Navigating Business Through a Global Pandemic: Advice for Contractors

By Stuart Detsky

The COVID-19 virus has been declared a pandemic by the World Health Organization. Everyone in the world has been affected in some way by the virus, be it the restrictions on travel, requirements for self-isolation, cancellation of events or disruption of normal business operations. The construction industry is not immune to the potential ramifications of this pandemic. Although there is still much uncertainty about the progression and effects of the pandemic, there are steps that your contractor clients can take to minimize the impact of this event.

Communication & Information Gathering:

Contractors should contact all of their employees, sub-contractors and suppliers in order to determine how each are modifying their normal workflow due to the pandemic. Will employees be coming into the office or attending at a job site as normal? Can employees still perform their duties remotely? Do any employees need to travel in order to perform their duties and can that still be done? Contractors should be asking their sub-contractors many of these same questions in order to gauge their ability to continue to perform their sub-contracts. Are suppliers able to make deliveries as scheduled? These questions should not just be asked once, but continually throughout the next few weeks or months as plans can change drastically based on a number of factors.

Schedule:

Once a contractor has gathered the above information, it should work to update its own schedules for all projects being undertaken as well as those which were supposed to commence over the next several months. Be realistic with these schedules and maintain appropriate buffers for unforeseen events. Communicate these schedules with all relevant parties, including owners and their consultants.

Review the Contracts – Notice of Delay & Force Majeure:

Construction contracts are not consistent in how they deal with schedule changes. Most contracts will require a contractor to provide timely notice to the owner in the event of delays. For example, both the CCDC 2 and DCC DCL 250 contain requirements (in section 6.5) for notice in writing of delay. Force Majeure clauses, which are contractual provisions which provide for time extensions due to factors beyond the contractor’s control, are also inconsistent in their wording and applicability. Many contracts do not contain a force majeure clause (such as the CCDC and DCC contracts mentioned above) and even those that do may not have specific language which would be triggered by an event such as COVID-19. Although owners and consultants may be more lenient in their attitude in the near future, it is always good practice to follow the language of the contract.

Utilize Advisors:

Most construction lawyers have been writing articles, reviewing contracts and preparing action plans for their clients due to the pandemic. Nothing is simple and certain in these difficult times, and therefore it is crucial that contractors utilize their construction lawyers (or retain one if they have not used one before) for timely advice and guidance.

Utilizing the above best practices may take effort and resources, but will undoubtably provide value in the coming days and for the future. If you or your clients have further questions, please reach out to your surety contacts at Trisura.

 

Navigating Business through a Global Pandemic: More Advice for Contractors

By Stuart Detsky and Victor A. Bandiera

In our last article we provided advice for contractors in order to minimize the impact of the pandemic on existing projects. In this article, we will provide advice to contractors who are intending to bid new work and/or enter into new contracts for construction or service projects.

Force Majeure is Not the Answer

While contractors are certainly getting legal advice about force majeure clauses and how they may assist with ongoing projects, these clauses are not going to be very useful for new projects. The main concept that  guides force majeure clauses is that the circumstance that  triggers the  clause is “unforeseen.” Considering the worldwide prevalence of COVID-19 and the many steps governments have taken to combat the spread of the virus, no one will be able to argue that potential future impacts to a construction project are unforeseen or unanticipated. Therefore, contractors must take different steps to protect themselves.

No “Get Out of Jail Free” Card

While open and honest negotiation will result in fair contractual language, contractors should not expect that impacts of the pandemic will allow the contractor to be relieved of their obligations. As stated above, arguments relating to force majeure or related concepts, such as contract frustration, are highly unlikely to be successful for new contracts, based on standard contract language.

There is no one perfect clause that could be inserted into a contract (or into a surety bond) that will discharge the contractor or negate any potential default allegation. Contractors should not expect their lawyers, advisors, brokers, lenders or surety companies to have a simple paragraph that will solve all their potential problems. It is also doubtful an Owner would accept just a one-sided amendment. Only by taking a proactive and comprehensive approach to new contracts can  a contractor best protect itself. To avoid  potential disputes the parties should prepare a project risk matrix, so the parties understand the risks and responsibilities.

Anticipation of Impacts

While some potential impacts of the  pandemic are far-reaching and across the  board (such as the  Quebec government’s three-week shutdown of most non  essential construction projects) many others will be specific to the region the  project is located, the  type of work to be performed, the  labour, material and subcontractors required to complete the  work, the  cashflow required to finance the  work and the  anticipated duration of the  work.  Contractors must review all the  potential impacts when determining their price and proposed schedule for the  work and especially if they will be providing a fixed price (for the  entire project or for unit prices) with set completion dates. Contractors must review the  proposed contract form from the  owner and analyze how such impacts are dealt with in the  language of the  contract. Before a tender closing, it is critical for contractors to ask an owner or its representative the  right questions in order to have clarity on how the  owner and contractor will move forward depending on the impact. Some of these questions might be:

  • What happens to the  project schedule if a government body mandates the  site’s closure? Does the  contractor receive any compensation for this delay and to protect the project site?
  • What happens if required materials are delayed due to manufacturers and/or distributors being unable to produce or deliver?

  • What happens if construction work is allowed to proceed but  only when workers are a certain distance apart, but the  work required for the  project necessitates working in proximity?

  • What happens if too  many people become ill such that  required labour is impossible to procure?

  • How can a contractor provide updated schedules if subcontractors and suppliers are unable to provide the necessary information given the current circumstances?

  • Will owners and owners’ representatives be attending on site as required by the  contractor; and if not, how will that  be addressed?

  • Will the contractor be compensated for the additional project management time to continually re-assess and reschedule the project more than normal?

  • What if proper safety supplies are not available to allow contractors to meet the guidelines established by the local Public Health Units and the applicable Ministry of Labour?

  • What if workers fail to show up to work due to fear of the virus spreading or notice of confirmed case on the project site?

  • What if testing and inspection agencies do not issue proper permits nor come do the required inspections?

  • What if equipment or repairs and parts from dealers or manufacturers are unavailable?

  • What if critical services to the site are interrupted such as cleaning crews and sanitation and waste services?

  • And in the worst-case scenario, what happens if the event of sickness or death of a key project member for any party (owner, contractor or designers)?

The best place for a contractor to protect itself is in the  contract form. A modification to a surety bond alone will not resolve contractual issues and guarantee payment etc. Most contracts have provisions to deal with change that can lead to delays.

Pricing the Work

Even if a contractor gets answers to all the questions above, it should not assume that cost increases due to the impacts of the pandemic will be provided by others. Therefore, contractors should be considering:

  • Cashflow needs of the project considering that certain receivables (e.g. holdback receivables in Ontario) may be delayed for payment

  • Extended duration of projects will lead to increased overhead including construction loan financing, insurance and surety bond premiums, and other general project costs, including potential climactic condition work that the original construction schedule (including sequencing and delays) did not anticipate

  • Site security and project protection costs if site is shutdown

  • Labour costs may increase due to scarcity of qualified people

  • Material costs may increase due to increased shipping costs, manufacturing reductions/backlogs and raw material unavailability

  • Subcontractors and key suppliers might be more likely to default so consider the performance security measures

  • Health and safety costs will surely be elevated

During the Work

As mentioned in our last article, good communication between all parties is essential to minimize impacts, which is always true, but  especially relevant now. Other items to think about are:

  • Organizing and documenting such communication as well as the status of the  project constantly including project schedule updates will be extremely important

  • Any verbal discussions should be confirmed contemporaneously in e-mails. Contractors should consider adding an additional project-specific e-mail address (with access by key employees) to copy correspondence sent by individuals in order to document chronologically and manage the challenge of people working remotely

  • Photographs and videos of site conditions should be produced regularly and especially as issues arise (including potential lack of productivity due to the limits of social distancing). Ensure they are dated, include proper description for future reference and saved to company server that is backed regularly

  • Remote project surveillance is something becoming more available for live feeds of the  site and to document the status of work over  its duration

  • Site personnel must be diligent at maintaining a project site diary daily given the  circumstances. Entries should be made multiple times during the day so the multitude of issues arising daily do not get missed

  • Project schedules should be updated more regularly and even informally (such as using two-week look-ahead by work area), but  should still tie back to the overall master schedule to support future impact claims. If necessary, engage the  services of external consultant to aid with the additional workload and anticipation of future claim preparation

  • Contractors must also consider heightened health and safety protocols as recommended by the relevant authorities (which will likely include additional cleaning staff and supplies)

  • Back up of project records and ensure not stored on stand alone company computers or home computers

  • Consider using document sharing services to collaborate on issues

There is a lot of essential work to be done and all the parties to a construction project must work together to meet the challenges that  COVID-19 might add to the already challenging construction environment. The parties that recognize this and openly discuss the  existing and potential future challenges and reasonably deal with the potential impact costs fairly amongst each other will likely forge relationships that will last a lifetime.

Please continue to reach out to your Trisura contacts for any further questions or concerns.

Navigating Business through a Global Pandemic: More Advice Related to Contractor Project Shutdown

By Victor A. Bandiera

The following is third in a series of articles for contractors during these changing times. As more provinces and states close certain projects we want to provide some information regarding steps a contractor might consider. Every project type is different but there are some general best practices when shutting down and preserving a project.

This is a list of suggestions for consideration by a contractor if work is ordered stopped or suspended by authorities or owners or due to lack of resources on a project as well as a few general comments on how down time can be spent to get ready for start-up.

Notices and Communications

  1. Refer to your executed contract, subcontracts and purchase orders to understand and provide any required notices for delay including due to force majeure, required applications for extension of time and claim for costs if applicable. Please review with your lawyer to implement appropriate strategy. You probably need to send notice for each instance and impact costs as known, remembering that you can always amend later. Keep a log to track which items were sent, when they were sent and to whom.
  2. Communicate your intended actions with the owner, subtrades and suppliers. If appropriate, arrange a telephone or video call to discuss project shut down.
  3. Collect and document potential costs for site shut down and maintenance costs.  These should eventually be sent to the owner after reviewing contractual requirements.
  4. Ensure you have copies of your insurance policies and review with your broker for any limitations of insurance coverage or relevant exclusions. If suspension is for extended duration, notice to your insurer might be required. Also diarize the expiry date of the policies and obtain extensions if required. Also ensure you have current certificates of insurance from subcontractors.
  5. Notify your surety of suspension of work on a project and expected resumption date and revised completion date. In some cases, Owners, such as Defense Construction Canada, require consent for the surety to the extension.
  6. Review local requirements and permits and any requirements for notice with emergency services, inspection services, site monitoring and normal frequency site maintenance services (toilet, waste collection, water delivery, fuel, etc.).

Secure and Preserve Project

  1. Develop written plan to protect the project, materials and public, which plan should be monitored periodically. This would include emergency contacts posted at site.
  2. Inventory and protect materials and equipment on site and monitor same. Ensure to observe all manufacturers’ recommendations for storage, etc.
  3. Ensure site signage is clean and appropriate for a dormant site. This would include emergency contacts, egress, that all fire protection/extinguishers are operational, clearly and appropriately located, all fire sprinklers systems are checked and any other site emergency systems like communications are operational.
  4. Ensure all safety rails and barricades, kick plates and safety nets remain in place. Ensure any hoarding, scaffolding, stairs and ladders are properly anchored, clear and unobstructed and protected where possible from public access or vandalism.
  5. Revisit site lighting (exterior and interior) and confirm is satisfactory for safety and operational, while also checking operation periodically.
  6. Ensure climactic controls in any building or temporary structures are appropriate for purpose during site shutdown and monitor (especially as seasons change) remotely if necessary.  This includes temperature, humidity, air circulation and moisture content. Make sure to include storage of materials on site that might have specific requirements or limited duration of exposure.
  7. Ensure any temporary heating systems are not open flame if possible and that flammable substances, liquids/solvents and compressed gases are removed from site if possible or stored properly.  Ensure barricades and signage is clear and visible and spill protection equipment is in place. Ensure shut off gas lines are operational or shut off and clearly labelled.
  8. Ensure to check temporary filters for heating systems.  Ensure to check warranty impact of extended usage before project completion of permanent equipment.
  9. Consider any temporary roofing, cladding, temporary tarps. damp/waterproofing or temporary enclosures or hoarding to protect unfinished work and avoid water penetration and site condition decay.  Some permanent materials are only allowed to be exposed for certain periods.  Check manufacturers’ materials for guidance.
  10. Ensure traffic control signage is maintained to plan including cleaning and replacement if damaged.
  11. Document site condition and inventory with dated photos/video that are labelled. Consider usage of drone for overall site status and elevated photos.  Consider as built survey of site condition when shut down especially if unit price contracts.
  12. Keep log of last time on site for each trade and last delivery of suppliers.  Ensure to co-ordinate demobilization of tools and equipment and keep proper records.  Consider half load season if considering demobilization of equipment.  Also ensure all manifests of removals are catalogued and removed from site including permanent and temporary materials and equipment (owned or rented or leased). Any demobilization of goods or equipment from site should be explained to other parties especially if will impact future costs at start-up.
  13. Take inventory and review third party rentals and site servicing contracts and consider returning equipment and goods or suspend rentals if possible, including written confirmation of understanding between appropriate parties.
  14. Consider shutting off domestic water supply if possible, to avoid possible damage if leak or unplanned discharge.  Ensure pressure of incoming fire lines if required.
  15. Review any open excavation and where possible consider temporary backfilling trench or excavation after appropriate as built information and marking of infrastructure.  If not ensure any utility supports and shoring or trench support is monitored.
  16. Would be wise to spend some time cleaning and organizing site and removal of waste to avoid fire hazard.  Also removing any potential trip hazards.
  17. Ensure temporary electrical power sources are secure and any cables are free of moisture and temporary extension cords are not trip hazards.
  18. Ensure equipment has vandalism guards in place and parked in safe and well-lit spot to minimize risk of vandalism and theft.  Test GPS trackers.
  19. Site and tool cleaning if warranted and disinfection if required.
  20. Ensure inventory of all materials and check insurance lists to ensure protection for theft or vandalism.

Site Monitoring

  1. Arrange for site security and/or periodic site visits as necessary.  Consider video surveillance as alternate to site security. Document and have written checklist and date performed and by whom. Test externally monitored security alarms and camera recordings periodically.
  2. Strongly consider keeping site log of site visits during suspension of work.  Include weather, interior temperature, check of site security, safety equipment, traffic control, dewatering status, all drains are cleared, any damage noted, and mitigation steps required.
  3. Ensure to inspect and clear all drains including storm water inlets, catch basins, floor and roof top drains.  Ensure free of debris and sediment.
  4. Ensure any site dewatering or bypass pumping is monitored and maintained and documented.  Consider appropriate back-up systems and test regularly.
  5. Ensure all fencing and hoarding is maintained and consider improvement to protect public especially if open excavation.
  6. Ensure equipment on site is in safe and appropriate location especially as maintenance may be required.
  7. Ensure any shoring or trench support is monitored.  Any temporary supports for utilities etc. are re-evaluated and consider alternate support plans considering extension of duration required.  Review trench plates and other trench decking used and maintenance.
  8. Water level monitoring and contingent plans for possible flooding during spring run-off.

Project Management Updates

Use the time during which project operations are suspended to update project management items such as:

  1. Documenting all the above steps and costs done to preserve the work.  Track costs using separate cost code(s).
  2. Confirming contractual schedule and performing update for current as built condition at time of shutdown.
  3. Spend time to catch up on change orders and updating quotations, revised change request submittals and change logs.
  4. Follow up on outstanding project submittals including shop drawings, close out requirements.
  5. Consider hiring construction claims consultant to aid in scheduling updates and claims preparation.
  6. Ensure project records are safe and backed up or copies are off site including as-built drawings, correspondence, permits, inspection reports and other project records.
  7. Apply for payment for the final amount of work even if a partial month.  Follow up on accounts receivable, document last date of work and when lien rights expire.  Consider filing timely written payment bond claims. Obtain executed copies of payment bonds from owner or contractor for your file to be proactive.
  8. Process invoices for subcontractors and suppliers and ensure their certificates of insurance are current, obtain statutory declarations and workers compensation clearance certificates if required by subcontracts.

General Comments

  1. Review any employment agreements or collective bargaining agreements for notice provisions and call back provisions.
  2. Consider applying for government subsidies available.
  3. Update weekly corporate cash flow to consider impact of suspended projects and overhead requirements.
  4. Take advantage to do any preventative maintenance on owned or rented equipment (cash flow permitting).
  5. Think of having third party risk management or safety officer review site and report as independent review.
  6. Revisit costs to complete after reexamining methodology changes, including social distancing and other additional measures that will be required when work resumes.
  7. Review company succession plans and ensure backups are designated for each key position including use of third parties if necessary.
  8. Ensure heightened company awareness on cyber-crime (such as attacks through phishing). Also ensure have contingency plan if something occurs since for most people working remotely a problem could be devastating.
  9. Consider electronic methods for third parties that need to sign subcontracts and purchase orders in the near term to avoid couriers and need to find physical company seals.
  10. Update health and safety plans including additional measures to ensure better project precautions in the future.  This might include new measures of shift staggering and site wash facilities.
  11. Think about how project start up can be phased in and documenting how things ramp up including remobilization costs.

 

We trust this provides food for thought and stimulates other items for consideration as this list is not all encompassing. We all hope that any shutdowns will be for a short duration but, if not, plans can always be revisited as no one wants to deal with items on an emergency basis.

Please continue to reach out to your Trisura contacts for any further questions or concerns.