Tracking and logging COVID-19 expenses
April 10, 2020
Time is crucial in every construction project. Delay costs, liquidated damages, back charges, and additional labor hours for slow and untimely completion can ruin profit margins and lead to serious problems down the road. COVID-19, if it hasn’t already, will inevitably create costs and delays, none of which could have been negotiated or realized when an original construction contract was formed. Examples of these costs and delays include:
- Government mandated shutdown of jobsites
- Worker unavailability
- Costs for extra personal protection equipment
- Health inspection fees
- Material expense increases for supply chain disruption and delays in production
- Increased equipment requirements to keep workers busy but apart from each other
- Technology costs to provide remote meeting capabilities for management, owners, architects, and contractors
- Labor expenses after jobsite shutdowns
- Delays and increased inspection costs
Understanding the rights and responsibilities in a construction contract is vitally important for successfully recovering these costs and delays. For example, many construction contracts contain force majeure clauses that provide time extensions to contractors for “acts of god” or for “other causes beyond the contractor’s control” but often require timely notices and ongoing reporting and due diligence. Further, change orders can provide a means of recovering losses but regularly the contract requires the costs and delays be contemporaneously identified and quantifiable. Regardless of the tool used to mitigate losses, consistent and contemporaneous tracking and detailing is key.
Here are three techniques contractors can use to track their COVID-19 related costs and delays: (1) create a new general ledger account or job; (2) create new costs codes for tracking COVID-19 related costs on a per job basis; and (3) encourage superintendents and those familiar with the jobsite to keep notes regarding additional, new restrictions implemented to slow the pandemic’s spread.
When creating cost codes for COVID-19, it is also important to break the code out to specifically identify the labor and material attached to the code. By removing ambiguities, the contractor preserves its claim, eases its later burden when proving its delays, and takes away an easy and available argument for would-be challengers.
By implementing a system(s) for tracking the inevitable delays now, contractors put themselves in the best position to recover later. If you need help understanding the forms of recovery, the implications in a contract, or have any other questions related to COVID-19’s effect on the construction industry, contact us so we can help you continue business.