As the uncertainty surrounding the spread of Covid-19 – as well as measures to combat it – continues, there are immediate steps you can take to understand and mitigate the impacts the outbreak will have on construction projects.
One of the most important is to maintain continuous communication among all involved: lenders, project owners and contractors, and to get and stay informed. Knowledge is the antidote to uncertainty. We’ll cover what you can do now, and then talk about how BTY’s expertise can help.
Seek legal advice.
Assess implications on cost and risk allocation.
- – Is force majeure applicable?
- – Can you claim for extensions and additional money?
- – Are there rights to terminate the contract?
- – Can insurance policies help cover losses and additional costs?
Collaborate with contractors.
Evaluate their supply chains, end to end – including material and labour supply.
- – With existing production disruptions in China and anticipated ones in the U.S., there will be availability and affordability issues. Canada annually imports from China more than $500 million of goods in each of the electrical and electronics, plastics, iron and steel, glass and prefab building sectors.
- – Identify vulnerabilities – and potential alternative sources.
- – Keep project owners informed.
Maintain site records and documentation.
Contractors need to ensure proper project record keeping throughout because it enables clear detailing of the impact on material and labour costs – and demonstrates that they could not be anticipated, were not expected, and were unavoidable (irresistibility). This is critical when appealing for force majeure and/or minimizing conflict with project owner.
Plan for schedule delays to impact project budgets through additional General Requirements.
Site running costs such as insurance and equipment hire, and security continue even when sites are closed. With ever-changing regulations about public gatherings, the owner and contractor should be reviewing their program with respect to project slowdowns or shutdowns.
Assess the impact of an economic downturn on project financing.
Lost or declining sales due to an economic downturn could stress lenders’ presales test. Added costs will require additional equity or loan funds. Increased lending costs through additional interest charges are likely despite the recent drop in the cost of borrowing.
How BTY’s expertise can help
We have more than 40 years of experience in project monitoring on virtually every type of construction project.
We know how critical it is to have financial details and information readily available when uncertainty strikes, whether on the worksite or in the marketplace.
We can help in a number of ways. In addition to helping to validate price acceleration claims of contractors, we can advise developers and lenders on the financial impact caused by the current turmoil. BTY has the capability for estimating cost over runs and schedule delays, together with stress testing of General Requirements and interest reserves, all of which support can your decision making in a highly-fluid situation that continues to change by the day.