The current situation is modifying the circumstances dramatically. The market is changing and the consumption patterns as well.
The first step in any crisis is to assess the real situation as accurately as possible. This must be done regardless of contractual stipulations because reality goes beyond contracts. After that, the contract can be considered in order to see what the party’s rights and obligations are, and whether the parties want to stick to that or adopt a commercial approach and be flexible for their own benefit.
On the owner’s side, it must be considered if he is still interested in the project. Whether the project is still a good investment and if the owner still has the funds required or if it would be advisable to delay expenditures.
Regarding the contractor and the supply chain, it needs to be assessed to what extent they are in financial stress, due to the project itself or other projects, and if this is a risk for their compliance with the commitments related to the project.
There needs to be a damages assessment that considers the cost for every party of the current situation. This shall be done independently of who will pay for the cost. It should consider what are the mitigation measures taken so far and if there can be collaboration to mitigate the costs and delay.
Regarding the works, their degree of exposure to prolonged suspension or a change in the progress ratios should be analysed. For example, if the structure is exposed to the environment or if the rain is weakening the ground.
When work resumes it is likely that there will be delays and extra costs.
Owners, contractors and the Government will impose measures to condition progress. These measures could be quite different if there are international edges in the project because diverse standards could apply. It is particularly relevant to remember the importance of putting safety first in all industrial activities. The zero-accidents standard has become the best practice in construction and the current situation is challenging the commitment of the parties in relation to health and safety.
Thus, the productivity ratio will likely be lower because of the health and safety measures, the delays in the supply chain and maybe a shortage of supplies, materials and workforce.
The lower productivity will likely imply that the unitary prices, the lump sums and the price arrangements in general may not reflect the real costs. There will have to be a contractual analysis to assess which party shall assume the cost of that, but it could also lead to situations where complying with the contract becomes excessively onerous for that party.
Having a “single source of truth” regarding the real situation is key, ensuring that everyone is working from the same basis – that there is one agreed version of the Truth in project drawings, schedules, KPIs, cost overruns and so on.[1] This is something needed in construction projects regardless of the pandemia, and it is even more crucial now.
The blame-and-sue culture inhibits transparency and productivity, so an attitude shift would be essential. This does not mean waiving contractual rights.
Adopting a commercial approach rather than a strictly legal one would be key to work having a broader view of the situation.
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