By: Phillip Kenny & Candace Barfield | FTI Consulting
This year has brought new challenges, and in the unprecedented COVID-19 era, project controls and risk management have become increasingly important for construction projects to be delivered successfully. Uncertainties resulting from the pandemic may impact project schedules and costs, causing delays and potential disputes. As such, the documentation of unanticipated impacts becomes critical data to support potential claims for extension of time if delays are experienced.
A proactive approach to record keeping is better than a passive approach that assesses COVID related impacts “at a later date.” The effort to keep contemporaneous, robust documentation on projects is negligible compared to the potential cost of the alternative, where a project team’s after-the-fact re-creation of events is necessary. The latter approach is more time-consuming, expensive, and more prone to inaccuracies. In some instances, a lack of documentation could even be used as evidence that your impact never occurred.
Regardless of what stage a project is currently in, whether it’s been suspended or continued as essential construction work, the following recommendations are offered to help preserve your ability to seek additional time and compensation in a potential dispute.
When an event arises on a large or small scale that requires plans to be altered, it should be memorialized. While some events may be easier to identify, such as mandated shutdowns, additional events unique to the contractor should also be included, such as labor or supply chain disruptions, social distancing limitations on labor staffing and access restrictions. Maintaining a comprehensive record of these impacts is recommended.
Know Your Contract
It is important to carefully review contract terms with legal counsel, since the causes and nature of impacts may trigger different contract provisions to apply for a contractor’s relief. Contracts vary by project, but the following provisions are most commonly invoked in COVID construction disputes:
- Force Majeure
- Change of Law
- Extension of Time
- Change Order and Extra Work Directives
Most importantly, consult with counsel, as contract interpretation and their meaning in law is best left to the legal profession.
Follow Notice Requirements
Most contract provisions associated with relief have notification requirements, which may require a stringent number of days to provide notice after an impact occurs or seek additional information to be supplied with the notice, such as estimated time impacts, estimated costs, or actions being taken to mitigate potential delays. These requirements should be understood and followed.
The owner or contractor may be required to provide information as well, such as when a work stoppage occurs; this correspondence and responses to notifications should also be kept in project records. At all times, keep the owner and the contractor apprised of the situation and seek their recommendations on how best they would like to overcome the impacts of COVID-19 and its constraints on your labor force, access to the project site and your supply chain. Cooperation instead of confrontation is critical to mitigating the impacts of this pandemic.
Real-Time Record Keeping
Make sure your real-time documentation tracking methods meet the requirements specified in the contract. Contracts typically call for the level of schedule detail necessary, provide a sample daily report, and dictate if minutes of status meetings need to be maintained. It is common for a contractor to have a perfectly valid claim but fail to properly track the additional costs as required by the contract. In this instance, recovery may be limited or completely barred by the terms of the contract.
There are methods of impact documentation that a contractor should practice on every construction project. Recent events make these methods all the more important. These methods can be divided into two categories: quantitative and qualitative. Quantitative methods of documentation must have absolute data, i.e. labor hours, days, dollars. Quantitative data can be used to develop charts, graphs and schedules. Qualitative methods of documentation are based on properties, attributes, and reports (e.g., a daily weather report that describes job-site weather conditions). Qualitative data is not measured with hard numbers, but rather other identifiers that can relay a condition or observation.
The purpose of quantitative documentation is to provide data that shows how unanticipated time, money, and other resources were expended to complete the work required. This increases the chances for a successful claim recovery. When looking at the quantitative data tracked for a project, one should be able to reasonably tie labor hours and dollars spent to an activity performed or impact experienced.
Some examples of quantitative tracking include:
- Unique Cost Codes – Labor hours and other direct costs should be tracked by activity performed. It is good practice to create a new cost code when work is impacted and begin tracking all hours and costs associated with the code. For COVID-related impacts, track the hours associated with additional procedures as well as costs associated with PPE equipment and materials required to perform those procedures. The codes are useful for quantifying labor and costs spent on specific work tasks as well as labor and dollar overruns.
- Schedule Updates – Make sure to follow contract provisions as to when these must be submitted and to what level of detail. It is very important to keep your schedule updates as accurate and current as possible. This includes realistic logic between predecessor and successor activities. Insert new activities when applicable, such as for extra work or means and methods changes – a good rule of thumb is if you created a unique cost code as mentioned above, it likely warrants its own schedule activity. Accurate schedule updates are the best source for determining the duration and responsibility for critical schedule delays.
- Daily Reports – Daily reports are important to maintain an accurate recording of project events. Be sure to log which activities are being performed, the quantities completed, weather, crew sizes, and any project site changes. The daily reports should record changes to the planned staffing and work sequencing associated with increases and decreases in crew sizes, possibly due to social distancing; changes to supervision; large swings in quantity installations and accessibility to project areas, among other information. You should be able to retrospectively go through your project’s daily reports and easily track your crew headcount, productivity, and when an impact began or ended.
Descriptive, observable information provides context behind the numbers. Qualitative data can be generated through daily reports, meeting minutes, time/date stamped pictures and video recordings and project correspondence. This data can be used to support and justify the quantitative findings. For example:
- A picture of a snow-covered jobsite supports a labor report that shows minimal staffing on a particular day.
- Meeting Minutes that detail a redesign to the building foundation supports a schedule update that shows foundation work being performed over more days than planned.
- A video of workers lined up waiting for vertical transportation in a high rise provides justification for lost productivity due to inadequate hoist availability.
- Daily report descriptions detail the labor changes associated with social distancing requirements or ongoing supply chain disruption.
- Photographs of workers in additional PPE gear can support the reduced productivity output during affected time periods.
Used together, quantitative and qualitative data can provide the contemporaneous support needed for the successful recovery on a claim.
In the upcoming months as some restrictions and requirements are no longer necessary, it is possible your impacts could be trivialized. Following these recommended practices and memorializing these impacts into the project record makes them impossible to ignore and can increase the likelihood for time and costs to be recovered.
FTI’s Construction Solutions professionals are prepared to assist your project teams in assessing the impacts to your project and can help to develop project specific strategies. Our diverse group of professionals offer experience in all facets of the industry able to assist with project reviews, change orders and claim preparations, as well as expert testimony.
©2020 FTI Consulting, Inc. All rights reserved. www.fticonsulting.com
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals. FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm.