An unprecedented number of construction projects have been shut down around the world. As we make progress for controlling the pandemic, governments are loosening activity restrictions which resulted in the shutdown of thousands of construction sites. This is new territory for most developers. Proactive engagement can take a lot of effort, but can help to reduce impacts, mitigate future delays and reduce uncertainties.
To make the best decisions, developers must continually consider new information to balance project viability. They must weigh changes in the marketability and utility of the project against the remaining cost and time to complete the work and consider the liabilities and potential reputational risks of abandonment or material redesign of the project. In the beginning it may be helpful to make assumptions regarding increased time and costs as well as market impacts, but it’s important to refine the project outlook in real time as new information becomes available.
The owner should work with the general contractor, design team, city officials, lenders, and investors to work through all issues which may impact resumed construction activities as well as future impacts to cost and schedule. The condition of the property, availability of workers, subcontractors, materials, and equipment may significantly impact scheduled completion and costs, and critical completion dates may require acceleration of construction or renegotiation of other agreements.
Of course, the contractor will play the major role in getting construction moving again. The owner should be careful not to directly contact subcontractors and suppliers or otherwise infringe upon contractor responsibilities in order to avoid liability for means and methods; however, specific information should be requested from the contractor to allow the owner to assess readiness to resume construction. The owner should initially request:
- Identification of any changes to the management team assigned to the project;
- Evaluation of the viability of key subcontractors and suppliers;
- An estimate of the contractor’s earliest start date if rules were revised immediately;
- An evaluation of the property to identify damage, deterioration and vandalism that will have to be corrected;
- Verification that on-site and off-site stored materials and equipment are adequate to support resumption of the work;
- Preliminary revisions to the schedule;
The owner should also consider reevaluation of the financial capacity of the contractor to complete the work and may want to request the contractor to provide a similar evaluation of key subcontractors and suppliers. It is also a good idea to be prepared to begin discussion of potential cost increases resulting from the shutdown; however, available information is unlikely to be adequate to reach a final agreement.
While waiting for initial responses, the owner should consider:
- Review of permits, contracts, loan agreements, leases, etc. to identify key completion dates and notification requirements;
- Submission of appropriate notifications and review any notices to cure with counsel;
- Review of any notifications provided by others during the shutdown;
- Identification and reconciliation of any outstanding applications for payment, liens, requests for information, provides change orders; and
- Identification and evaluation of project alternatives such as accelerated construction and reconfiguring or repurposing of improvements.
The real work begins as information from various stakeholders allows the developer to form a more in-depth picture of the path to completion. Many developers will need outside help to assemble, organize, evaluate, and translate the volume and complexity of information required to avoid surprises and achieve the best possible outcome. By engaging early and proactively driving the participation of all stakeholders and constantly assessment of product objectives developers can help to minimize the impact projects as a result of shutdowns.