Across the globe, construction projects are feeling the effects of public health measures trying to contain and combat the potentially devastating effects of the COVID-19 virus. Sites have been shut down, governments have issued shelter-in-place orders telling tradesmen to stay home, governments face potential funding challenges for existing projects in light of the costs to combat the virus, and the global nature of the pandemic threatens supply chains and essential product availability.
As a result of the chaos, it is likely that the construction industry will see an uptick in litigation, arbitration, and insurance claims. Taking action early could help you deal with these eventual disputes faster and more efficiently; increasing your chances for a better outcome and perhaps the recovery of some of your losses.
So, how can you start preparing for these cases now?
1. Review contracts to determine recovery options and contractual obligations
The developing circumstances to limit the impact of COVID-19 are unheard of in modern business. To that end, you may not know what options are available to recover any losses or increased costs resulting from the current shutdowns and supply interruptions. No matter your role in the construction industry, you should consult attorneys with experience interpreting and litigating issues pertaining to construction contracts and the types of insurance policies you hold. It’s also worth exploring whether you qualify for loans and/or financial assistance made available by the government as part of the CARES Act or other recovery bills.
Alternatively, it may be worth working with your attorney and the others involved in the project to see if you could potentially amend your agreements to address the COVID-19 pandemic rather than simply suing. As anyone who’s been in business long enough knows, the fact that you might be in the right doesn’t always mean it’s a sound business decision.
The financial realities of the COVID-19 pandemic response might result in a rash of bankruptcies, project funding getting pulled or reduced, or any number of other factors that could impact your ability to get recovery, even if you’re entitled to it under the contract. Working with the other members of your project and profession now could help eliminate the need for disputes (and the resulting legal fees) later.
2. Investigate available insurance
Will insurance policies help cover losses and extra expenses?
While there isn’t a clear answer right now, there are steps to prepare for making a claim for your losses and expenses with all your possible insurance carriers.
First, identify all of your current insurance policies. Once you know what policies exist, talk with your attorney, your broker, insurance company, or other insurance expert about the policies you currently have which might provide coverage and what policies you might need to purchase to protect yourself moving forward. Coverage may come from more than one source, so you may need to speak with more than one insurance carrier to understand your options.
Once you consult your insurance experts and determine which policies to file a claim under, send in your claim paperwork as soon as possible to get the process moving. The sooner you start, the sooner you will hopefully resolve the issues of coverage and get assistance.
3. Give notice ASAP if interruptions or delays due to COVID-19 are likely
This may seem like an unnecessary step in light of the government-mandated shutdowns of construction projects, shelter-in-place orders, and supply chain disruptions. However, most contracts include some requirement on the part of contractors, subcontractors, and project owners to provide notice of any issues that impact their ability to perform the required scope of work within the prescribed time frame. If you’re a prime or general contractor, you may need to collect information on the delays your subcontractors are facing in order to report the correct impact to project owners and financial institutions. Failing to provide these notices could impact valid claims for delay damages at a later date.
To best position yourself for future claims, you’ll want to consult experienced legal counsel regarding the exact terms of the relevant construction contracts to understand your notice obligations.
4. Take (and document) steps to mitigate disruptions and damages due to COVID-19 interruptions
While you may be experiencing disruptions and delays now, it’s likely any claims made or lawsuits resulting from these delays are not going to be filed right away. Because of that, it’s important to take steps to mitigate damages due to delay or interruptions as soon as possible. To make sure you can use those efforts later when making a claim or dealing with a lawsuit, communicate any efforts you’re making to mitigate your losses and document everything.
- Reaching out to current suppliers: If your supplier can't provide you with the ordered materials according to the delivery requirements, sending a written notice of a potential claim for the impacts related to the failure to meet your delivery requirements may be your best bet to protect future claims for losses. It also shows that you tried to do what you could to meet your contracted delivery requirements.
- Seeking replacements: Once you confirm that your intended supplier can’t meet your delivery requirements, can other local suppliers can provide the same or comparable products your current supplier is unable to deliver? If you reach out to other suppliers, make sure to get your correspondence documented in writing (letters, follow-up emails etc.).
- Overcommunicate: Keep all parties involved (owner, architect, engineer, city inspectors, suppliers, contractors, subcontractors, financial institutions, etc.) in the loop on the impacts of COVID-19 on your ability to deliver on time or with the required supplies to prevent any arguments as to when the damages began or equitable defenses for lack of notice.
5. How much damage is there?
So due to COVID-19, your construction site is closed, your project is delayed, or supply chains are delayed or interrupted. How does that impact your business? Are there any documents or figures you can start gathering to help determine the financial impact of the delays?
You likely won’t know the true extent of your losses until the project is completed. However, it could be helpful to start documenting losses as they come up to better prepare you to seek recovery later — either from an insurance carrier or other party involved in the project. Regardless of when you seek recovery, you should start putting together documentation in support of your claim now.
The more you can pull together in real time, the easier it is to understand your financial situation as well as prepare for any eventual claims you might want to file. It’s less burdensome to make copies and organize documents evidencing your losses as they happen rather than trying to recreate the losses down the road. Moreover, if you wait to determine what your losses are and what documents support that loss, you might inadvertently forget something later when you’re talking with your insurance carrier. Identifying, collecting, and organizing documentation concurrently with the shutdown will result in more comprehensive back-up for your claim.
As you identify the various financial implications on each of your active projects, start to separate them into categories and create a file with all documents, photos, and applicable government orders.
Categorizing your losses by type and project will help once you work with your legal counsel on what your recovery options are, as you’ll have a much better sense of your total damages as well as the documentation to support your claims.
As personally and professionally stressful as the coronavirus has been, using this time to keep workers safe and properly prepare for future claims will save headaches — and provide the best possibility of recovery — down the line.