The Power of Planning: Four Key Themes for Mitigating Risk in Construction

Zac Hays | Construction Executive

Construction is, and always has been, known as a relatively risky business. Whether it is dealing with factors that can be controlled or beyond control, proactively managing risk has proven to be of the most critical factors in delivering quality projects faster, more efficiently and with wider margins. 

Many people assume on-site activities introduce the greatest amount of uncertainty and potential risk. But many mistakes in construction originate in the planning phase – meaning preconstruction is ripe with opportunity to be the most effective place for mitigating risk, saving money and ultimately broadening margins. There are many ways to mitigate risk before projects even start, but four key themes emerge to be clear, repeatable opportunities for success.   

DIGITIZE THE PLANNING PHASE  

Preconstruction is where ideas are brought to life by translating architectural designs into a real, constructible plan. Decisions made at this stage can determine the project’s success and profitability – but it’s far from straightforward. Estimating, scheduling and planning are highly complex activities that depend on constantly changing details and are all areas where missed information or miscommunication can lead to costly rework down the line. 

Digitizing the planning phase of construction has quickly become a massive preconstruction opportunity, taking processes off paper and spreadsheets and putting automation, machine learning and digital collaboration to work. Firms can use digital project management and analytical tools to support and automate many challenging and overtly manual processes that are prone to cause collisions and result in information being lost. For example, firms can use Building Information Modelling data to automatically compare and dissect specifications, gather quantities and build budgets – saving an exponential amount of time. Workforce planning tools that integrate with construction project management solutions can help teams align resource planning throughout project phases. Bringing machine learning and digital collaboration into the equation can also reduce tedious manual entry and the risks of missed information that can lead to rework, cost overruns and delays.  

HARNESS DATA TO LEARN FROM THE PAST 

“Those who don’t know history are doomed to repeat it” is a classic adage, but it’s particularly applicable in construction. Being able to draw on data from previous projects is critical in avoiding the same mistakes and make better decisions on future projects. But once a project enters the build phase, preconstruction teams often lose access to that data. Information that is siloed in separate systems can make it difficult to draw data-driven insights. For example, is there a particular design feature that often creates confusion during site construction and consistently impact schedule? 

Connecting data throughout the building lifecycle in a common data environment is crucial for minimizing risk and delivering better project outcomes. As well as supporting ongoing projects, a common data environment enables construction businesses to analyze data and identify common pitfalls and patterns. Machine learning can also be applied in these instances to highlight and predict project outcomes based on data from previous projects. Armed with these insights, teams can easily learn from mistakes and make better decisions for their projects at hand. 

FIND THE RIGHT TEAM FOR THE JOB 

Construction is highly collaborative; no one completes a project by themselves. Choosing the right specialty contractors for the job can make or break a project. Preconstruction teams need to clear assessments of specialty contractors’ risk profiles and understanding the experience, safety record and even the financial solvency that factors into those risk profiles can be a tall order.  

Bid management networks designed for the construction industry can help preconstruction teams find the right subcontractors for the project. Using digital platforms can help quickly parse information on large number of companies, reduce administrative work and support the qualification process. Today, qualification tools can also tap artificial intelligence and machine learning to quickly assess specialty contractors’ experience, structure and financial status to build risk profiles. Consequently, preconstruction teams can quickly and more accurately assess risk – and focus on creating a strong team that will deliver. 

BUILD IN SAFETY FROM THE START 

Physical safety during site construction is also, of course, an incredibly important risk to manage. Being on-site can present a number of risks for workers, especially now given the pandemic. Progress has been made with technology in recent years with the digitalization of mobile safety checklists in the field – but if a company is just beginning to review safety protocols on site, that’s already too late. Building onsite safety planning into the preconstruction phase can pay dividends across the board. 

BIM is a powerful tool for reducing costly rework. Using clash detection and integrated building techniques with close designer, general contractor and specialty contractor collaboration from the start can help identify and course-correct for elements that will present risks to builders on-site. BIM models can also be used to hold virtual job walks before contractors even arrive on site. Using virtual reality to conduct immersive design reviews can provide more context than traditional design reviews. Since COVID-19, contractors have more heavily relied on virtual design reviews drive to projects forward while remaining compliant and ensuring a safe environment for everyone involved.  

As time goes on, there will be broader adoption of tools and approaches like these to reduce the number of accidents occurring on job sites.  

THE POWER OF PLANNING 

At the end of the day, preconstruction is where contractors set their projects up for success. With access to the right tools such as data digitizing and automating challenging processes, preconstruction teams can make the best decisions for the project before a single shovel has hit the ground. Mitigating risks during preconstruction can help create a more predictable, safer and more successful construction industry.  

Emerging from COVID-19: Impacts to Consider

Charles F. Boland and Barrett L. Richards | The Dispute Resolver

The relaxation of COVID-19 stay-at-home orders and reopening of the economy is a prominent news headline. As the return to everyday activity progresses it is important to prepare in advance for this “return to normalcy”, which will almost certainly come in stages, especially as it relates to construction activity. As it happens, there will be numerous considerations depending on the stage of your project in the construction lifecycle, the status of the project stakeholders, and the implementation of revised or new safety requirements. Consideration should be given to productivity, schedule, and supply chain impacts.

Productivity Impacts

Projects that have been allowed to continue operations during COVID-19 restrictions should not expect normal work activity to be achieved as the stay-at-home restrictions are relaxed. Current social distancing and personal hygiene requirements will likely remain in place and continue to impact site access and worker productivity until a vaccine is developed or the severity of the virus wanes. There are numerous considerations for assessing realistic productivity when planning for work in the post-stay-at-home world:

  • How will the flow and assignment of workers be coordinated and monitored to ensure required distances are maintained?
  • What about coffee and lunch breaks?
  • Are adequate cleaning stations and disinfectant supplies available per applicable regulations worker hygiene and tool and equipment cleaning?

Careful consideration of social distancing and personal hygiene requirements should be applied to projects resuming operations following a shutdown as well as those starting from day one. The construction industry’s emergence from COVID-19 will be a slow, methodical process that will result in reduced productivity levels. Losses in productive time will come in many forms:

  • Vertical transportation (hoist / elevator) limitations
  • Site workflow constraints
  • Getting workforce to project site
  • Work area changes / restrictions
  • Field health checks
  • More regular cleaning requirements
  • Additional tools to minimize sharing
  • Longer/more workdays to stagger shifts
  • Added supervision
  • Limitations on labor on site

For projects that were suspended or restricted, a reforecasting of costs will be in order as many contractual Notice provisions require an estimated cost of the anticipated impacts to be provided to Owners. For new project starts, the same steps will be needed to justify changes in bid price.

Projects that have been shut down or slowed will need to account for demobilization and remobilization impacts. The pre-shutdown conditions and worker productivity must be thoroughly documented and communicated to all project stakeholders. This baseline condition will be critical to establishing the additional effort expended to remobilize and resume operations on site.

Schedule Impacts

On projects that have been shuttered, scheduling impacts will need to be addressed before work can resume and some of those steps may be significant.

  • What will be the impact of the timing for restarting a project?
  • What is the availability of labor, particularly in union markets?
  • Will multiple work shifts or resequencing of work be needed?
  • Are contractual actions required to document and address schedule impacts?

Validation of your project schedule will be necessary regardless of what stage your project was in when it was shuttered or otherwise impacted by COVID-19 restrictions. Some projects will require a recovery schedule to make up for delays and account for changes resulting from COVID-19. This schedule should memorialize the schedule scenario that was in effect before the project was impacted by the virus and it should clearly show what changes were made to recover from any resultant delays.

There will be many projects looking to restart at the same time and that could put constraints on resource availability including materials, equipment, and labor. The work force will be restricted and will be driving the schedule not the other way around.  Based on the work force and expected productivity, adjustments to the schedule will be needed to reflect reality. Only then can the labor force, to the extent possible, be effectively coordinated and a schedule implemented.

Notice of COVID-19 impacts submitted earlier should be amended to reflect current conditions, and the amended notices should accompany submissions of recovery schedules in order to: (1) strengthen contractors’ arguments for relief, and (2) allow the owner to evaluate the financial implications of following the recovery schedule. Regardless of whether a recovery schedule is submitted and/or accepted, regular monthly schedule updates should be prepared and submitted in order to document progress as well as any additional COVID-19 related impacts that may arise.

Supply Chain Impacts

Procurement is another serious consideration because, although construction may be allowed to resume in your area, there may be supply chain impacts.

  • Are subcontractors and suppliers located in states that remain under stay-at-home orders?
  • Are subcontractors and suppliers able to pick up where they left off before a shutdown?
  • Were lead times interrupted on orders placed before shutdowns came into effect?

All vendors should be contacted to confirm material delivery dates. These arrangements need to be made in advance of remobilization and resuming job site operations, especially if alternate options need to be pursued because of restrictions on the use of international or bankrupt suppliers.
Contractors should consult with their subcontractors and suppliers when they resume work. Overlooking these parties can give rise to unnecessary delays and claims. Clear communication on changes to the project and collaboration on recovery actions are some steps that can be taken to involve subcontractors and suppliers.

We will emerge from COVID-19, but it will take a concerted effort by all of us. It will be no different for the construction industry. Taking time now to consider and address impacts will set the stage for successful recovery that will benefit all stakeholders.

The Contractor’s Coronavirus Checklist

Lee-Ann Brown, J. Jackson Hill, IV and J. Christopher Selman | Bradley Arant Boult Cummings

The coronavirus disease (COVID-19) continues to dominate global headlines and markets. In the U.S., COVID-19 has prompted two governors to declare states of emergency; tragically claimed the lives of multiple U.S. residents; and has been reported in 10 states and counting. Due to the growing impact of the coronavirus, commercial contractors would be wise to establish a multidisciplinary task force to update their contingency planning for the coronavirus threat. Such a task force might consider, at a minimum, the following issues:

Safety/Risk Mitigation Protocol

The task force could evaluate creating a protocol for preventative measures to ensure the health and safety of its workers. This protocol might address quarantine procedures, implementing business-travel restrictions, and limiting visitor access to the jobsite or home office. The task force may also establish guidelines to determine if its employees or its subcontractors’ employees have visited areas affected by the outbreak and take the appropriate precautions recommended by the CDC.

It would be prudent to include human resources personnel on the task force to remind employees about the company’s sick and emergency leave policies, as well as accommodations for working remotely. Such personnel can evaluate what protections may apply for employees that must take extended leave, such as short-term disability benefits, or even workers’ compensation in limited circumstances.

Lastly, the task force should consider dedicating resources to educate its employees about proper hygiene techniques and provide sufficient supplies for handwashing and disinfecting frequently used work areas.

Impacts on Materials, Supplies, and Equipment

Government efforts to contain the coronavirus may impact contractors that rely on foreign materials and supplies. Government-mandated factory slowdowns and shutdowns have created labor and materials shortages in multiple countries that may cause contractors to experience higher prices and longer lead times for materials. Additionally, transportation or travel embargoes, government confiscation of property, and other government actions may make it extremely difficult, if not impossible, to complete the contract on time and in compliance with the project specifications.

The task force could evaluate which of its jobsite supplies and materials (or components thereof) are made abroad or affected by foreign labor and distribution. Even contractors that do not directly buy foreign materials should be prepared for the possibility of increased prices or inventory shortages from local suppliers that are forced to alter their operations. The task force might consider directing project teams to send notices to all subcontractors and vendors requesting status updates and immediate reporting of any foreseeable delays on the delivery of supplies, materials, and equipment. Open lines of communication with owners and developers about efforts to mitigate anticipated issues is also key. Proactive adjustments to project schedules and work sequencing may allow contractors and owners to lessen potential impacts from COVID-19.

Contractual Review

The task force would be wise to review each of the contractor’s active contracts and not assume that such contracts automatically have a force majeure clause to address this type of outbreak. Multiple standard contracts, such as the AIA forms, do not even mention the term “epidemic.” For contracts still being negotiated, the contractor might consider defining the term epidemic and including a provision to cover resultant delays and costs increases. However, contractors should be careful of claiming a force majeure event prior to experiencing an actual delay. Contracts do not usually recognize force majeure events that may occur. A premature force majeure notice therefore may do little more than trigger a contractor’s duty to mitigate rather than relieve it of performance.

The task force could also ensure that its project teams are aware of all the applicable notice provisions under pertinent contracts and subcontracts. Of particular importance is compliance with any notice provisions relating to change orders to ensure timely notice to the owner. Otherwise, the contractor may waive claims for cost increases, excusable delay, or other damages. The task force may also want to evaluate whether legal theories such as cardinal change, frustration of purpose, construction change, constructive suspension, and the duty to cooperate may be relevant in asserting claims arising from a coronavirus disruption.

Insurance

Lastly, the contractor’s task force might discuss potential impacts and coverage concerns with its insurance advisors. There are many factors that determine whether a loss is covered, including the policy language and the type of loss. However, the task force would be wise to have these conversations with insurance advisors now and provide immediate notice and documentation of any potential exposures or losses. Topics for discussion may include:

  • Coverage for the treatment of infected employees
  • Coverage for lawsuits filed by employees or other parties relating to COVID-19 exposure
  • Coverage for loss of revenue associated with disease, governmental shutdown, or limitation of access to an insured’s business
  • Loss of earnings caused by delays or foreign government actions

Benjamin Franklin famously quipped, “By failing to prepare, you are preparing to fail.” Contractors should not panic but rather prepare by investing the necessary resources to be ready for the potential consequences of the coronavirus outbreak. Please contact any of the authors to discuss the creation and implementation of COVID-19 mitigation measures.

Are You Protected Against the Risk of Construction Delays and Increased Construction Costs Due to COVID-19?

Scott Pence | Carlton Fields

Background

The World Health Organization (WHO) has declared the coronavirus disease 2019 (COVID-19) outbreak a public health emergency, and as of the date of this alert, the Centers for Disease Control and Prevention (CDC), a component of the U.S. Department of Health and Human Services, has reported confirmed cases of COVID-19 in more than 60 countries, with the vast majority of those cases being reported in China where COVID-19 originated. While it is currently unknown the extent to which COVID-19 will impact the construction industry in the United States, there are likely to be significant impacts based on such things as (1) unavailability of supplies; (2) delays in the delivery of supplies; and (3) shortages in or unavailability of construction labor.

In today’s global economy, many of the supplies used directly for the construction of projects in the United States, and indirectly in the manufacturing of construction equipment, are shipped from countries around the world, including China. As suppliers are affected by the spread of COVID-19, delivery of those supplies could be significantly delayed or ceased altogether. Additionally, if the spread of COVID-19 increases in the United States, a shortage of labor in the construction industry could ensue. In either event, these risks likely will create significant impacts on overall cost and timely completion of construction projects, not just for new projects but also for those already underway.

How to Protect Against These Impacts

For new projects, contractors should consider including contract provisions that account for this uncertainty in prices by allocating the risk to the owner, or allowing for a reasonable adjustment to the contract price or contract time in the event of significant unexpected price increases for, or delays in delivery of, supplies due to COVID-19, either directly or indirectly. Alternatively, contractors should consider adding sufficient contingencies to their pricing to protect against the assumption of this risk.

For ongoing projects, these risks are more immediate and difficult to avoid. The first step is to review the applicable contract to determine if there are provisions that already address delays in the delivery, or unforeseen increases in the price, of construction labor or building supplies. For example, some contracts may have escalation or price adjustment clauses or express qualifications to the price proposal that might account for fluctuations in commodity or labor prices. In addition, there may be a force majeure provision that might apply to this new risk. All existing contract provisions should be reviewed to see how the risks for these unexpected delays and price increases are allocated between the parties.

Carlton Fields’ Construction Practice can help clients navigate this uncertain terrain. We can draft contract provisions that protect against the effects of unexpected delays in the delivery of supplies, and price increases to the same, examine the contracts on existing projects to determine if there are ways to seek equitable adjustments to your cost or time of performance, or consider other possible alternatives to avoid absorbing the brunt of these unexpected risks.

Managing Construction Risk For Oregon Owners And Builders

Joseph Voboril | Tonkon Torp

The Construction Contract is Critical

A construction contract is the primary source for managing risk for a project of any size. The contract should include detailed provisions that touch on every element of a project including warranties, limitations of liability, insurance, payment terms, change order requirements, dispute resolution, and lien releases, as well as schedule delays. The American Institute of Architects provides form contracts frequently used for commercial projects across the country. However, it’s very common for an experienced owner or contractor to modify the forms to tip the contract conditions in their favor.

Construction contracts assign responsibility for all design and build elements, and clarify where roles start and stop. In the most traditional model, an owner executes separate contracts for design of the project with an architect and construction of the project with a general contractor, keeping the design and construction roles legally separate.

For projects in which the owner is more vested in the ultimate function of the completed project, rather than its appearance, or is looking to minimize the number of vendors to manage, a design-build contract places the design and the construction of the project in the hands of the general contractor. The design-build trend is on the rise across the country and, in Oregon, design-build is permitted by all agencies for all types of design and construction.

Management of Schedule – Related Risk

There is an old saying in the construction industry. It goes as follows:  “On any project, there are three things that the owner cares about: cost, quality, and time; the owner gets to pick two out of the three.”

Unfortunately, there is a lot of truth in this saying. If the owner is willing to spend more money or give the general contractor more time, the quality desired by the owner is easier to achieve. If the owner wants to accelerate the completion date, it will likely cost more or the quality may suffer. These objectives are addressed in various provisions in a well-drafted construction contract, primarily by provisions that deal with change orders.

Maintaining the schedule is often the most challenging of the three objectives.

Missed deadlines are caused by a maddeningly large number of issues, from natural forces and poor planning to market forces and supply chain interruptions. All construction projects are scoped with an agreed upon end date. But for projects that have a more critical completion date, the Tokyo Olympic Stadium for example, there are ways to mitigate schedule-related risk. The primary tool for an owner is to include a liquidated damages provision in the contract. This provision specifies a dollar amount that the contractor will pay the owner for every day that the project extends past the contracted completion date. The amount may also increase the longer a project is delayed. On the flip side, contractors often counter with provisions that require the owner to pay for owner-caused delays, and for payment of an early completion bonus if the contractor completes the project prior to the contracted completion date.

Other Risk Mitigation for Owners and Builders

Retainage and bonds are two additional mechanisms available to owners to reduce risk related to contractor’s performance.

Retainage is a contract provision that specifies a percentage of the contract price that can be withheld from progress payments until the work is substantially complete. Under Oregon law, an owner is not allowed to retain more than 5% from progress payments for work completed on both public and private projects.

Performance and payment bonds are required on public projects in Oregon. Since bonds serve as protection for the owner, the premiums are generally charged to the cost of the work and paid by the owner. Typically, performance and payment bonds are not required on private projects that have an experienced and well-capitalized general contractor. When that’s not the case, the owner will often take on the premium cost and require both a performance bond and payment bond.

Builders are not without legal protections in Oregon. In the event of non-payment by an owner, access to liens and bonds is available in different form for public and private projects.

The good news for private projects is that since Oregon is a direct lien state, any claimant who is a contractor, subcontractor, designer, or supplier has the direct right to file a lien claim even if the general contractor or a higher-tier subcontractor has been paid. To file, they must comply with the statutory notice and filing provisions which we detail in our Real Estate Guide.

Contractors, designers, and material suppliers do not have the right to lien public property in Oregon, but they do have the right to make a claim against the statutorily required payment bond.

Construction in Oregon is enjoying healthy growth and will do so for the foreseeable future. Significant commercial and housing projects are making headlines every week. Owners and builders are embracing exciting new collaborative models and sustainable building practices. Opportunity Zones are energizing development, construction jobs numbers are breaking records, and industry leaders are eager to come to Oregon to stake out their brick and mortar presence.