This article has been adapted with permission from a White Paper written by Michael A Collins Jr CPC, CPE, LEED AP BD+C and published by J.S.Held here: The Effect of Covid-19 on Active Construction Project Suspensions.
As the headlines continue to rock an already stressed construction industry, the COVID-19 pandemic will continue to cause further impacts, varying in both type and magnitude, on active project sites, both immediately and for the months to come. Over the last few decades, the modern construction industry is accustomed to, and relatively resilient to, project-specific impacts (excluding the late 2000s financial crisis). For the last 100+ years labour and material shortages, severe weather patterns, inflation, and an insufficient labour pool to meet project demand, have all been a part of construction projects and related contractual relationships. However, the construction industry now needs to urgently prepare to absorb the impact of a worldwide pandemic of the magnitude being projected with COVID-19.
When evaluating your options as a Developer to suspend an active project, consider the following framework. This is not designed to be a comprehensive check list and is for guidance only. We highly recommend you speak with your Project Monitor and Legal counsel at the earliest opportunity.
Develop Your “Emergency Response” Team
1. The Developer should put together its “Emergency Response” Team. Members of such a team should include key design team members, Developer consultants and representatives, key general contractor personnel, and even key subcontractors and suppliers.
2. Set up daily calls to manage all parties and work streams.
3. Orchestrate meaningful discussions regarding the current realities, and encourage open discussions surrounding issues related to trade labour availability and concerns with supply chains.
Understand Related Contract Provisions
1. The Developer may likely be required to compensate the Architect (and its subconsultants) for services performed since its last periodic billing and the date of suspension, as well as costs reasonably associated with the interruption of work.
2. The period of suspension is likely not infinite. If the suspension exceeds a contractually defined number of calendar days, the Architect may be able to terminate the agreement with written notice.
3. Contract provisions aside, overarching consideration should be given to the ongoing business relationship and the risks that both parties have in today’s environment. If the architect loses key personnel during this downtime, where does that leave the Developer in attempting to complete the project, as well as placing the Developer in uncomfortable positions with its Contractor?
1. The Developer will likely be required to compensate the Construction Manager (or General Contractor) and subcontractors for work in place as of the date of suspension, applicable indirect costs, and related demobilisation costs. Bottom line, understanding termination-related provisions is vital and cost-benefit projections should be run.
2. Suspension as a result of the actions of an authority having jurisdiction, a national emergency, or failure for the Developer to fulfil its obligations are often addressed differently than suspension for convenience.
3. Finally, similar to the issue involving retention of qualified design professionals, the challenges in the Developer and General Contractor relationship is what should the General Contractor do with its Subcontractors. This challenge can be exacerbated by situations involving Subcontractors with cash flow and access to capital issues. Furthermore, given the context we are discussing, a Subcontractor is most likely going to lose some of its project trade force. With that in mind, when the Project does start back up (in earnest), Developers and General Contractors should be cognizant of the likely possibility of additional schedule and progress impacts as a result of these factors.
The Developer will likely be required to compensate the various Consultants for services performed since its last periodic billing and the date of suspension, as well as costs reasonably associated with the interruption of work plus a predefined fee (depending on the specific contract and project delivery mechanism being employed).
Written Notice to Project Participants
When the decision is made to suspend the activities of the project, clear communication is key. Provide written notice to all design, construction, and consultant team members that includes, at a minimum, the provisions set forth in each agreement and prescribed delivery method of notices along with the following basic information:
1. Project name
2. Project Developer
3. Date of agreement being suspended
4. Identification of key contract terms related to the suspension
5. Identification of the effective date of suspension
6. Related requests for information as of the date of suspension
Document Field Conditions
Documenting the status of the “Work in Place” may seem like a daunting task, but remember, if we know where we left off, we will be better positioned to re-start. Below are select data points to gather when embarking upon a suspension:
Photographic documentation of Project site
- Photograph (and video) the “Work in Place” in all available areas, from all available vantage points. Unfortunately, often the photo you will need in the future could be the one you didn’t take today.
- Photograph current field conditions:
1. Equipment on site
2. Materials on site (staged for installation & stored)
3. General condition of site (rubbish, small tools, field offices, etc.)
4. Consider aerial documentation via drone
Collect current project controls documents
1. RFI logs (requests for information)
2. PCO logs (potential change orders)
3. COR logs (change orders)
4. Submittal log
5. Inclement weather log
6. Daily work logs/reports
7. Most recent schedule updates
Develop Suspension Budget Projection Scenarios
There can be financial benefits, as well as impacts, to the implementation of Project suspensions. Consideration should be given to the costs associated with a Project suspension, including but not limited to:
1. Developer costs (including exposure to costs of the Developer’s customers)
2. Interim project “support” costs (utilities, extra security, protection, etc.)
3. Design costs
4. Construction costs
5. Developer consultants’ costs
6. Developer vendors and restocking costs
Understand When Suspension May Lead to Contract Termination
The period of suspension is typically defined in parties’ agreements. Suspensions, regardless of cause, may become terminations of existing contracts between some, or all, of the relevant parties at some point. It is important to understand these key contractual clauses to ensure all vested parties are aligned and aware of stipulated contractual dates and notice provisions. However, as is the case in many traditional situations, termination should never occur without a great deal of diligence and forethought.
Suspension Period Communications
It is important to remember that everyone on the project team is impacted and has concerns when a project is suspended. Consider maintaining periodic update calls to keep all project participants up to date on the status of the suspension.
Be Prepared to Re-Start the Project
As the timing becomes appropriate to resume the project, the Developer must be prepared to address outstanding costs associated with the suspension. Further, as the Developer, you will likely be required to, or requested to, provide information to support the financial capacity of your organisation to complete the project.
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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