COVID-19 Cost Management Factors
The COVID-19 Pandemic will have short term and long-term effects on the construction industry. The majority of states and countries are attempting to contain the spread of COVID-19 by social distancing and making significant changes to normal business activities. These measures and the ongoing impact to the economy are affecting existing construction projects that are currently under construction and future projects in different ways. These effects are potentially:
Projects Now Under Construction
- Projects paused, or construction halted due to State or Federal mandates.
- Implementation of new working practices as construction resumes including:
- Social distancing
- Reduced project labor – reduced number of operatives on site.
- Use of PPE (Personal Protective Equipment) by operatives.
- Reduction in productivity (as with clean room construction where PPE is used extensively for clean construction).
- Washing and decontamination areas may be required.
- Increased cost of new working practices
- New OSHA requirements will be forthcoming.
- Project delays due to COVID-19 could be considered to trigger Force Majeure clauses in many contracts resulting in delay claims with potential financial consequences.
- Inability to obtain materials imported from other countries and due to production shutdowns in the US.
- Fluctuations in material prices, as a result of supply issues.
- Reduction in oil prices will lower equipment operating costs and energy prices.
- Availability of skilled labor could be affected:
- Union labor may be more available due to delays and cancellations of other projects
- Prevailing Wage labor may be more available due to high unemployment
- Open Shop labor may also be more available due to high unemployment
- Subcontractor delays may be forthcoming based on all of the above potential consequences.
All of the above may lead to extended durations leading to delayed completions with the following implications:
- Liquidated Damages may be payable unless Extensions of Time are granted.
- Loss of project use for the Owner.
- Financial loss to the Owner.
Future Projects (Including those in design)
- Projects currently in design and future projects will additionally be affected in other ways.
- Private Sector and Public Sector projects will potentially be affected in different ways.
- Factors affecting Private Sector projects will include:
- Residential and commercial projects may be delayed or canceled due to changes in demand for space.
- For example, the demand for office space will decrease based on new working practices and increased Teleworking from home.
- With increased internet shopping during the pandemic, bricks and mortar retailers will require less physical space.
- Leisure and Hotel projects will be curtailed, due to social distancing and travel restrictions.
- The widespread slowdown in the economy with ensuing job uncertainty will affect the demand for residential.
- Funding for commercial projects may be difficult for Developers to obtain.
- Factors affecting Public Sector Projects include:
- Projects funded by States or Cities may be delayed or canceled due to budget issues. Many authorities have spent considerable amounts on fighting the pandemic and are experiencing reduced tax revenue, resulting in budget cuts to many construction programs. This may be alleviated to an extent, should the Federal government provide additional funding to States and Cities.
- A federal government stimulus package is likely in the very near future. This could be for new projects, or shovel ready projects that can be started quickly.
- There is likely to be more emphasis on the Buy America program, with more materials and equipment being sourced from the US.
TCT Findings and Recommendations
Cost Planning and Cost Management will be key to successful projects. There will likely be continued buoyant activity in some market sectors – Healthcare, Technology, Infrastructure and Federally funded projects.
TCT’s initial findings are that some construction projects are progressing with inconsequential, or no delays and others are experiencing delays, which are being documented by contractors for contractual purposes. This variation could be attributable to the type of project, specific material selection, local conditions and regional factors.
To mitigate potential delays, Construction Owners are advised to conduct detailed schedule reviews and perform Quantitative Risk Assessments for Schedule and Cost to comprehend the level of uncertainty with regard to contractual completion dates and final costs.
In addition, Requirements for occupiable buildings will change to accommodate social distancing and enhanced safety regimes:
- Reduced occupancy will require larger spaces for the same number of people.
- Common areas, elevators and rest rooms may need to be redesigned.
- Cellular offices will be preferable to open plan spaces.
- New buildings may have to be redesigned and older buildings retrofitted.
To learn more on cost measures or to discuss your project that has been impacted by COVID-19, Contact: Roger Clements, CCP, FRICS, Partner/Principal, email@example.com
Superstorm Sandy – FEMA Disaster Recovery
With assessed damages estimated at over $68 billion, Super Storm Sandy was the second-costliest storm in United States history. Toscano Clements Taylor worked with the NYC Office of Management and Budget (NYC OMB) to estimate the cost of repairs, replacement and improvement of facilities owned/operated by various New York City agencies that suffered damage by Super Storm Sandy.
Our Certified Cost Professionals were essential team members in supporting our partnership with professional Disaster Recovery Management Consultants nationwide. TCT’s affiliation with FEMA-approved cost estimates aid disaster recovery consultants as they assisted state agencies and local governments with disaster grant applications, appeals and audits through FEMA’s Office of the Inspector General.
We prepared “Cost Reasonableness” or “Fair and Reasonable Analysis” and comprehensively review FEMA documents:
- Project Worksheet
- Detailed Damage Description (DDD)
- Scope of Work (SOW)
- Cost Estimating Format prepared by FEMA & alignment with the DDD or SOW
- Development of FEMA 428 Pricing
TCT has estimated over $2 billion of Super Storm Sandy-related work for the NYC Office of Management and Budget (NYCOMB) Disaster Relief Program and collaborates with FEMA to create standards for NYC crew configuration, wage rates, and productivity. To date, we have completed over 250 FEMA Cost Estimating Format-approved estimates on Super Storm Sandy-related projects for numerous agencies including NYC Parks, NYC Sanitation, and the NYC DEP.