Leonard: How coronavirus impacts construction
By Sean Leonard
The coronavirus is impacting all of our daily lives in ways we would not have imagined 60 days ago. The situation is fluid as each day brings new understanding and changing public policy.
The potential impacts to the construction industry are wide reaching. Consequences on a project site can include shelter-in-place directives or quarantines resulting in impacts to the project work force.
Offsite impacts can cover a much broader scope of issues including labor shortages at factories of manufacturers or fabrication facilities, resulting in production delays, transportation embargoes causing project supply issues, or governmental actions which inhibit manufacturing and production, causing supply chain shortages and inabilities to service existing demands.
As of this writing, some cities such as Boston have halted all construction, while the city and county of Los Angeles have exempted only public works construction including construction of houses.
The following practices can help protect against disease transmission and protect the interests of the owner/developer:
• Consider unique construction related safety issues pertinent to the pandemic. Request your contractor review and confirm its office and job site safety protocols to address disease spreading. Require that it implements healthy procedures. Such measures may become a factor with regard to the continued performance or the shutting down of a project. As an example, although virtually all project sites contain temporary toilet facilities, some do not include adequate handwashing stations that may help support worker health and control the spread of infection.
• Practice social distancing. Use conference calls instead of face to face meetings to mitigate spreading of the virus.
• Find the relevant contract terms. Review each owner/contractor agreement carefully for contract clauses that address rights in the event of unforeseen conditions, or excusable conditions or delays.
• Pay special attention to suspension and termination clauses. Many contracts give the owner the right to suspend a project. Those clauses typically provide rights for time extensions and additional compensation if the project is re-started. They often also give a contractor the right to terminate the agreement and to receive defined compensation if the suspension lasts for a stated duration. Care is needed as well-intentioned actions may be characterized as suspension, which could trigger recourse options for the contractor.
• Evaluate any contractor claims carefully. Ensure that they comply with the proper notice provisions and contain the appropriate support such as time-impact schedule analyses.
• Some contracts may not address the issue. However, under common law, circumstances that are sufficiently disruptive to performance may excuse the contractor’s non-performance.
• Consider insurance; consult your broker and counsel. Owners/developers should evaluate whether their own or the contractor’s existing insurance policies potentially provide coverage for coronavirus-related losses. It is important to review all insurance policies including builder’s risk, business interruption, and any other policies. Insurance policies may also include notice obligations and there may be adverse consequences if notice is not provided timely.
• Sean Leonard is president and CEO of S.L. Leonard and Associates, a construction firm in Camarillo.