“Uncertainty” is a word repeated frequently as governments and industries do their best to manage the COVID-19 pandemic, and it is a word that companies naturally do not like to hear. This is especially true in the construction industry where inexcusable delays and unanticipated increased costs can erase profits, cause financial and legal exposure, and lead to major disputes.

While the COVID-19 pandemic will undoubtably give rise to claims, disputes and lawsuits, it is still too early to predict the full extent of impacts to the industry. In the short term, construction companies should take all steps available to mitigate potential liabilities.

Promote a Healthy Workforce

As states reopen, and construction is permitted to forge ahead in other jurisdictions as an essential business, it is imperative that contractors:

• stay current with safety recommendations and OSHA requirements;
• expand safety programs to include onsite temperature monitoring, sanitizing and handwashing stations, physical distancing among workers in addition to other best practices; and
• ensure strict compliance by all subcontractors and laborers.

Comprehensive and transparent measures to ensure the health and safety of workers are critical not only to reduce the risk of delays, work stoppages and potential bad press, but also to protect against third-party liability.

Review Contracts

If contractors have not yet reviewed all of their construction contracts—upstream and downstream—and all insurance policies—including those identifying the contractor as an additional insured—then they should do so immediately. Important questions to ask are:

• Do delays caused by the pandemic fall within the scope of excusable delay provisions?
• What are the notice requirements for asserting delay claims?
• Do any insurance policies, including general liability and builder’s risk, offer coverage for business interruption losses, “contingent” business interruption losses or other pandemic-related impacts?

Contractors should review their contracts and insurance policies carefully to determine their rights and responsibilities and ensure strict compliance with all notice and claim requirements, as well as to collect and preserve materials necessary to substantiate claims.

Assess Projects for Possible Pandemic-Related Delays and Increased Costs

Two shortages likely to cause delays are materials and labor. China makes more than half of the world’s steel and, as the world’s fourth largest supplier, the United States produces less than 10% of China’s production value. China is also the world’s leader in cement manufacturing, and about 80% of the world’s air conditioners are made there. Domestic producers will simply not be able to fill the gap created by international COVID-19 work stoppages; export and shipping delays continue to squeeze this supply line. Contractors must know where their materials and equipment are coming from, where those items are in the delivery pipeline and what impacts are expected to the critical path. With that information, contractors need to develop a game plan to manage delays and any increased costs.

If COVID-19 or a resurgence of the pandemic keeps workers from jobs, projects will sustain delays. Factory-based industries have clearly been hit the hardest, but each day has brought new challenges, and it is not yet evident what will be faced in the months ahead.

Once assessments of these impacts are made, contractors should place project owners on notice of potential delays and other pandemic-related impacts liberally and strictly in accordance with contractual notice requirements. Even if the full extent of impacts are not immediately known, provide notice of potential delays affecting the progress of work, maintain active and open communications and preserve records of all communications.

New Projects and Contracts

It is not surprising that private and public owners throughout the industry have taken a “wait and see” approach, suspending new projects as the country grapples with the economic and legal uncertainties of the pandemic. Once the industry emerges from this crisis and contractors are able to take on new projects and contracts, they should implement a few lessons learned during the crisis.

First, given the expected time necessary for developing and rolling out a vaccine, the possibility of a resurgence of the virus, as well as the tremendous risks and impacts caused by the pandemic, contractors should ensure their contracts expressly identify pandemics as a type of excusable delay or “force majeure,” thereby allocating the risk of delays to the owner.

Second, contractors should seek insurance coverage for business interruption losses and “contingent” business interruption losses, which are losses suffered because a supplier or subcontractor was delayed.

Third, the success of a project largely depends on the ability of project participants to resolve claims and disputes without having to resort to litigation or arbitration, which is costly, time-consuming and risky. To that end, contractors should include in their disputes provisions a meaningful mechanism to facilitate the resolution of disputes amicably.

This should require that business executives conduct multiple meetings, without lawyers present, over a set period of time to negotiate the resolution of claims. The provision should provide that the discussions are privileged, confidential and not discoverable in any subsequent binding adjudicatory process, which will foster open dialogue and encourage settlement. If executive-level negotiations are unsuccessful, the provision should require mediation as a condition precedent to litigation.

Discussions and settlement offers made during mediation are also privileged and are not discoverable in a subsequent binding adjudicatory process. The contract should permit litigation or arbitration only after these non-binding, low-cost and highly effective dispute resolution procedures are exhausted.