Addressing and Mitigating the Impacts of Coronavirus (COVID-19) on the Construction IndustryMarch 18, 2020
The first news reports of the “Coronavirus” may have originated on the other side of the world, but the impacts have quickly hit home. The World Health Organization has declared the COVID-19 Coronavirus to be a pandemic and has urged “urgent and aggressive action” to combat its spread. In addition to declaring a national emergency, President Trump has implemented travel restrictions and has discouraged gatherings of more than 10 people. State and local officials are also taking various emergency measures of their own, including school closures, quarantines, shelter-in-place requirements, and business restrictions. Effective on Tuesday, March 17th, the City of Boston temporarily banned non-emergency construction projects. As this situation continues to evolve, the need for prompt and effective action on construction projects and your business relationships is apparent.
For those involved in active construction projects, the Coronavirus presents a host of potential issues that will need to be promptly addressed. Hinckley Allen continues to work closely with its clients to mitigate the impacts of COVID-19 on their businesses. From labor and employment matters, to safety considerations, project administration, reservations of rights for additional costs and time, insurance matters, and other practical business considerations, the Coronavirus is already having direct and significant impacts on federal, state, local, and private projects of all types and sizes.
Employee Health and Safety. Human health and safety is paramount. It is imperative for employers to keep abreast of the daily developments when it comes to the Coronavirus and implement policies and procedures to limit its spread. As Hinckley Allen reported here, the Centers for Disease Control (“CDC”) recently provided scientifically based, government-sanctioned guidance to employers on how to deal with COVID-19. In addition, the Occupational Health and Safety Administration (“OSHA”) has also issued its “Guidance for Preparing Workplaces for COVID-19.”
These guidelines – together with recent orders, directives, and recommendations from federal, state, and local officials – can help employers craft effective policies and procedures to combat and mitigate the risks associated with the Coronavirus. But these guidelines are only a starting point. Employers will need to make sure that they take appropriate action tailored to their business and projects to maximize employee health and safety and minimize exposure. Beyond health and safety considerations, the Coronavirus will also require employers to make difficult decisions when it comes to labor and employment matters, such as attendance, paid time off, layoffs, reduction in force, and termination. Can you require your employees to come into the office or go to a jobsite? Should you send your employees home? Must you pay employees if they do not report to work? What if an employee tests positive for the Coronavirus? The list goes on. As new issues continue to emerge, Hinckley Allen is advising clients on a daily basis and providing best practices to handle those issues in real time.
Project Administration and Contract Rights. In addition to safeguarding employees, owners and contractors must also safeguard their businesses and projects. With school closings, employee absences, and the emergence of new and evolving disease prevention protocols, the Coronavirus is expected to cause delays and increased costs on existing projects. In many cases, the full impacts of such delays and costs will not be known right away. Owners will face difficult challenges when it comes to requiring their contractors to progress the work, particularly in light of emergency orders requiring “social distancing.”
Contractors will need to review their active contracts (including subcontracts and purchase orders) to ensure that they are taking all appropriate steps to preserve and assert their rights when it comes to the disruptive impacts of COVID-19. This is a project-specific and contract-specific analysis, but Hinckley Allen has provided some initial insight and tips here. Many construction contracts contain force majeure/“Act of God” or compensable delay provisions that may afford contractors some relief in terms of time and/or costs. Even absent such provisions, construction contracts often include clauses providing avenues for time extensions or price adjustments in light of circumstances beyond a contractor’s control. Contractors are already providing notices on projects, asserting force majeure and construction changes as well as claims resulting from changes in the law. In some cases, the Coronavirus might render performance impossible or impracticable. As with many types of construction contract claims, contractors are advised to: review the relevant contract provisions; provide timely notice; keep separate records of the time, cost and efficiency impacts of the Coronavirus; and track those time, cost and efficiency impacts separately on a daily, weekly and monthly basis. Diligent record-keeping and documentation is essential.
Even beyond contract claims, COVID-19 will impact overall project progress and administration. Contractors will need to be mindful of escalating material costs as well as lead times and countries of origin when it comes to materials and supplies. Contractors will also need to account for the scheduling and manpower impacts of the Coronavirus. Certainly, contractors will need to be attuned to these issues when bidding projects and negotiating new contracts as several clauses regarding the parties’ expectations based on what is known at the time of contract may come into play later as the impacts of COVID-19 continue to evolve.
Insurance Issues. The Coronavirus is expected to spark a new wave of insurance claims. There are many policy types, coverages, and forms. Policies often require particular forms of notice within specified timeframes. Failure to make an appropriate and timely insurance claim can negatively impact coverage. Therefore, a timely review of relevant insurance policies is recommended to determine whether and to what extent there may be insurance coverage for Coronavirus-related losses, including complete or partial business interruption or supply chain losses. Sometimes, potential coverage may exist in unexpected areas. For example, some builders-risk policies offer delayed project completion or similar endorsements that could arguably come into play where COVID-19 causes full or partial project shutdown and extra expense incurred to subsequently re-start the work. To the extent that your company has business interruption insurance, it might also provide coverage for full or partial shutdowns or losses of productivity. In the unfortunate event that individuals claim to have been injured by exposure to COVID-19 on a jobsite, we expect that claims will be made against owners’ and/or contractors’ general liability insurance policies. More often than not, determining whether a client has insurance coverage requires sophisticated, case-by-case analysis. Hinckley Allen has guided its construction clients to successful insurance recoveries for many decades and continues to do so amid the Coronavirus crisis.
Practical Considerations. As the highly-contagious COVID-19 continues to spread, there are many other practical matters to consider. For example, while telecommuting may be a viable temporary solution for some businesses, it is expected to be largely ineffective for owners and contractors. Contractors will need to consider their technological capabilities and perhaps upgrade their remote conferencing capabilities to be able to attend project and other meetings remotely. To the extent that employees report to work and jobsites, owners and contractors will need to consider what additional steps – if any – they can take to help minimize the risks of exposure and infection among employees and non-employees alike. As always, contractors will need to remain attentive to jobsite safety issues and ensure compliance with applicable OSHA standards, particularly if the Coronavirus necessitates changes to work crews and supervisors. These are only a few examples.
We hope you and your families remain healthy during this unprecedented time. Construction owners and contractors alike have all helped support thousands of employees and their families for many decades. Hinckley Allen remains open and ready to assist you and your businesses during the Coronavirus pandemic and long after it ends. We will continue to provide updates and post information here.
We are here to help answer specific questions and offer advice on your options. Please contact the attorney with whom you regularly work, or someone in the Construction & Public Contracts group.