unless requirements for force majeure documentation per contract requirements are met. Owners should also be vigilant about reviewing daily, weekly, and monthly productivity and comparing planned productivity to the schedule; monitor and document changes in the contractor’s labor force; and a retain qualified claims and CPM schedule consultant to perform real-time reviews of cost and schedule impacts related to COVID-19 issues.
The responsibility and remedies for delays, disruption, and commercial risks are spelled out in construction contracts and usually allocated to the party in the best position to mitigate such risks. Delays caused by COVID-19 impacts should be covered under a force majeure or similar clauses of the contract. Contractors may argue that COVID-19 related delays and disruptions were wholly unforeseeable and outside of their control, and therefore should be excusable. Under these circumstances, many contracts entitle the contractor to a time extension of the project completion date; however, most contracts will not allow for the contractor’s recovery of increased general conditions costs because COVID-19 was outside the control of the owner, as well.
On some government projects, price-escalation provisions in contracts may permit contractors to negotiate labor and material price increases if they exceed thresholds or percentages of the baseline cost estimate. Should COVID-19 related impacts increase the contractor’s labor and material prices beyond these thresholds, the contractor may be entitled to an equitable adjustment. Contractors will need to supply the owner with objective evidence of price increases and show that such increases exceed contractual limits. It may behoove owners and contractors to retain qualified claims consultant to perform analysis of such claims.
Owners are encouraged to retain a scheduling consultant to review contractor schedules. Owners should also seek advise from a Florida Board Certified Construction Attorney to review their construction contracts and determine their options for force majeure, suspension of work, or stop work order clauses that would provide relief to contractors seeking time extensions. Project managers should pay particular attention to contract provisions that allow the contractor to request compensation for: acts of God, governmental action, pandemics, or owner-directed suspensions and work stoppages.
As noted, owners should encourage early discussions between project teams and contractors to determine if COVID-19 related impacts are likely to affect their projects. Owners should state, orally and in writing, that contractors and major suppliers must provide notice of delays and cost impacts under proper contract clauses and that detailed record keeping will be required to substantiate claims.