COVID, Construction and expenses – an overview

The communities of architects, engineers and construction companies are currently stuck in a conundrum. The challenge the COVID-19 brought upon them was horrifying. It resulted in additional and unanticipated costs in the form of delays, productivity losses and material and labor shortages across various continents (particularly North America).
While navigating a path to recovery of such additional expenses is often uncharted territory, the parties involved need to get ready with best practices to make their way through to ensure successful project completions as well as recovery of anticipated costs.
This is addressed in the best manner in the following areas:
- COVID compliance.
- Delay Tracking and Notice.
- Productivity analysis of labor.
Construction management services: Overview
COVID Compliance
COVID compliance within the location a construction company is working is crucial, from both the health and safety perspective. Moreover, it is also important from a potential perspective of entitlement, especially for recovery of additional expenses.
Delays and other issues caused by non-compliance with regulations for COVID-19 undermined a contractor’s ability to recover additional costs at a later date. Contractors need to focus on developing a location and project based COVID compliance plan. This plan focused on three key areas:
- Social distancing while proceeding with work in a safe and efficient manner.
- Providing hygiene facilities and on-site availability of soap, water and sanitizer.
- Ensuring complete compliance by all employees at each opportunity.
- Managing non-employee interface and outside contractors and vendors is also important.
A COVID orientation policy should be provided to all non-employee and external contractor interfaces for compliance with the COVID protocol of each project.
Enveloping the COVID compliance program within any firm’s normal administration protocol like the safety program. Adding a COVID moment to the daily safety meeting. A firm should designate a responsible managing employee (RME) to administer the COVID plan and ensure compliance.
The RME is responsible for maintenance of the daily log of COVID compliance. This can hence provide an audit trail of compliance with COVID standards. The trail can be used to counter any allegations and for the purpose of dispute avoidance in terms of COVID protection rules compliance.
Delay Tracking Notice
There are two kinds of delay in the construction industry: compensable and excusable. Excusable delays will often provide for a time extension to complete work. However, it does not mean compensation for extended performance.
Examples of excusable delays are weather and other matters that cause delays outside of contractor’s control.
Compensable delays generally relate to matters like work added to the contract via changes in design, extra work orders, differing conditions, unanticipated conditions and work closures, despite not being the contractor’s fault.
While recovery of dealsy specific to a pandemic are often uncharted, the basic premise where the conditions presented on a project were not within the contemplation of the parties at the time of the contract’s formulation need to be addressed.
One of the first steps to address delay issues is to examine the contract’s documents:
- Closely and carefully reviewing the contract’s documents to identify and understand the rights, obligations and risk allocation among parties when there is a force majeure event, including whether there are provisions for time extensions and delay penalties.
- Identifying and documenting project events related to the COVID-19 pandemic and their impacts on a project. It is imperative to keep detailed records of such events as well as their impact.
- Compliance with the notice provisions stipulated in the contract documents, especially the form and timings of notices and other details needing provision.
In the second instance, whilst maintaining contract compliance, firms must maintain an audit trail of documentation. This can be utilized in a forensic manner to reconstruct and prove the entitlement to compensation for delay.
Schedule
Maintaining project schedule updates in compliance with the contract and starting up a notch by adding it with the updates in schedule, along with all project delays that are compensable or excusable.
The schedule updates should be provided in the frequency stipulated by the contract, and/or at a minimum instance of once each month (for shorter duration undertakings, a bi-weekly frequency is recommended).
Companies need to maintain an internal and continual comparison of their baseline (contract schedule) to the actual schedule which is provided via updates in the project schedule. Then they should use the already built schedule to be as proactive as they can be for forecasting probable outcomes in project completion.
Moreover, they should also use the same for anticipating problems and developing solutions for avoidance and mitigation.
In all applications of the schedule, the critical path method of scheduling is widely recommended. It has all the amplified capabilities to address more complex issues like concurrent delays. However, they must use what is best for their contract, project and in-house capabilities.
A bar graph can suffice. However, the most important thing is to have an accurate record of project delay and impacts, regardless of the medium used.
Issue Files
Companies must maintain separate issue files for each project’s impact and delay whether or not excusable or compensable. Here is what those should files must at least contain:
- Applicable contract provisions (if any).
- Updates on schedule affected.
- All correspondence related to the issue, (emails, letters, change orders, meetings etc.).
These files should be continually maintained during the course of the projects. Due to impact caused by the COVID-19 pandemic, separate files for such events and impacts, like the COVID project shut-down volume one, COVID compliance issue one and COVID admin issue one etc.
Maintaining these files will result in an expedited and worthwhile compilation of the delay entitlement with a large degree of accuracy.
Expenses
There are two primary expenses associated with extended performance expenses. They are as under:
- Home office overhead.
- Field office overhead.
Home office overhead
When delays due to the COVID-19 pandemic happened on a project, it caused a shut down (or idleness) for a certain period of time. At times, a construction project can be extended, there can be a fixed overhead and general administration costs continue to be incurred by contractors and engineers.
The amount of direct expenses to which these expenses can be charged is hence reduced. The outcome is an amount of overhead which is either proportionately higher or not absorbed as a result of delay. There are numerous formulas which are frequently used to allocate overheads which are not absorbed.
These formulas are able to calculate and compute the daily amount of overheads contractors would have absorbed, if there had been no delays or suspensions. Moreover, it gives the contractor that amount of daily overhead for each day of the delay/suspension.
Field office overhead
When a performance on a project is delayed, the contractor often continues to incur expenses at the site of the job even in the absence of productive work. Bills for items like supervision, office space, storage, utilities and telephone service continue to accrue.
All of these costs are related to time, and are recoverable. To calculate the amount of extended job site overhead, a total of all the time-related expenses or fixed costs should be determined. The daily job site overhead rate is hence multiplied by the number of days of delay to come at the field officer overhead amount.
Hence, in addition to home office overhead, contractors might also be entitled to field office overheads. In general sense, as addressed previously, this consists of things like small tools, trucks, cell phones and on site project management teams (not direct job cost calculated people).
They are commonly known as general conditions expenses which are strictly those administrative expenses which are directly cost as per the job. They are neither shared nor are they distributed between various projects, compared to corporate overheads.
The COVID-19 pandemic made a new general condition cost item, which hasn’t been observed before. This is unfortunately the expense of COVID compliance and the expense of the REM administering this program. Suh costs need to be closely tracked as they are more likely to be recovered easily at some point in time.
Labor productivity analysis issues
Quantum analysis experts based in the Middle East explain that there are numerous productivity issues facing the industry because of the COVID-19 pandemic. Morale issues, absenteeism due to various factors and reduction in productivity due to social distancing and reductions in employees available.
Moreover, workers falling ill due to COVID-19 along with their healthcare expenses also impacted their productivity across various avenues.
Additionally, such issues are complicated by the prudent and justifiable extension of financial benefits to numerous members of the workforce by various state agencies across various nations due to COVID. This results in a reduced workforce pool from which drawing resources in the short term can be an issue.
Disruptions to productivity in work include congestion, intermittent work, extended working hours, lack of communication, overcrowding or errors in engineering. A project might be completed on time, but may experience a reduction in anticipated labor as well as productivity of equipment.
Loss of productivity is quantified by measuring the difference between the planned rate of production along with the real impacted rate of production.