How to Mitigate Project Risk During COVID-19

Construction projects represent a significant financial investment for health care organizations, and due to the COVID-19 pandemic, many are at risk for serious and costly disruption.

While new construction, additions, or renovations to existing health care facilities have generally been deemed essential by most states, new concerns need to be taken into consideration as these projects move forward.

Organizations should be proactive about working with their contractor and key project stakeholders to address potential additional costs associated with worker safety, project delays, and material supply chain interruptions. High-profile, high-dollar projects likely will receive extra scrutiny from the organization, media, and public.

Below we outline some best practices for organizations to mitigate COVID-19 construction-related risks.

Understand Additional Costs and Potential Project Delays

Project costs, schedules, and expectations should be reviewed and evaluated carefully to avoid unnecessary cost overruns. Stakeholders should review underlying data around material costs, labor productivity, and equipment.

With the appropriate data accumulated, organizations can determine if potential proposed revised cost estimates and schedule delays are reasonable and compliant with the contract terms.

Below are potential increased costs organizations can expect if your project has been impacted by COVID-19.

Safety Measures

Emphasis will be placed on keeping job sites and materials clean to provide a safe working environment. Additionally, protective gear costs might increase due to crew members needing to wear masks and gloves.

Each state has different job-site safety requirements due to COVID-19. For example, in Washington, all contractors are to develop and post a comprehensive COVID-19 exposure control, mitigation, and recovery plan at each job site. 

It’s in both the owner’s and contractor’s best interests to understand and implement the local safety requirements to support a healthy job site.

Material Costs

Health care organizations often require specialized materials and equipment to meet the project’s specifications.

The pandemic has affected the supply chain for these elements, which limits availability and often drives up the price of even basic materials. 

Labor Costs

Impacts from increased labor costs could be due to trade and craft labor shortages, and reduced productivity will need to be discussed with your contractor and must align with your contract terms.

Health care organizations might be more impacted by this than other industries as trade and craft workers are hesitant to work on-site at locations on the front lines absent further safety measures. 

Decreased labor and equipment productivity and material shortages can heavily impact timelines and increase construction costs. Delays can be very costly. As such, both revised cost and schedule expectations from potential COVID-19 impacts should be discussed and documented by the project management team and communicated with key stakeholders.

Key project stakeholders might include board members, senior management, construction management, facilities management, risk management, legal, banking, accounting, and others.

Organizations will need to work with their contractor and key project management stakeholders to evaluate cost estimates, schedules, and responses based on the new reality from COVID-19. It’s critical that any changes made should be thoroughly communicated and documented.

Review and Fine Tune Your Contract Documents

The construction contract documents details budget, schedules, and projects costs. Organizations should carefully review their contract for applicable COVID-19 provisions, and search for contract language that is no longer viable based on updated working conditions.

Leadership should work with their contractor to update and revise contract terms to account for these changes to promote safe working conditions. Below are some considerations.

Safety Protocols

Safety protocols and reporting mechanisms will need to be reviewed and altered to adhere to state-issued guidance on social distancing, protective gear, and cleaning recommendations.

Organizations will want to verify that there are strict safety measures in place to protect construction crew members. Assessments should be made around on-site labor requirements and potential safer alternatives. For example, limiting crews to core team members only and allowing certain employees work or supervise remotely through appropriate technology channels.

Depending on the job site, organizations might also want to consider issuing appropriate conditions for construction crew members, such as badges and special awareness or training.   Additionally, a hot line or other reporting protocol should be considered to allow unsafe working conditions to be reported anonymously.

Project Schedule

All projects should continuously evaluate the availability of equipment, materials, and third-party inspection vendors due to supply chain issues caused by COVID-19 impacts and have contingency plans in place to avoid alterations to the overall project schedules.

Organizations should discuss all potential allowable alternates and options with their contractors to increase the chances of the project team meeting critical project deadlines.

Once agreed upon and documented, the project management team should review the project schedule on an ongoing basis, make agreed upon substitutions where required and to confirm the project is running according to plan.  

Change Orders and Cost of Work Definitions

Organizations should review their contract for applicable COVID-19 provisions—for example, notice requirements, delay, and change order pricing.

Additionally, organizations should assess contract language that’s no longer applicable based on updated safe working conditions. Contract documents should be updated accordingly to promote safety and compliance with the contract terms.

Further, a framework should be implemented to guide how to compile, document, and submit increased costs relating to:

  • Safety program implementations
  • Impacts from schedule delays
  • Materials
  • Reduced productivity
  • Labor shortages
  • Site general conditions

Owner cost and schedule expectations should align with the framework developed by the project management team. Change orders can be additive, deductive, have no cost impact, or contain a mix, but safety needs to be the utmost priority.

Finally, all change orders, especially those that are a result of the pandemic, should require full documentation to support the cost impacts and assumptions for the contract sum increases and validate compliance with the contract terms

Right-to-Audit

Construction contracts are complicated and the right-to-audit clause is a beneficial term that can help verify that only compliant charges are billed to the organization.

The project management team should keep regular and detailed records of project cost and construction progress. Depending on the contract terms this could mean:

  • Project-to-date job cost distribution report
  • Labor distribution report reflecting employee name, employee hours, and dates worked
  • Construction schedule, including the actual versus baseline for project to-date activities
  • Monthly conditional and unconditional lien waivers for all contracting parties

Any COVID-19 related impacts should be tracked separately and reviewed regularly for appropriateness. Staffing resourcing plans and equipment usage plans might need to be evaluated for appropriateness and updated to ensure alignment with the revised schedule.

If the right-to-audit clause isn’t part of your construction contract, now may be a good time to voice your concerns relating to any schedule and associated cost impacts, especially amid COVID-19. Teamwork, collaboration, and documentation is critical to help increase the chances of a successful project and mitigate COVID-19 impacts.

Contingency Plans for Sub-Contractors

The project management team should prepare for a worst-case scenario and have contingency plans for key vendors’ sub-contractors.

For instance, if a sub-contractor’s crew is exposed and can no longer be on-site, the owner and contractor should have an agreed upon back-up plan to mitigate and reduce delays and cost impacts.  

Next Steps

This pandemic has created a new environment for construction projects, and both health care organizations and construction companies are working carefully to navigate these unchartered waters. Organizations should work collaboratively and proactively with their contractor to come together to devise a plan and contractual terms to set a foundation for the best outcome for all parties involved.

Further, organizations should communicate consistently with their project management team to proactively work through issues as they occur to reduce risk of unplanned and potentially avoidable costly change orders at the conclusion of the construction project.

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Note on COVID-19

During this unparalleled time, we’re closely monitoring the COVID-19 situation as it evolves so we can provide up-to-date guidance and support to help you combat uncertainty. For regulatory updates, strategies to help cope with subsequent risk, and possible steps to bolster your workforce and organization, please see the following resources: