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Evaluating Contractor Delay Claims Related to COVID-19

Evaluating Contractor Delay Insurance Claims Related to COVID-19

Thank you to our wonderful partners at Victor Insurance Managers Inc. (formerly ENCON Group Inc.) for creating this great resource.

Note: The following article is for informational purposes only and should not be considered legal advice. Please consult with your insurance and legal advisors for specific guidance regarding your individual situation.

The ongoing COVID-19 pandemic has significantly impacted various industries, including construction. As provinces and territories implemented stay-at-home orders, contractors began notifying owners of potential delay claims due to social distancing guidelines and anticipated disruptions in the supply chain. For design firms with construction contract administration responsibilities, taking proactive steps to minimize the risk of being embroiled in delay claims is crucial.

Understanding the Construction Contract

One of the first steps in evaluating contractor delay claims is carefully reviewing the construction contract. Contractors typically have the right to request an extension of time and an increase in costs if they encounter delays beyond their control. Given the widespread stay-at-home orders and the ongoing physical distancing guidelines, contractors may need to inform owners about their intention to seek an extension of the contract time due to COVID-19 impacts.

As a design firm, it is your responsibility to document and communicate to the owner any notice received from the contractor. Understanding the allowable causes for excusable delays as outlined in the construction contract, is crucial in helping the owner evaluate the validity of the contractor’s claims.

Evaluating the Contractor’s Delay Claims

Objective evaluation of contractor delay claims requires access to updated construction schedules and the contractor’s initial schedule of values. These documents are essential in assessing any changes to the project timeline and cost. To assist the owner in evaluating the impact of COVID-19 on the construction schedule and project cost, specific questions can be posed to the contractor.

Here are some examples:

Monitoring Financial Health: How are subcontractors being monitored from a financial health perspective? What due diligence processes are in place?
Supply Chain Impact: Has there been any disruption in the supply chain due to COVID-19? How is this affecting the contractor’s ability to meet project delivery requirements?
COVID-19 Risk Mitigation Strategies: Have internal committees or review groups been established to monitor exposure to COVID-19, including employee safety, supply chain and distribution channel diligence, and production capabilities? Please provide details of the business’s risk mitigation strategies.
Supplier Exposure Assessment: Has the contractor fully assessed their exposure to their key suppliers’ supply chains? Are there second and third-tier suppliers that can be engaged in case of breakdowns with the primary suppliers?
Substitute Products: Have any substitute products been identified for procurement of materials? Do these products require design team approval?
Remote Operations: Can the business operate with the majority of offices and functions working remotely?

These questions serve as a starting point, and design firms should prepare more specific questionnaires tailored to the owner’s needs. Ongoing communication between the owner and contractor during this time can help prevent unforeseen delay claims. As a design firm, facilitating this communication reduces the likelihood of being dragged into a delay claim by the contractor.

The Relevance of Evaluating Contractor Delay Claims in 2023

While the COVID-19 pandemic initially caused widespread disruptions in the construction industry, it’s important to acknowledge that delays may still be occurring in 2023. The impact of the pandemic has been long-lasting, and contractors continue to face challenges related to supply chain disruptions and social distancing guidelines.

Evaluating contractor delay claims remains relevant as the construction industry adapts to the new normal. Proactive measures, such as diligent assessment of contractor claims and ongoing communication, are crucial in mitigating potential disputes and ensuring the successful completion of construction projects.

Evaluating contractor delay claims related to COVID-19 requires a thorough understanding of the construction contract and ongoing communication between the owner and contractor. As a design firm, documenting and communicating notices received from the contractor to the owner is essential. By asking pertinent questions and evaluating the impact of COVID-19 on the construction schedule and project cost, design firms can assist owners in making informed decisions.

While the pandemic has presented unprecedented challenges for the construction industry, careful evaluation of delay claims remains crucial. By adopting a proactive and solutions-oriented approach, design firms can help mitigate disputes and ensure the successful completion of construction projects even in the face of ongoing COVID-19 impacts.

Disclaimer: The information contained in this article is based on sources believed to be reliable and should be understood as general risk management and insurance information only. The accuracy of the information cannot be guaranteed, and it should not be considered as advice for individual situations or a determining factor for insurance coverage issues. Statements concerning legal matters should be understood as general observations based on our experience as a managing general agent. They should not be considered legal advice, as we are not authorized to provide such advice. It is recommended that insureds consult their insurance and legal advisors for specific guidance. © 2020 Victor Insurance Managers Inc.

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