Claims management is always a concern on sizable construction projects, but COVID-19 has complicated the subject significantly. Contractors, subcontractors, and project owners are struggling to anticipate new issues arising from the pandemic, and to understand their rights and potential remedies in today’s altered claims environment.
Pandemic-Driven Cost and Schedule Issues
When a contractor is unable to perform in accordance with contract terms, or a project owner is unable to meet financial obligations or contractual requirements, there’s potential for one of the parties to file a claim. Typically, the root causes for claims can be traced back to unclear scope, poorly defined requirements, or a general lack of communication and coordination. But the COVID-19 pandemic has introduced new complications that can inhibit even the best contractors and project owners from meeting their obligations. For example, issues like these below can disrupt critical-path schedules and complicate job cost management.
- Mandated project shutdowns have caused both schedule delays and higher compliance costs.
- Supply chain disruptions and material shortages have impacted costs and schedules.
- Requirements for added PPE, social distancing, and health monitoring have directly affected jobsite productivity and scheduling when crews must be staggered or rescheduled.
- On- and off-again shutdowns have created uncertainty, increased absenteeism, and exacerbated the industry’s chronic shortage of skilled workers.
- Broader economic trends and financial uncertainty have generated significant direct financial pressures on many project owners.
- Dramatic shifts in market conditions and demand have raised questions about some projects’ viability, particularly in the retail, commercial office, and hospitality sectors.
Proactive Claims Management Principles
When pandemic complications first arose, many contractors looked to their contracts’ force majeure clause for relief. In most cases however, such clauses by themselves cannot fully resolve all concerns.
Rather than relying on contract language alone, savvy contractors will take a broader approach to deal with COVID-related claims issues. A few basic principles to bear in mind:
- Get an early start. Most claims arise during the active construction phase of a job, but the best time to prevent or minimize claims is actually much earlier, before the contract is finalized. Although it might be too late to renegotiate contract provisions on projects that began before the pandemic, this is an important practice for all future contracts.
- Understand the contract language. Pay particular attention to language that defines the scope of work, time frame, conditions, and the reporting, notice, and documentation processes for change orders and claims.
- Thoroughly plan and organize cost and schedule specifications. Be sure to clarify all milestone dates and both the project owners’ and contractors’ responsibilities related to claims, payment, changes, approvals, and risk management.
- Actively monitor job progress, as well as potential claims. Engaged and proactive project management is essential, particularly when disruptions or delays threaten the critical path.
- Document and communicate—early and often. Clear and open communication can help prevent or minimize claims. For claims that are unavoidable, thorough, updated documentation will be essential to a successful resolution. Your claim should not come as a surprise.
- Solve issues as early as possible. Waiting to settle disputes or misunderstandings until the end of the project invariably makes resolution more difficult—and more expensive.
- Engage the entire project team. Contractors, subcontractors, and project owners all play important roles in helping to minimize or resolve claims. Frequent and regular team meetings can identify changes or potential issues early and enable better coordination and communication among all concerned.
- Reach out to other stakeholders. Contractors should consult legal counsel for assistance in handling claims, but other stakeholders such as lenders, sureties, and insurers also have an interest in seeing claims resolved. Moreover, they often have valuable experience and expertise that can support a successful conclusion.
We can help you navigate these, and any other pandemic related financial concerns. Please contact our team or your Mueller Prost specialist directly.