The Effect of COVID-19 on Active Construction: Project Suspensions

NOTE: This is part four of a series designed to present thoughtful topics on the effects of COVID-19. This edition focuses on the impact of the pandemic on active construction projects.

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 labor and material shortages, material recalls, severe weather patterns, natural disasters, inflation, labor disputes, catastrophic on-site accidents, and an insufficient labor pool to meet project demand, have all been a part of construction projects and related contractual relationships. However, the construction industry is not accustomed to, and was not prepared, to absorb a blow from a worldwide pandemic with the magnitude of COVID-19.

When evaluating your options as an Owner to suspend an active project, consider the following:

Develop Your “Emergency Response” Team

1. The Owner must develop its “Emergency Response” Team. Members of such a team should include key design team members, owner consultants and representatives, key general contractor personnel, and even key subcontractors and suppliers.
2. Orchestrate meaningful discussions regarding the current realities, and encourage open discussions surrounding issues related to trade labor availability and concerns with supply chains.

Understand Related Contract Provisions

Design Team

1. The Owner 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 Owner in attempting to complete the project, as well as placing the Owner in uncomfortable positions with its Contractor?

Construction Team

1. The Owner 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 demobilization 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 Owner to fulfill 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 Owner 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), Owners and General Contractors should be cognizant of the likely possibility of additional schedule and progress impacts as a result of these factors.

Consultants

1. The Owner 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 owner
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

1. 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.
2. Photograph current field conditions
   1. Equipment on site
   2. Materials on site (staged for installation & stored)
   3. General condition of site (trash, 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. Owner costs (including exposure to costs of the Owner’s client or customer)
2. Interim project “support” costs (utilities, extra security, protection, etc.)
3. Design costs
4. Construction costs
5. Owner consultants’ costs
6. Owner 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 Owner must be prepared to address outstanding costs associated with the suspension. Further, as the Owner, you will likely be required to, or requested to, provide information to support the financial capacity of your organization to complete the project.

Conclusion

Project suspensions are never ideal but, in instances like what occurred with COVID-19, they may be a necessary action when responding to large-scale disasters, pandemics, or economic hardships. Knowing your contractual obligations, key dates, notice provisions, and taking a principled and measured approach will ensure a higher degree of success when the time comes for a suspended project to restart and resume on-site work.

About J.S. Held

J.S. Held is a global consulting firm with expertise in construction, environmental health & safety, forensic accounting & economics, water & fire restoration, equipment, and forensic architecture & engineering matters.

Our Global Advisory Services Division specializes in matters involving project and program management, construction claims and disputes, contract management, surety, and arbitration and litigation proceedings.

For more information, visit our website at www.jsheld.com, or contact any of our practice leads listed below:

• Advisory Services Division: Sean Donohue | [email protected]
• Construction Advisory Services: Mark Cohen | [email protected]
• Project Support Services: Michael Collins | [email protected]
• Surety Services: Richard Sexton | [email protected]

A look back at the COVID-19 series:

View article one: "The Effect of COVID-19 on the Insurance Claims Market"

View article two: "The Effect of COVID-19 on Time Element Claims"

View article three: "The Effect of COVID-19 on Business Interruption Losses"