With all construction industry activities having resumed on May 11, 2020, it is now important to establish, if not already done, the necessary measures to ensure optimal operations, taking into account the current pandemic context and the risks of construction delays, increased costs and litigious claims.
Following our recent publication on the additional costs of construction projects generated by the current pandemic, we propose in this publication some practical considerations that construction industry stakeholders should take into account in order to optimize their operations, prevent future claims and minimize damages, if any.
Calculation and Recording of Damages
In order to prepare the claims that construction industry stakeholders may wish to pursue in the near future, develop a negotiation strategy with a business partner, or minimize the impact of future claims, it is important to ensure the establishment and maintenance of a process to calculate and record damages incurred since the pandemic outbreak. In doing so, it would be useful to consider the following:
- First, use a technological platform capable of preserving, without risk of loss or security breach, documentation related to the elements mentioned below;
- Develop a protocol to identify documentation related to the damages incurred, their calculation, or any situation susceptible to become litigious;
- Identify a person in charge of the preservation of the documentation for this purpose;
- Establish a clear method of classifying documents on this digital platform, in order to make subsequent document search easier;
- Keep a record of costs and other damages incurred since the beginning of the pandemic and as they occur;
- Maintain a record of costs and claims directly related to the pandemic that may have to be paid by the company in the future;
- Maintain a record of outstanding amounts owed to various contractors and subcontractors;
- Review the clauses relating to the calculation of costs and damages within the contracts governing the relationship between the various stakeholders in the context of the above measures.
Management of Litigious Situations in Real Time
The outbreak of the pandemic has given rise to a significant number of conflicts between stakeholders in the construction industry and their number is likely to increase. Considering the inevitability of these conflicts, as well as the fact that court activities are and will continue to be slowed down over the coming months, it is important that construction stakeholders adopt effective conflict management measures, especially since everyone is likely to be both the cause and the victim of potential damages. To this end, we suggest the following initiatives:
- Appoint a person, such as a legal counsel, to manage conflicts that may cause additional delays in the completion of ongoing construction projects;
- Adopt a diligent and cooperative attitude in managing conflicts, rather than letting them drag on indefinitely, by communicating effectively with business partners, particularly with respect to damages and setbacks incurred, in order to avoid delays that may be avoided and to minimize damages. Indeed, the courts were almost totally paralyzed for several months, which will likely result in delays for those stakeholders who will attempt to solve their disputes by judicial means;
- Promote alternative, non-judicial methods of dispute resolution in accordance with the above;
- Favor direct, transparent and reciprocal internal communication with employees, which will help dispel uncertainty and prevent internal conflicts, as well as keep all company stakeholders focused on the common goal of completing construction projects that have already been greatly slowed down;
- Record notes of important communication, whether at site meetings, meetings of company executives, or meetings with business partners;
- If the dispute cannot be resolved diligently, in real time, record the dispute and any disagreement for subsequent legal settlement, and move the rest of the construction project forward as much as possible, in order to, among other things, minimize the damages incurred.
It is foreseeable that, in the near future, there will be a large number of legal disputes between the various players in the construction industry. It is therefore important that, upstream of this anticipated flood of litigation, the parties avail themselves of litigation privilege in order to guarantee confidentiality protection and immunity from disclosure for all communication surrounding potential claims.
Litigation privilege creates immunity from disclosure for documents and communication involving a lawyer whose primary purpose is the preparation of existing or anticipated litigation. This means that if anticipated litigation were to arise, a party would be entitled to refuse to disclose documents and communication requested by the other party, if they have been prepared by or involve a lawyer, for the purpose of that litigation.
Thus, it is important that stakeholders in the construction industry who are assessing the damages they have incurred or caused as a result of the pandemic take advantage of the litigation privilege by requesting the assistance of a lawyer. This should be considered, for example, where an expert is retained to assess damages or where the company has internal communication regarding such damages.
Considerations for Future Bids and Contracts
The current pandemic is likely to change the parameters of the construction industry, at least in the medium term. The various industry stakeholders will therefore have to take into account certain specific issues in future bids and contracts, which will have to be negotiated, in particular:
- Force majeure clauses, which may include the notion of a pandemic and its re-emergence, as well as any other relevant event not explicitly included;
- Clauses of price modification and extension of work delivery time, in the event of government orders or new sanitary measures imposed by CNESST. It is possible that in the coming months, new government orders or new sanitary measures will be imposed, which makes it very important to negotiate clauses that will allow the parties' obligations to be adjusted in light of this important change in the context;
- Work suspension clauses, in the context where their execution would be made too onerous, following for instance the imposition of government orders or particularly restrictive sanitary measures;
- Clauses clarifying the obligation of contractors to ensure that workers on construction sites comply with the health standards and preventive measures developed by CNESST;
- The judicious calculation of the price and the initial project completion time, since the variables that currently prevail may change greatly in the future. In this regard, one can think of the increase in the price of certain materials, due to their new scarcity, the increase in operating costs following the necessary compliance of construction sites with health standards, costs related to labor and labor absenteeism, or delays caused by a slowdown in operations related to compliance with health measures and uncertainties caused by a weakened supply chain;
- Insurance issues also need to be rethought to take into account new parameters that may be required. It is important to review your insurance coverage and retain an advisor to ensure your protection.
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Originally published by McCarthy Tetrault, July 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.