April 6, 2020
The impact of COVID-19 is being felt around the world, and the full global consequences of the pandemic are not yet known. Understandably, the current primary focus of organizations is the health and safety of the workforce, yet it is hard to ignore industry ramifications, including the impact to current and future projects. Amid the uncertainty, it is important to take steps to address and document project challenges and work status.
To better align organizations and their projects, Ankura provides the following guidance to assist in navigating through this challenging time. Our recommendations are not a formal standard or protocol, but instead represent considerations in identifying and documenting the potential impacts organizations face because of COVID-19.
Initiate an Organized and Cohesive Response
Establish a governance team to effectively and efficiently facilitate decision making. Utilize this team to define protocols, conduct due diligence, and evaluate critical items. Additionally, this governance team should be at the forefront of communications with the owner, construction managers, general contractors, engineers, architects, subcontractors, and other project participants through the slow-down, shutdown, site maintenance, and project restart phases. Should contractors or subcontractors experience project impacts (e.g., lack of labor availability or supply chain disruptions), centralizing communications will deliver a more robust and comprehensive response.
Develop a broad action plan by utilizing the governance team to identify and prioritize actions based on a review of the most critical schedule activities to identify any work that can be completed safely offsite. Review and communicate clearly with subcontractors, contractors, and suppliers the plan of action and contractual obligations to the contractors or owners. Perform and document a complete identification of the minimum general conditions’ materials (e.g., fencing, pumps), and personnel (e.g., site safety, security, staff rotation), necessary to maintain the site during a short or prolonged shut down. Consider the development of these plans in a phased approach to potentially address evolving conditions.
Develop a plan for site safety and logistics to address changes in the construction environment. This should follow the broader action plan and be flexible for the constantly changing government guidelines. This plan should consider the following:
- Safety and protection of project personnel.
- Implementation of site safety and security measures in the event of a shutdown.
- Prioritization of activities in the event of resource constraints.
- Inventory, tracking, and monitoring of materials and equipment on and offsite, including those in transit.
- Tracking and monitoring of work being completed offsite.
- Storage of idle equipment in the event of a full site shutdown.
- Protection of incomplete work from damage by weather elements, theft, and vandalism.
Assess and Document the Project Status Before COVID-19
Develop a “pre-impact” schedule that represents the status of all work prior to the COVID-19 impact. The status date of this schedule may vary from project to project depending on location, and if fabrication or deliveries were impacted prior to the arrival of COVID-19. To further support and document the status of work, consider videotaping or photographing the entire site. If there is ultimately a full site shutdown, consider creating an additional schedule update on, or as close as possible to, the date of the full site shutdown.
Document a “pre-impact” performance & cost position/forecast to represent the status of work prior to COVID-19. Review the most recent job cost report to identify the current and forecasted project costs. If a current job cost report is not available, consider developing one with as much detail as possible to capture the current cost position of the project and the projected remaining costs absent the COVID-19 impact. To further support the status, consider including details that support the current unit rates, labor rates, performance factors, and other pertinent metrics which may be useful to demonstrate a change in the cost of the work through and after the COVID-19 impact.
Determine the status of major material deliveries including onsite materials, the date material was ordered, and the planned shipment date. In addition to inventory of materials and tracking status dates, identify where major materials are being shipped from and understand any potential supply chain challenges. It may be necessary to understand the location of the fabrication facility and the source of raw material, as any steps in the transit of materials to site could be impacted.
Inventory and document workforce onsite prior to, during, and following the impact, including both non-manual and craft personnel. Document the count by discipline prior to the impact as well as the projected count to complete the project. Additionally, capture the names, roles, disciplines, and other relevant features of the workforce. These records can be used to document the absenteeism, turnover, and “learning curve” losses that can impact productivity.
CONTINUE TO MONITOR WORK PROGRESS AND IMPACTS
Track and Document the Impact of COVID-19
Set up discrete cost codes to track the expenses related to COVID-19 such as:
- Material costs for extra masks, disinfecting materials, required storage of materials offsite, suspended or expedited deliveries, idle equipment, shutdown and re-mobilization to the site, among others.
- Workforce expenses including additional required personnel to check health of workers, extra cleaning staff, time required to implement additional safety measures, time required for shutdown and re-mobilization, and sick time (e.g., to care for self or family).
Review construction, development, and financing parties’ payment obligations for cost increases and delays related to extraordinary events. In addition, consider requesting extensions of warranty and maintenance obligations from vendors.
Maximize progress of non-site-dependent construction management activities including submittals, Requests for Information (RFIs), shop drawing development and review, and change order processing, among other tasks not reliant on construction site access.
Develop schedule updates to communicate the status of the work, if any, throughout the impacted period while tracking critical path delays created by labor, material, and equipment availability. Create activity codes or schedule fragnets (i.e., sequences of new activities) to document the specific COVID-19 impacts and appropriately represent the projected and actual delays to the project. Evaluate durations of activities immediately following the restart of work to adjust for any anticipated reduced productivity during ramp-up. Utilize schedule narratives or monthly reports to further elaborate on COVID-19 impacts to schedule activities.
Create a comprehensive material tracking log to document materials onsite and the status of offsite materials and shipments. Identify and track how much material major fabricators have on hand and how long the fabricator can continue before the facility may be impacted by a lack of raw materials. Contact suppliers to determine rescheduled delivery dates and estimates for resumption of deliveries. Incorporate revised shipment dates and detailed explanations for any shipment delays. Maintain back-up electronically for dates utilized in the log (e.g. letters, e-mails, forms). Determine and document any additional costs to potentially be incurred for escalation, storage, shipping, expedited delivery, or cancelation penalties for non-acceptance of materials.
Maintain detailed daily reports to identify, by trade, the performance of specific work. Consider including in the daily report the specific location in which the work was performed, manpower by trade, area, and equipment used. Also, incorporate a section in the report to identify daily impacts including, identification of work planned to be completed on a specific day and an explanation for planned work that was not completed.
Develop a comprehensive inspection log to track and document the date an inspection was requested, the date of response, and the date an inspection was scheduled and occurred. Maintain back-up electronically for dates utilized in the log (e.g. letters, e-mails, forms). Include communications with public and third-party inspection agencies to proactively document and identify potential delays following the re-start of work.
Issue notice letters per contract requirements to maintain communication to outline project impacts resulting from COVID-19. Review all general, subcontractor, and purchase order language to determine how COVID-19 may be defined or categorized. For consistent project-wide messaging, consider developing guidelines for contractors and subcontractors regarding methods to document schedule and cost impacts. Seek legal advice to better understand the landscape with respect to COVID-19.
PREPARING FOR RAMP UP: POST-COVID-19 IMPACT
Develop a restart plan to determine the most efficient and effective way to ramp up the project following the impact. Consider taking the following actions:
- Re-evaluate the critical path to identify the highest priority activities.
- Define Estimate to Complete (ETC) and Estimate at Completion (EAC) to determine project status.
- Inventory items onsite, offsite, and in-transit.
- Evaluate manpower availability of key trades.
- Develop a recovery plan with subcontractor, contractor, and owner input.
Identify a team to manage the change requests and impacts as a result of COVID-19. Projects will experience increased duration, continued labor shortages, and lower productivity due to COVID-19 procedures and skill shortage. Anticipate change requests associated with; force majeure, delay, suspension of work, termination, productivity, and material and labor escalation. Utilize this team to develop change requests or to evaluate contractor and subcontractor change requests. Consider beginning preparations during the impact period to have a complete understanding of delays, and additional costs and damages as soon as possible when the impact is over. All communications should go through this team to ensure cohesive communication around change requests.
Assess the effectiveness of the actual response and re-evaluate action plans to ensure the plan is appropriate and prioritized to respond to a pandemic or other significant impact in the future. Seek legal advice concerning existing and future contract provisions that anticipate pandemics and their associated costs and delays.
HOW ANKURA CAN HELP
Our experienced Construction Disputes & Advisory experts can help guide you through this crisis and provide an analysis of the impact of COVID-19 on your project based on independent and fact-based analyses. Our findings are delivered in a clear and concise manner and when required, presented through experienced testimony before tribunals around the world. Consider engaging Ankura’s Construction Disputes & Advisory team to help your organization with:
- Project Advisory to assist clients in management of project risk for schedule and cost, development of actionable strategies, documentation of project impacts, and guidance for completing the project when status quo resumes.
- Schedule/Programme Delay identification to determine discrete delays along a project’s critical path.
- Cost/Quantum Analysis to value the construction work and to identify and quantify any productivity loss or material/labor escalation.
- Support and Quantification of Damages through an analysis of project documentation and records to assert or rebut damage calculations.
- Evaluation of Business Interruption through an analysis of the economic losses associated with COVID-19 resulting in preparation and submission of comprehensive business interruption insurance claims.
- First-Party Claims to support the quantification and documentation of complex insurance claims including the time element (e.g., loss of income, loss of rents), “soft costs”, and property damage losses.
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