Market Watch – The Corona Virus – How Quarantines Around the Globe Are Impacting Operations and What Owner’s Should Expect When Work Resumes.

If you have been reading this blog consistently for the past few weeks, you probably were expecting this week’s article to be the fourth and final installment detailing my talk from the ProcureCon Conference this past January.

That article will publish next week.  Given the massive impact the Corona virus has had on our lives globally, I could not go on with this blog without addressing it.

So this week, we will talk about the impact the virus could have on ongoing bids and active projects.

The Quarantine

Regulations across the World vary greatly.  Some Countries have gone into complete lock-down with curfew and travel restrictions while others are giving soft recommendations for social distancing.  Depending on where you are, the impact to your projects could vary.

Here in the United States, each state has been allowed to establish it’s own protocols.  I live in Pennsylvania near the New Jersey border and not too far from New York City where the greatest outbreak has been recorded.

All three states; Pennsylvania, New Jersey, and New York have ordered all “non-essential” businesses to close and residents are encouraged to stay home as much as possible.  I received an email directed at me as an Architect ordering me to cease all business operations on Friday.

This means that all construction work has ground to a halt.  The AIA has indicated that it will lobby for construction work to be allowed to continue, but I find that measure both fruitless and ill-advised.

Active Bids and RFP’s

If you have an active bid going on at this time, I recommend suspending the bid until such time as things return to normal.

I originally meant to recommend extending active bids, but since governments are ordering ceased operations, an extension at this time could just mean another extension in a couple of weeks, so a suspension is the best course of action.

This will impact your schedule and you should take all measures needed to deal with that, but this is not the time to prioritize schedule.

Ongoing Construction Work

If it has not happened already, you will see your jobs come to a halt.  This is not something your GC can control.  Businesses that fail to comply with the Governor’s orders will have their business licenses revoked, so you should not press your Builder to continue working.

Construction schedules will push out and you cannot require end dates to hold.  Forcing double and triple time work (once work resumes) is unlikely to bring your projects back to their original end dates.  In fact, these measure are an unlikely option given the labor shortages we had before this outbreak.

My advice on schedule recovery is simply to work with your Builder’s to develop a fair and equitable schedule adjustment.  I assure you trade workers and GC’s are just as eager to get back to work as you are.

Change Orders

You should expect to pay additional expenses with this time extension.

Contractually, this event falls under the Force Majeure clause and affords both parties certain rights including the right to terminate.  I think it is unlikely that most will decide to terminate, but it is an option.

The more likely result will be that work will resume (slowly) once the quarantine order is lifted, but it won’t come without some added costs.

The costs you can expect will come from the following:

  1. Equipment lease costs for holding equipment on-site longer than originally planned
  2. Storage costs for storing materials and equipment longer than expected
  3. Expedited delivery costs (as a schedule recovery measures) for shipping products and equipment sooner than normal.
  4. De-mobilization and re-mobilization costs associated with securing job-sites while operations are suspended and with carting equipment to and from jobsites.
  5. We might even see some cost escalations on goods and equipment as manufacturing resumes and supply chain costs rise from high demand.
  6. Finally, the impact of the quarantine could have adverse effects on some businesses causing them to close operations.  This is most likely with small trade workers.  This could mean that some of the trades your GC had contracted for your project are no longer in business when work resumes.  Your GC could have to find other sub-contractors with whom to finish the work.  This might mean that the original contract price is no longer valid.

Given the massive impact this event has had on the global economy, it’s likely that many firms will waive or forgive some of these costs, but Owner’s should not assume that because no work occurred that no additional costs were incurred.

There are some costs you should not expect to pay.  Specifically, I would refuse to pay any costs for labor retention during this time.

Construction workers (and even many Architects) are hourly employees.  If they don’t work, they don’t get paid.  With the exception of executives and senior level staff (who are paid on an annual salary), this work furlough will mean that workers will be sent home without pay.

It pains me to state that because of the implication on the workers, but for Owner’s it means that you should not accept any Change Orders that include such costs.

On this matter, I hope that the best part of humanity prevails and that we all agree to treat each other fairly.  Owner’s must expect to pay some expenses, but Firms should not look to exploit the situation either.

Closing

It’s unclear how long the quarantine will last.  At the moment it sounds like the situation will remain as is at least until April.

Regardless of how long this takes, when work resumes we will have to realize that this period is not without effect.  Schedules will change and costs will too.

In the meantime, I hope you all remain safe and healthy and look forward to a full economic recovery very soon.

What about you?  Has the Corona Virus outbreak impacted your operations?  Are there other costs you expect to see when work resumes?  Tell me your stories.

Thanks for reading.  If you enjoyed this content, please feel free to browse my previous articles and please like, share, comment, and subscribe.  This helps promote my content and is greatly appreciated.

 

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