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COVID-19 Construction Insights: Quantifying Delay Damages on Your Project
As COVID-19 advances across the United States, various industries and nearly all aspects of the supply chain continue to be impacted, including the construction industry – and by default, skilled workers, electricians, engineers, and more. COVID-19 will likely have significant effects on construction due to mandatory work stoppages, material delivery limitations, labor shortages and reduced inspector availability, which will ultimately result in delays. A recent survey by the Associated General Contractors of America (AGC) found that 39% of respondents have already experienced halted or delayed work on construction projects. Accordingly, numerous law firms have advised that project teams review each contract separately to understand exactly what clauses may or may not be applicable to halted or delayed work resulting from COVID-19.
Delays on construction projects can lead to a cascade of negative financial repercussions for owners, contractors and subcontractors. Liquidated damages and extended general conditions are the most common damages associated with delay. However, delay damages can also include unabsorbed home office overhead, idle labor and equipment costs, de-mobilization / re-mobilization costs, labor and material cost escalation, productivity loss and many others. As COVID-19 progresses and new mandates are put in place by federal, state and local government entities, it is imperative that owners, contractors and subcontractors properly notify, document, monitor and quantify all delay damages resulting from COVID-19. Below is a listing of typical delay damages that may result from COVID-19 and quantification methods of such.
Labor and Material Cost Escalation
Delays can push the performance of a contract into a period of higher labor wages and material costs. Typically, the contractor bears the risk of increased labor wages and material costs during the original period of contract performance but can claim increased costs if required due to delays.
The following calculation can be used to determine increased labor costs if they were originally planned in one (1) wage period:
Two (2) methods can generally be utilized to determine increased material costs:
- Direct Method – Compares the estimated cost of materials and the actual cost of materials, as purchased.
- Indirect Method – Uses published cost indices to illustrate the difference in material costs (e.g., ENR Construction Cost Index, Turner Building Cost Index, RS Means Construction Cost Data, etc.)
Productivity loss is experienced when work is not accomplished as originally anticipated and can be a result of work stoppages, out of sequence work, restricted site access, unavailability of manpower and other disruptions. The measured mile analysis is a widely recognized and preferable productivity loss quantification method in construction. This analysis estimates costs resulting from lost productivity by comparing scope production during the disrupted period of performance against scope production during a period of unaffected performance. The unaffected performance period represents the “measured mile”, which serves as a basis for comparing impacted labor productivity and determining lost man-hours and equipment-hours for the impacted scope of work. The procedure to implement a measured mile analysis generally is as follows:
- Identification and tracking of impacted activities
- Compilation and analysis of productivity data
- Identification of measured mile
- Productivity loss calculation
In this case, a pre-COVID-19 vs. COVID-19 scope production comparison could be made in order to determine any productivity loss. It is imperative that proper documentation is maintained to substantiate actual production and items such as work stoppages and unavailability of manpower. Additional considerations to be taken during the implementation of a measured mile analysis can include the use of erroneous or inconsistent data, the use of incorrect productivity measurement and the use of different scopes of work in comparing labor productivity.