WARNING - Construction Project Owners
Prepare for the Coming Covid-19 Aftermath
If you are a Senior Executive and your institution (e.g., hospital, university, utility) is engaged in a major construction project, then you need to prepare for the coming extra cost claims that will inevitably be blamed on Covid-19. This virus has caused construction to slow or stop throughout America and the World. Your Construction Project may eventually finish late at a cost that exceeds the original plan. To be prepared you must answer four critical questions:
- How will the project be effected?
- How much more will it cost and who will pay for the extra cost?
- How do I minimize my company's exposure?
- Has the project's planned ROI changed?
On Monday, March 23rd, the Associated General Contractors of America (AGC) reported that 28% of its members have been directed to halt or delay work on active projects.
Senior executives with any large enterprise (e.g., hospital, university, or utility) that is engaged in, or planning, a large construction project, are now preparing for the foreseeable and unforeseeable impact of the Covid-19 on the cost and progress of their construction project.
Every enterprise engaged in a large construction project must immediately 1) conduct an environmental assessment (i.e., document the current status of the project), 2) begin a full scale risk assessment that focuses on the unique circumstances of the project, and 3) determine their short term actions and long term options.
Large construction projects will likely be impacted in the following ways:
- Heightened risk to employee health and safety.
- Shortage of skilled trade workers due to illness or due to government mandate.
- Shortage or delay in receipt of needed materials.
- Travel restrictions.
- Difficulty to obtain financing, or refinancing, and/or interest rate volitality.
- Loss of donor funds.
- Potential fundamental changes to facility design due to newly perceived requirements and/or changes in user volumes (e.g., patients, students, or customers).
Business leaders are now conducting Environmental Assessment's of their construction projects to:
- Determine what communications and/or commitments have been made by their employees in response to Covid-19.
- Assess contract obligations with particular attention to:
- Insurance policies, bonds, and subcontractor default coverage
- Definition of Force Majuere
- Termination clauses
- Change order pricing
- Evaluate the status of their project's:
- Percent complete and expected date of completion
- Cost to date, cost to complete, committed costs, and fixed costs
- Ownership, and possession of, key project cost records
- Assess the project's labor requirements compared to the availability of required labor.
- Assess the supply chain for critical supplies, including:
- Construction materials
- Building systems
- Operating equipment
- Information technology
- Test the project's original ROI assumptions to confirm the accuracy of the expected cost and revenue generating capacity of the planned facility.
Leaders are also conducting Risk Assessments that answer key questions such as:
- Do prior project communications pose a problem?
- Is there a risk of cost claims from contractors and consultants that could assert:
- Delay and/or disruption
- Demobilization and remobilization
- Could this event drive potential design changes (e.g., similar to the way 9-11 drove design changes at airports and other facilities)?
- What is the potential additional cost of completing the project under the current circumstances?
- Are the funding sources secure for the planned cost and for potentially additional costs?
- What is the impact of delay and disruption on the facility activation plan?
These actions are being taken to determine the short term decisions and long term options appropriate for the enterprise, such as:
- Define the enterprise's policy regarding the project and ensure that all communications comply with this policy.
- Conduct an audit of the project's cost to date.
- Confirm the availability and security of the project's funding sources.
- Determine the revised completion date of the project assuming commerce returns to normal under various scenarios (e.g., 30 days, 60 days, or 180 days).
- Estimate the revised cost to complete the project assuming commerce returns to normal under various scenarios (e.g., 30 days, 60 days, or 180 days).
- Assess whether to suspend or terminate the contractor and/or other parties.
The preceding bullets are simply examples of the kinds of issues you need to consider when facing the unknowns introduced by Covid-19. Only you know your organization and only you can identify what issues it faces. This article offers a framework from which to begin taking action. This framework is based on three actions:
- Conduct an environmental assessment (i.e., document the current status of the project)
- Begin a full scale risk assessment that focuses on the unique circumstances of the project, and
- Determine your short term actions and long term options.
The professionals at ResX, PC focus on helping senior executives at organizations engaged in large construction projects. We can help you identify the questions that must be answered by line management and the actions that must be pursued in order to achieve the best outcome when dealing with the turmoil caused by Covid-19.
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