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How COVID-19 is Effecting Construction

How COVID-19 is Effecting Construction

The worldwide pandemic Coronavirus Disease 2019 (COVID-19) has put a halt on construction projects. Social distancing, travel restrictions, and quarantines have disrupted supply chains, contractor workforces, and the availability of governmental personnel for the project inspections, resulting in delays and increased costs. For the most part, construction activity has been included in “essential workers”, however, workers still need to maintain the 6-foot social distancing and following CDC Guidelines in order to protect themselves. In this article, we break down how COVID-19 is effecting construction projects and what you can do to mitigate project impact.

How COVID-19 is Effecting Construction

The impact of this pandemic on construction varies by state. While many believe construction to be considered essential, others are requiring all construction projects to be put to a halt. The federal Department of Homeland Security and Cybersecurity & Infrastructure Security Agency (CISA) has issued a chart identifying critical infrastructure during COVID-19 in which you can see here.

Arizona in particular as far as COVID-19 affecting construction has issued that construction projects including but not limited to

Some construction companies have had to decrease their marketing budget and adapt to contactless inspections. However, there may be evolving developments that will further change restrictions and exceptions.

COVID-19 Precautions on Construction

Initially, the owner of a construction project should consult appropriate legal counsel and carefully examine the particular state and local guidelines to identify restrictions on construction and only proceed accordingly. It’s important to keep communication open between owners, contractors, designers, and suppliers to assess any actual and potential impacts on contract performance and to remain as close as possible to budgeted costs.

Additionally, the owner should consider entrusting its project management team to confirm that the contractor is taking appropriate site health and safety measures, including adhering to federal, state, and local guidelines. The owner should request updated schedules from the contractor and consider setting flexible contract completion dates, prioritizing or accelerating certain work areas and delaying others, and recover delays once the COVID-19 restrictions are lifted.

The pandemic will likely cause contractor claims for time extensions, delay damages, project disruptions, and labor inefficiencies. These may be considered “excusable” when directly caused by COVID-19 under the contract because the pandemic is considered ’caused beyond the contractor’s control’. See Risk Allocation for Economic Losses from Coronavirus Disease 2019 which entitles a contractor to a time extension or disruption damages.

Terminations due to COVID-19

Another way that COVID-19 is effecting construction is suspensions and terminations of contracts. The owner may wish to suspend or terminate the construction project due to the impact of COVID-19. Since every construction project is unique, each situation should be looked at individually. A standard contract allows the owner to suspend or terminate the contract for convenience, and the owner may determine that amount of time. However, the owner may be responsible for the cost and time caused by the suspension as well as demobilization costs, goods, and materials, and lost deposits and termination fees.

Now, the contractor may terminate the contract if work has stopped for 30 consecutive days by government order or national emergency. In this specific circumstance, the contractor is entitled to recover payment for the work executed, reasonable overhead, and profit on work not executed, as well as costs provoked by reason of termination. This may incentivize the contractor to terminate a construction contract, however, the contractor may choose to move forward with a time extension due to COVID-19-based delays.

Surety Bonds, COVID-19, and Construction

A surety bond is a contract that includes at least three parties

  1. The Obligee – The party who is the recipient of an obligation
  2. The Principal – The primary party who will perform the contractual obligation
  3. The Surety – Who assures the obligee that the principal can perform the task

Surety bonds are a financial guarantee that the contracts and all other business deals will be completed according to the mutual terms. A surety bond will protect the consumers and government entities from fraud and malpractice. When a principal breaks a bond’s terms, the harmed party can make a claim on the bond to recover losses.

During this worldwide pandemic, things can become complicated. From supplier delays to lack of available workers, COVID-19 impacts the construction business in many ways. If you have questions about how COVID-19 is effecting construction and how we can help you, please call us immediately! We look forward to working together and move forward through this pandemic together.

May 19th, 2020
Surety Place