This article has been adapted with permission from a White Paper written by Andrew Coats, PE and published by J.S.Held here: The Effects of Covid-19 on Active Construction Project Restarts
As the COVID-19 pandemic continues to expand globally, construction lockdowns are being instituted by the government or by companies themselves. In most cases, all but “essential” construction is coming to a standstill, with minimal time for development and for construction teams to assess the full impact on Project planning and the development site.
There is little question that a prolonged shutdown can have an impact on any Project, but the added uncertainty surrounding the duration of COVID-19 related construction moratoriums, along with the resulting impact to worldwide economies, raises a number of additional challenges. Though it is not yet clear how long site work will be suspended or whether certain markets will begin to open up earlier than others, there are several considerations that any Developer can take during the suspensions to best position their Project and associated teams for restart. We highly recommend you speak with your Project Monitor and Legal counsel at the earliest opportunity.
- Put a Remobilisation Plan into Place
Beyond the direct impact of the suspension period on the construction schedule, allowances may need to be made for a Remobilisation period, allowing for a safe and secure Project restart. This may be as simple as the construction manager reengaging staff or as drastic as a complete reassessment of the underlying business plan. At a minimum, contractors will require time and resources to:
- Return their team to the site
- Assess any site changes that may have occurred during the shutdown
- Reengage all subcontractors
- Review any supply chain issues
- Putting a flexible plan into place now will help avoid a scramble as restart dates become more clear.
2. Account for Potential Changes to the Delivery Team and Project Phasing
Consideration should be taken for potential Project team changes, in cases where consultants or contractors are no longer able to provide the same level of service due to staffing losses or a lack of access to capital. The need to renegotiate contracts, rebid scopes of work, and replace subcontractors can have a knock-on effect, impacting other scopes of work and the overall schedule.
When evaluating the impact on the schedule, any resulting changes to the phasing of construction should be taken into account. Prolonged delays may push weather dependent scopes of work into winter months, potentially requiring later work stoppages or additional staffing, material, or protection costs.
- Work with Your Delivery Team to Take Advantage of the Down Time
The ability for design coordination and the shop drawing process to keep up with construction is a consistent challenge on development Projects. Allowing the delivery team to advance coordination work better prepares the Project for a restart. This also puts the team in a better position for any potential acceleration of the delivery, as suspensions are lifted, while also minimizing some of the soft costs associated with such an acceleration. Allowing work to advance does carry risks and may increase soft costs in the short term, but it can also assist in maintaining consistent staffing with the existing consultant and construction teams.
In addition to coordination, the pause in site work can allow for a review of the project schedule and budget to date, providing for a full alignment of all parties on the exact status of the project, prior to restart.
- Allow for Team Site Walkthroughs and Site Progress Documentation Reviews During the Remobilisation Period
The Remobilisation process should begin several weeks prior to permitting access to the site. During this period, Developers and delivery teams should review site progress documentation that was available prior to the work suspension, and insist that joint site walkthroughs occur once access is available again. This will help ensure that all parties are starting from the same place and that any site changes and Remobilisation needs are clearly understood.
- Understand Your Remobilisation Costs
In addition to the site carry costs (including insurance, utilities, interest, and security), the cost of Remobilisation will likely need to be carried by the Developer during the Project suspension. This may include additional contractor staffing, material storage, and delivery costs. Once the duration of the suspension is fully understood, Developers can assess whether opportunities for acceleration can reduce the overall impact of the delays.
- Maintain Communication with Your Entire Delivery Team
An extended suspension, combined with the changes to the economic picture and staffing losses, may impact the ability of subconsultants to deliver at the contracted level. Understanding the potential changes across the team, along with possible contractual defaults, will put Developers in a better position to account for required replacements and will allow them to plan for scopes of work requiring rebidding and coordination. Flexibility in working with subcontractors’ financial terms and deposit requirements may also benefit the Project in the long term.
In cases where scopes have not yet been bought out on a Project or where subcontractors are in default, changes to the economic outlook are likely to present a less constrained labour pool and the potential for cost savings. Any negotiations during the shutdown should be approached with caution, given that the actual duration of the site shutdowns and the final impact on the supply chain are still not clear. Uncertainties in any agreements made during the suspension may create a higher risk of later default.
Material Supply Chain and Manpower
- Monitor the Status of Material Supply Chains
Given the widespread nature of the COVID-19 virus, both across the UK and around the world, there is likely to be an overall slowdown—or, in many cases, a complete cessation—of manufacturing of certain construction materials. This is likely to be seen most in the case of custom materials (e.g. architectural stone fabricated in Italy, architectural glass fabricated in Germany) affected by factory shutdowns and delays in the delivery of orders. In the case of general construction materials, even where factories remain operational, short term shutdowns for cleaning or reduced staffing, as well as bottlenecks in transportation, may still result in shortages. Planning now for the potential bottleneck can help prevent future delays. Social distancing requirements and their impact on manufacturing and distribution have varied from state to state and country to country. A review of a Project’s specific material supply chain may provide an argument for the advanced purchase and storage of select materials. However, this carries an additional cost in terms of storage and double handling; such purchasing may help minimize future bottlenecks.
- Review Labour Intensive Scopes of Work for Changes in the Available Labour Pool
In the case of manpower, given the updated economic outlook, the available labour pool is likely to grow significantly from the shortages the industry faced just a few short months ago. The additional labour availability may present opportunities for savings on Projects not yet underway or on a reassessment of the phasing of a Project—where acceleration strategies utilizing multiple shifts may be more feasible than before.
Review of Approvals and Permits with Relevant Authorities
Understand the Impact on the Status of Project Approvals and Permits
In most markets, construction permits are granted for specific durations, allowing approved work to continue for a fixed duration from the date of approval or for an allotted duration from the inception of a specific scope. Though approvals and permits can often be extended in the absence of material design changes, any required extensions should be taken into account when considering impact to schedule and budget. In addition, many local governments have shut down all non-essential government offices, which could result in backlogs once offices reopen.
Impact on Contracts, Cost Guarantees, Delivery Guarantees, and Force Majeure Claims
Understand the Impact on Delivery and Cost Guarantees
As Project schedules are updated and manpower and supply issues are better understood, Developers may require modifications to guarantees—both those provided by contractors and Developers may have provided as part of the Project financing. Currently, much is being written on the potential application of Force Majeure and Material Adverse Event (MAE) provisions, often included in contracts, and their potential applicability to the events resulting from the COVID-19 response. Though there are numerous opinions on how such provisions may apply to COVID-19 related suspensions, their treatment here may depend on how force majeure was specifically defined in the contract.
Developers should connect with the Project legal team and insurance carriers to better understand any contractual and policy protections, as well as potential opportunities, prior to the project’s Remobilisation.
Remobilisation and Site Safety
- Ensure That Site Security Includes General Site Condition Monitoring
With the immediate nature of Project suspensions resulting from the spread of the COVID-19 virus and the associated site demobilization, there is potential for impact to site physical conditions and damage to installed or stored materials. Site conditions and protection should be continually monitored during the Project suspension period and should involve site walks by experienced personnel who are knowledgeable about the Project.
- Address Site Protection or Site Safety Conditions Immediately
Changes to site safety during a shutdown should, where feasible, be addressed immediately. Left unchecked or uncorrected, site safety conditions can create dangers for the surrounding community and potential delays once the suspension is lifted.
- Account for Site Corrective Measures in Your Remobilisation Plan
In preparation for the Remobilisation process, Developers should review existing site conditions with the construction manager. They should identify any conditions requiring repair or replacement, any potential issues of site safety resulting from the extended shutdown, and issues of wear or weather-related conditions.
In summary, despite the uncertainty surrounding current construction restrictions across the country, there are a number of actions that a Developer can take to ensure that the overall impact to Project schedule, budget, and overall success is minimised.
About J.S. Held
J.S. Held is a global consulting firm with expertise in construction, environmental health & safety, forensic accounting, water & fire restoration, equipment, and forensic architecture & engineering matters. Their Global Advisory Services Division specialises in matters involving project and program management, construction claims and disputes, contract management, surety, and arbitration and litigation proceedings. For further information visit www.jsheld.com.
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