While the unexpected pandemic we’re currently experiencing might be contributing to time delays on construction and real estate improvement projects, there always has been, and often will be, numerous forms of resistance to getting work done.
After all, if construction tasks happened automatically, there would be no need for schedulers and project managers. As it is, project managers representing real estate owners and investors do avoid and mitigate the impacts of time delays and manage the related contractual claims.
Labor and Material Delays in the Time of COVID-19
Effects of the coronavirus on development and construction have varied from project to project and region to region. Some states simply closed most businesses, including construction work. When facing a situation like that, project managers determine how to temporarily shut down and protect completed work. And while work isn’t occurring on site, it’s important to maintain an eye toward a robust re-opening as soon as officials and circumstances allow. That includes continued tracking of work being made elsewhere and storing materials that will be needed when the job re-opens.
In other locations, even though construction has been considered an essential service, keeping workers on the job site has proven difficult due to factors such as social distancing parameters; positive testing and actual sickness of co-workers; difficulty traveling; general anxiety; and lack of childcare options. In some cases, workers were able to receive more money from unemployment (especially when bonused for COVID) than they would have made from their job, further compounding attendance and productivity strains.
Getting supplies to the job site has also been a challenge, and one that may become even greater. Consider an apartment building, for instance. Whether being built new or undergoing renovations each unit usually needs new appliances, like refrigerators. But many necessary parts for refrigerators, regardless of brand, are only made in China. Manufacturing and transport were essentially shut down for two months resulting in depletion of those appliances staged in warehouses along with a lag in producing parts necessary to complete the assembly of units in production both abroad and within the U.S. A knowledgeable project manager advises both contractor and owner to secure enough appliances and have them delivered in advance to either the jobsite or a storage area within reach. This avoids last-minute panic or, worse yet, failure to complete the apartments in time for residents to use them.
Managing Contractor Claims for Time and Money
In general, time delays fall into two categories: excusable delays and inexcusable delays. In every good agreement, time is noted as essential (“of the essence”) and therefore the contractor is obligated to complete the work on schedule and by a particular date. But not so fast: Most contracts also have language (which could range from none to very prescriptive) contemplating what causes are considered out of the contractor’s control (known as “acts of god” or “force majeure”) and are excusable to provide relief in time for the contractor. However, many agreements do not identify a pandemic or coronavirus, and certainly none COVID-19 specifically, so the common provisions regarding lack of regional labor or industry shortage of materials are argued.
A project manager will review claims for relief by the contractor to make judgement on whether the delay falls into an excusable cause, and if so, evaluate the before and after schedules to determine the number of days to be excused. The excused days are memorialized into a change order. In addition to moving the end date by the agreed number of days, if the agreement calls for “liquidated damages” the relief usually shifts the trigger for when the contractor would have to start paying them.
On the other hand, if the delays are not excusable, the contractor has to find a way to “recover” time lost, perhaps through adding more workers or round-the-clock shifts, at the contractor’s own expense, so that the project is completed as originally expected.
Neither the owner nor the contractor wants to be on the hook for additional costs related to time delays, so understanding the contract and fairly categorizing the causes can lead to some tough negotiations. Delays that are classified as excusable can further be considered as compensable (money owed) from owner to contractor. Some of the easier costs to identify would be those nobody could have anticipated some time ago (think testing kits, temperature checks and job sanitization for COVID), other direct costs (added security while job shut down), extended general conditions (like more supervision and longer rentals), to more challenging claims like home office overhead, lost profits or reduced productivity. Again, the owner’s project manager will carefully scrutinize the supporting materials to negotiate settlement with the contractor.
Lastly, an excusable delay might relieve the contractor but may lead to an intolerable situation for the owner. Projects with deadlines that have immediate and dire consequences when missed (such as housing for students, stadium for events or data centers), might demand that the owner come up with alternative means to “accelerate” the remaining work to get back on schedule for timely delivery. This would depend on the capabilities of the contracting team and costs borne completely by the owner. An experienced owner representative asks questions that challenge assumptions and drive alternatives while effectively managing the added costs and incentives to achieve real productivity gains.
Owner and investor representatives help avoid potential delays by keeping a proactive eye on schedule trouble spots, job materials and labor progress, while creatively finding ways to minimize impacts to time. And when a claimed or actual delay occurs, he or she evaluates the various schedules and negotiates appropriate time and money resolutions between contractor and owner while hopefully keeping legal costs to a minimum.
Are you concerned about possible time delays and other schedule impacts on your real estate development or improvement project? We’d love to discuss how Real Projectives® can help. For more information on the services we offer clients, browse some of our other articles — or give us a call at 888.357.7342.