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By Andrew Illingworth, Senior Director, Contract Solutions | April 22, 2020

I think we can all agree that these are unprecedented times. Reductions in on-site labour, temporary construction shutdowns, and new site working protocols due to the COVID-19 pandemic, will cause the real estate and construction industry to feel the effect of this virus for months, and possibly years to come.

The pandemic will ultimately come to an end, however the new reality will be somewhat different for all of us, including the long-term effects on our construction projects. At this moment it’s difficult to predict outcomes, so at this time all we can do is arm ourselves with the tools and facts to best manage our way forward. The following identifies some of the risks, and provide some guidance on key strategies that owners and developers can follow going forward. Specifically, we have considered the following:

Contractors’ and Design Consultants’ Employees and Labour
Many of us are currently working at home, and last week the Province of Ontario extended the state of emergency to May 12th. Indeed, some construction sites have suspended works depending on provincial orders and guidance issued.

As the pandemic subsides we may see a gradual return to work as the province’s restrictions are gradually lifted. In conjunction with the lifting of restrictions, individual circumstances may have changed, and employees and labour may not be freely available. On the other hand, we may see ongoing restrictions, especially if there is a second wave of the pandemic, which some are predicting. Either way, consider:

  • Working with your contractor, construction manager or subtrades to commence planning for who will be required when your sites return to near-normal construction progress or move into a different phase of lockdown
  • Pay particular attention to those that impact the critical path of the project
  • Engaging with your design consultants to ensure that their work can be continued remotely, and that their works are coordinated with your contractors and construction managers
  • Will there be increased absenteeism and turnover of employees?
  • Will there be a continuation of remote working?
  • Align IT to support remote working where appropriate
  • What work can safely be performed if the site is not shut down?
Trade Contractor Risk
Depending on the type of trade contract forms in use and the extent to which you want to take a strategic and collaborative approach, we recommend engaging now with your general contractors, construction managers and trade contractors. Take an inquisitive approach to fully understand their contract commitments, including those with other companies, availability of their labour pool, and the security of supply of key equipment and materials included in their scopes of work. Are there opportunities for alternative materials or prefabrication of work?

Taking a collaborative, proactive and inquisitive approach will avoid any surprises later that may cause a delay to your project.

Potentially, depending on your contractor, construction manager or trade contractor’s ability to perform, consider renegotiating terms. In our opinion, should tough decisions need to be made, the earlier that they are made, the less damaging the resulting effect to time and cost.

Also, consider the forces at play in the current market. A good model to follow would be Porter’s five forces, which examines the dynamics at play in the market.  Of course, as always, relationships with contractors, construction managers and trade contractors will be key in achieving good working relations going forward and ensuring successful project outcomes.

Diagram of Porter’s five forces

Supply Chain Risk
As mentioned under ‘Trade Contractor Risk’, engaging with your material suppliers will be particularly critical. Procurement trends to optimize supply chains, reduce inventories, and manage just-in-time delivery will have already reduced buffers of stock availability; then layer in the current pandemic and we may have the perfect storm of disrupted and reduced supply – the effect of which will impact us for months.

Consider:

  • Focus on critical, long-lead materials and equipment
  • Understand and follow the extended network of suppliers
  • Are the materials available in Canada, or are they sourced from overseas?
  • What are your suppliers doing to mitigate risk and put in place recovery strategies post COVID-19?
  • Which manufacturers have agility in their production?
  • What alternative suppliers are available to you?
  • Is there additional risk due to currency volatility?
  • Are alternative materials an option?
  • Consider alternative cash flow and payment mechanisms to secure supply e.g. payment to secure materials offsite
  • Plan and monitor deliveries closely
New Construction Site Protocols
We are already seeing new protocols for workers deployed at construction sites. Physical distancing at construction sites will have particular challenges and will undoubtedly cause additional costs to be incurred by contractors, construction managers and trade contractors. Challenge what your contractors. construction managers and trade contractors are doing to maintain health and safety at your sites, including screening of workers entering your site, and implementing new hygiene protocols, while managing construction productivity.

Without going into too much detail here, the Canadian Construction Association has published an excellent article on this subject: COVID-19 – Standardized Protocols for All Canadian Construction Sites, which includes advice in the following areas:

  • Communication and awareness
  • Travel
  • Working remotely
  • Access and movement on site
  • Site and trailer cleaning protocols
  • Limiting and removing internal touch point areas
  • Compartmentalization and segregation
  • Site operation protocols to maintain social distancing including shift working, overtime and limiting crew sizes
  • Delivery considerations
  • Site access screening
Planning and Scheduling
Coupling the information gleaned from your contractors, construction managers, trade contractors and suppliers, with the new site protocols, what are the implications on the construction schedule for the balance of the project duration?

There may be a temptation for your contractors to take a global claim approach and combine previous and concurrent issues with the current COVID-19 impacts. Instead, ensure your contractors consider:

  • Ring-fencing previous delays and apportioning culpability accordingly
  • Including labour supply, trade contractor and material delivery risks, and revised site protocols into the go-forward schedule
  • Making use of planning techniques to model different scenarios and carry out cost / benefit analyses to aid decision-making
Business Planning and Cash Flow Modelling
By now owners and developers are recasting their businesses plans under multiple scenarios and using cash flow modelling. Items to consider under this process are:

  • Models can help you understand what may happen to ensure you can plan and achieve the best possible outcome
  • Models are only as good as their design and quality of inputs – use the best and most realistic inputs that you can, and run sensitivity analyses to examine different outcomes

Developing updated business plans and scenarios provide greater transparency to end-users, lenders, equity partners and financial stakeholders, and they facilitate and promote an environment of cooperation and collaboration, thereby assisting in short-term solutions and longer-term profitability.

Further, and this point can’t be stressed enough, planning is the key to staying ahead in a world of new uncertainties. Plan internally where you can, get good inputs, seek views from colleagues and consider being open to other brain storming alternatives where needed. The key to this process is having a realistic view of your position.

Documentation - Records, Records, Records
Yes, that old nut is in every article one reads!  At the end of the day, if contemporaneous records are not kept, then it didn’t happen, or at least it cannot be proven. While obvious, the success or otherwise of any claim will be directly proportional to the accuracy and quality of the records being kept now.

Now more than ever, it is extremely important to keep appropriate, accurate and detailed records of construction activities and maintain them in a robust document management system.

In our experience, investment now in accurate record-keeping will pay dividends in defending any claims in the future.

Now is the time to effectively plan for strategies and issues for the future so when construction sites return to normal, or begin to do so, you will be in the best position. Consider:

  • Liaising with contractors and construction managers to ensure employees and labour are scheduled appropriately
  • Engaging trade contractors and material suppliers to plan resources and delivery and mitigate risk
  • Taking account of new construction site working protocols
  • Updating and plan your construction schedule with multiple scenarios
  • Continuing to update your cash flow modeling
  • Continuing record keeping in order to be prepared to defend claims
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