by Mark A. Cobb, Cobb Law Group
Operating a successful construction business during these times challenges owners, key-level employees, and boots-on-the ground laborers in unprecedented ways. Virtually every day brings new information which has the potential to derail businesses as they evaluate on-going concerns such as work-place safety, supply-chain interruptions, and skilled-labor supply with newer concerns of SBA emergency loans, meeting payroll and credit obligations, and longer-range business planning.
Every week, I play tennis. When I’m playing at my best, I keep my eyes on the neon yellow tennis ball coming my way until I see it hit my racket on a trajectory aimed at my opponent. At the game’s start, this concentrated focus is easier, but as the game progresses, fatigue sets in, concentration waivers, distractions invade, and the quality of play slips. Right now, the construction industry is experiencing similar feelings, but it’s more important than ever to watch the ball, predict where it will be when we are ready to swing, and prepare your stroke to return the ball and place it properly on the other side of the net.
Subcontractors operate like coaches for special teams, but they seldom have the autonomy given to the head coach or, in this case, the prime contractor. Thus, every subcontractor should establish its short-term goals and its long-term goals to meet each of its expectations. Health, safety, employee retention, continuous training, performance, scheduling, and cash-flow are some of the goals which must be evaluated with a unique eye during this pandemic. Let’s review some of the legal and business strategies that will help subcontractors better ace their game.
Understand Your Deadlines: When a subcontractor understands its deadlines, it can better enforce its rights and protect itself from others. There are two common deadlines which impact subcontractors’ rights. The first type of deadline is a statutorily imposed deadline. These are deadlines which are imposed by state or federal laws. During the pandemic, several jurisdictions have tolled various deadlines and this order may give a subcontractor an additional amount of time in which to enforce its rights. Examples of these types of deadlines may include the deadline to file a materialmen’s lien or file a lawsuit to enforce something under a construction contract.
The second type of deadlines are contractually imposed deadlines. These deadlines may be found in a subcontract agreement; subcontractors may also be subjected to the deadlines and obligations found in the Prime Contract between the project owner and the general contractor. This is vital to understand (and meet) the deadlines based upon contracts. Examples of these include notice deadlines for delay or dispute over the scope of work. It is also important to note that the judicial emergencies issued by some states seldom extend the contractual deadlines.
Review Your Contract: When pandemics invade the work-place, even the most gentle project owners and general contractors may be forced to be more demanding and aggressive about a subcontractors’ performance. Every contract and every project are different, and in order to maintain the project, a subcontractor would be wise to review its contracts and create checklists regarding such topics as notice requirements, change orders, and waiver deadlines. When a subcontractor is familiar with its obligations (and the obligations of the opposing party), it is easier to make decisions regarding the project. More importantly, subcontractors need to meet these deadlines with no excuses.
Carefully Review New Contracts/Consider Adding a Covid-19 Clause to Your Contracts: Contractors’ construction contracts are changing since the start of the pandemic. They are including greater transfer of risks, and they are separating force majeure provisions and Covid-19 clauses. Understanding these contracts and negotiating a more favorable position or refusing a foreseeably bad project will save subcontractors time, money, and frustration. The ASA has provided its members with a recommended Covid-19 provision to consider inserting into subcontracts. To access, please visit https://www.asaonline.com/covid-19-information/.
Confirm (Reconfirm) Labor Availability: In order to complete a project timely, subcontractors must have an adequate supply of qualified, competent labor. Prior to the shelter-in-place orders, skilled construction labor was difficult to find. Unfortunately, the process has become even more difficult. Verify that you have the manpower to complete the project per the contract’s requirements.
Confirm Costs: Similarly, cost escalation has become a bigger issue than before due to interruptions to the supply chain. Imported materials, specifically fabricated supplies, and transportation delays are causing potential issues. Subcontractors would be wise to spend some time confirming that products are available and that prices remain the same. If cost escalation occurs, communicating this to the general contractor in a timely fashion may increase the likelihood of recovering the additional costs experienced by the subcontractor.
Implement Safety Protocols: Running a safe project has never been more important. OHSA guidelines have long-standing safety requirements on projects; now, contractors must also implement additional safety protocols to comply with social-distancing guidelines and limit the spread of the coronavirus. Subcontractors should consider naming a safety supervisor to maintain the most current information on the best-practices to prevent the spread of the virus on the jobsite and ensure that the protocols are closely followed.
Know Your Critical Path: Various jurisdictions have treated construction projects differently; some have shut-down projects completely while other jurisdictions have included construction as an essential business. In addition, illness, child-care, and fear, have impacted the personnel working on many projects. Every subcontractor should meet with its prime contractor to discuss how the construction schedule may have changed and understand the current target expectations.
Add Float: Whether a subcontractor is submitting a new bid or revising the critical path of an on-going project, most subcontractors understand the need to add float. If a subcontractor is fortunate enough to have a bit of “extra” time, do not be a procrastinator. Use float days wisely and productively to improve performance.
Review Insurance: After considering some of the risks resulting from the start of the pandemic, it may be a good time to assess a subcontractor’s insurance needs. Adding some additional coverage to existing insurance policies might provide the business owners with some peace of mind as they navigate the changing legal landscape. There are many more unknowns, and it seems unclear exactly what an employer’s liability is regarding employees who contract Covid-19 from the work-place; similarly, some local health departments and local decision makers are adding to the minefield of obligations which may fall to a subcontractor. Consider adding additional coverage for General Commercial Liability, Error & Omissions policies, Umbrella Coverage policies, Business Interruption Insurance, Director & Officer Liability, and Employment Practices Liability insurances.
Avoid Transfer of Additional Risk: Many owners (and prime contractors) are doing their best to pass the risk associated with Covid-19 and project shutdowns downstream to their subcontractors. Frankly, most professionals believe that it is too early to predict all the risks and the potential exposures. Thus, it will be worth the subcontractor’s effort to negotiate and mitigate these risks. If the risks remain too high and the owner or contractor is not being reasonable during the negotiations, then imagine how difficult that same owner or contractor will be if a problem occurs. If a subcontractor cannot build in sufficient protection into its contracts, then the subcontractor may want to consider saying “no” to that project.
Communicate Often and Clearly: Many conflicts which cross an attorney’s desk could have been avoided with communication. Subcontractors must be in regular conversation with its general contractors regarding the status of the job. It is seldom advisable to withhold information or provide partial truths. Building a healthy working relationship will prevent problems. And, when problems occur, the parties are more likely to work together to solve the problem.
Evaluate Your IT Structure: Many employees continue to work remotely despite the lifting of some restrictions around the country. It is very important to a business that its IT structure be robust enough to handle the work which is needed. For example, do the systems allow the necessary level of access, proper security, data backup, and document documents for those working on the jobsite, the home office, and those who remain working at home.
Focus On The Future: At times during the pandemic, it seem as though everyone is running between one small problem to another as the parties work together to formulate a workable strategy. Despite the energy drain resulting from this, it is actually a wonderful time for subcontractors to begin implementing new, long-term strategies that will help their businesses thrive in the future. It is a great time for marketing right now as self-promotion on social media is more acceptable (e.g., donating lunch for health care workers); a subcontractor’s customer service will be remembered by owners and prime contractors alike so now is the time to shine. Adding additional technology or migrating to better software might help the management of larger or more projects in the future. This is a great time to be building for the next economic up-swing.
Subcontractors are vital to our society, and we want each of them to win their games; more importantly, they must continuously work hard to win the tournament. By spending a little additional time now, they have the opportunity to make positive changes for the future.
About the Author
For over 25 years, Mark has been practicing construction law throughout the State of Georgia. He remains active in many professional organizations, and he speaks and lectures extensively on Georgia’s Mechanics and Materialmen’s Law, payment bonds (Miller Act and Little Miller Act claims), construction contracting and risk-allocation & damage mitigation. In addition, he publishes on similar topics regularly. In fact, Mark recently finished co-editing a 50-State Lien Law publication for the American Bar Association’s Forum on the Construction Industry and has contributed to several other books and industry publications. More information on Cobb Law Group and Mark Cobb can be found here.
