Without a doubt, the COVID-19 pandemic put all construction projects on hold when the whole world went into lockdown. The United States, European Union, Canada, Hong Kong, China, Japan, the Middle East, and almost each developed and emerging nation faced these problems.
In Canada, the problem was quite evident not just in Toronto but also in Hamilton, Ottawa, Vancouver, and Calgary. Delays, loss of productivity, rising costs, and loss of profits were caused by the lockdown.
The pandemic is now over but how can the impact of these risks be reduced? It is hence important that all parties in construction projects and works implement proactive identification and proper management of each work to reduce the impact of these risks.
Now we will be discussing a top-level overview and some of the most common kinds of construction claims which are expected due to the pandemic, with practical solutions to help reduce these risks and counter them too.
Overview of the impact the COVID-19 pandemic has had on many Construction Projects
Here are some key examples of contractor claims and issues related to the pandemic.
During the early stages of the pandemic, project and construction company owners issued force majeure notices along with suppliers and contractors. Most of these claims do have merit, a lot of them however were carelessly issued and without proper consideration of how the pandemic actually prevented the execution of specific contractual obligations.
Unfortunately, some have also attempted to take advantage of restrictions of the pandemic by making these claims for seeking relief for pre-pandemic delays or other kinds of performance issues. That being said, if the pandemic did prevent the execution and performance of any contractual obligation, contractual relief of force majeure may be available to either the project’s/company’s owner or the contractor.
Claims of delay
In connection with force majeure claims or other delay claims of excusable nature, there are interruptions in the supply chain, absence of personnel (absentees), and other issues created by the pandemic that can create large delays.
For instance, the shut down of a facility producing specialized equipment, based in America, because of the pandemic and absence of personnel due to it and restrictions on traveling to Canada created a critical path delay.
The pandemic reduced labor productivity (the amount of labor input needed to achieve the desired/specific output).
For instance, a contractor providing drywall-making services working in a condo project under a lump sum contract might have assumed and that too before the pandemic may have assumed that all that is needed are four workers working eight hours daily to install drywall in each bedroom in each condo uit present.
However, due to PPE and social distancing requirements, it indicated that the same kind of work may take 10 to 12 hours each day. THis forces the contractor to incur additional labor and overtime expenses.
Hard work might allow this work to be completed on time, but there will be a reduction in productivity and will also raise the labor costs. At the same time, compensation under the contract will remain the same, unless and until a valid order for amendment has been approved in line with the provisions of the contract applicable.
Additional costs for materials
The best way to explain this is the case of an owner with an intention to procure certain materials globally but is being forced to buy them from a much more expensive local source.
Problems regarding insolvency
Sadly, some owners, contractors, and suppliers were not able to survive the pandemic. Common forms of security like performance bonds, and labor & material bonds were able to reduce some of these risks.
However, an insolvency problem that arises out of nowhere can have catastrophic expenses and can also adversely impact the schedule of owners. It can also leave contractors with either little or no recourse other than pursuing a builders’ lien claim.
Labor issues plus any issues with overheads and safety
THere have been instances of construction workers refusing to go during the pandemic because of safety concerns, and have even expressed safety concerns numerous times. These kinds of issues can cause delay and can negatively impact productivity. Additionally, the prime contractor has a legal obligation to keep the work site safe for workers.
Handy tips to reduce risk of construction claims post COVID-19 pandemic
While the impact of construction claims due to the pandemic depended largely on risk allocation under application contracts, here are some key considerations compiled by quantum analysis experts that can help:
Clear lines of communication from owners and contractors
Almost all parties on any kind of construction project will have concerns regarding the impact of the pandemic. For managing claims and addressing issues that arise, it is key to have clear and transparent discussions regarding the impact of the pandemic and the potential ramifications in the contract.
Reviewing and complying with requirements set forth in the notice
Owners and contractors should be able to carefully review and identify any applicable contractual notice provisions. Failure to comply might result in a loss of entitlement to an otherwise valid claim.
Additionally, notice provisions related to change orders, most contracts also contain stringent notice requirements in regards to the starting and ending of the force majeure period.
The cost versus schedule relief
While a lot of contracts do not entitle the claimant for claiming additional compensation for a valid force majeure claim, other contacts do. Suppose the pandemic impacted someone’s ability to carry out tasks in accordance with the contract, it is important to undertake a comprehensive contractual review for assessing whether issues coming from the pandemic entitle them to either or both cost and schedule relief.
Proactive change and claim management
A natural tendency is present on numerous projects to focus on completing the work on time. This often leaves resolving claims to be conducted at the end of the project. While it is not always practical, quantum analysis professionals recommend that both owners and contractors deal with pandemic claims (and all claims in this regard) straight away before they relax.
Whilst the pandemic did impact construction projects across much of the developed world, Canada was quite impacted, especially Toronto. Careful planning, communication, enforcement & understanding of contractual rights, legislative rights, as well as other rights and remedies can help reduce these risks.