Construction has been a constant in Denver and other fast-growing Front Range cities for years, and amid the coronavirus outbreak, it’s one of the few activities that has kept moving forward in an economy frozen still.
While statewide orders have halted construction in Washington and Pennsylvania, and projects have been put on pause in cities such as Boston and New York, Colorado and its biggest cities have not followed suit.
An updated executive order from Gov. Jared Polis on March 26 clarified that construction is a “critical business” exempt from stay-at-home requirements. The public health order says critical businesses still have to comply with social distancing requirements, unless the measures would make it impossible to carry out “critical functions,” a term Moye White partner Daniel Wennogle points out has not been defined.
If the outbreak worsens or hits the construction industry hard, Wennogle said, it’s “not inconceivable” that the stay-at-home order would be amended to cover construction, or that the government would take a stricter view about compliance with social distancing requirements, which could mean more scrutiny over whether functions are “critical” and limit construction sites to a skeleton crew.
Although there’s no order stopping construction at the state level, some cities and counties have stricter regulations. Wennogle has put together a list on Moye White’s blog of Colorado jurisdictions with stay-at-home orders affecting the construction industry. While no locality in the state has banned construction entirely, written approval is required in Gunnison County, and San Juan County has put a stop to new construction unless it’s for public health and safety. Other counties have more stringent requirements for sanitation facilities or the number of workers allowed on site.
With work sites still open, implementing enhanced safety practices has become an immediate priority for construction industry clients. Tim Gordon, construction partner in Holland & Hart’s Denver office, said trade groups have prepared jobsite safety amendments and guidelines for operating during the pandemic. They include distancing requirements, recommendations for wiping down surfaces and instructions for building foot pump-operated washing stations. Gordon said he has even seen recommendations for a boot sanitizer bath with a solution that disinfects workers’ boots as they walk through it.
According to Holland & Hart partner Sean Hanlon, these safety measures will likely affect project schedules, but parties so far have been creative in making sure projects are finished quickly and safely. “I’ve seen on projects that participants on both sides are collaborating a bit more than you would see typically,” Hanlon said.
Delays in the flow of materials are another potential disruption to project schedules if they’re made in an area with a shutdown order. “We are starting to see some contractors and subcontractors send — maybe unnecessary, but very preliminary — notices upstream to the owners or the general contractors, just warning that some claims for delay and maybe additional costs might be coming soon,” Gordon said.
Hanlon said he’d recently advised clients that contractors have been sending these preliminary notices to owners in situations where a coronavirus-related delay is expected, even if the project is still on schedule. “That’s a smart thing to do from the contractor side, to get out in front of it,” he said.
As for what happens if a contractor can’t meet a project deadline, Wennogle said, “there’s not a one-size-fits-all answer.” It will depend on the language of the contract as well as the facts, and things to look at include whether the contract specifies a completion date or a liquidated damages provision that requires a contractor to pay a predetermined amount of money for each day or week late.
Unless a contract states otherwise, Hanlon said, general conditions and overhead costs resulting from a force majeure delay caused by the coronavirus wouldn’t necessarily entitle a contractor to the benefit of cost adjustment.
Gordon said one of the long-term impacts of the COVID-19 pandemic on the industry could be parties tightening up the language of their contracts. “You couldn’t have foreseen this happening,” he said. “But there is still some uncertainty in the contracts that are used by parties with respect to these force majeure issues.” Parties might start to be more detailed in their expectations about what should happen in an unforeseen event, and they might become more cautious in anticipating future risks.
At this point, it’s hard to say what the long-term effects of the pandemic and its economic fallout will be on construction in Colorado.
“I have heard of some owners who don’t necessarily want to go forward with a project at this time,” Gordon said. “But those are projects that had not really gotten off the ground yet.”
“The sale of units sometimes tends to finance the completion of construction work,” Wennogle said. “When that slows down, it really can create problems like it did back in the Great Recession.” During that crisis, projects went under as there weren’t enough buyers and banks started calling loans due.
But for now, the industry is focused on how to get the work done safely and on schedule.