8th May 2020
The Los Angeles County Bar Association (LACBA) hosted a webinar roundtable discussion addressing the impacts of the COVID-19 pandemic on the design and construction industry. The webinar attracted over 100 participants who exchanged information and ideas on best practices for navigating the short- and long-term obstacles created by the pandemic.
This free and publicly available session was moderated by Frank Giunta, president of HKA Americas at HKA. He was joined by John Hanover, partner at Alston & Bird, LLP; Thomas Loegering, district legal counsel of PCL Construction; Ashley Jordan, senior associate at Reed Smith, LLP, specializing in insurance recovery for policyholders; and David Gehrig, partner at Hanson Bridgett, LLP.
The discussion kicked off with an analysis of the current problems facing the industry. One issue that was immediately highlighted was conflicting governmental orders from state and local authorities. Loegering described the challenges of interpreting a slew of new orders affecting clients. “Initially, those orders and those regulations weren’t all consistent, there were some conflicts there. So we did spend a lot of time internally as a team … figuring out what it meant for our various projects.”
Gehrig echoed this: “As soon as we’re on top of the last order and we’ve interpreted it and answered all the questions, it seems like there is a new one coming.” He also noted the differences between county restrictions throughout the state: “The most recent county health orders here from the six Bay Area counties … actually reduced the types of construction that [are] allowed to go forward to just eight specific categories.”
Both discussed steps for mitigating potential risks stemming from these disparities. PCL Construction has implemented a rigorous screening process at its construction sites, including a temperature check, health questionnaire, face-mask requirements, and social distancing guidelines. Gehrig is advising clients to communicate social distancing requirements to contractors and suggesting that contractors submit their social distancing protocols for review by state and local agencies. Both recommended proactively communicating with local health departments to stay abreast of regulation changes and maintain job-site health and safety.
Ashley Jordan addressed concerns related to insurance coverage and recovery.
“There are two main coverage issues … The first is whether the known or suspected presence of a virus like COVID [-19] causes physical damage to property. The second principal issue is whether exclusions for pollution, viruses, bacteria, microorganisms … preclude coverage for these COVID claims,” she said.
COVID-19 does cause physical loss or damage to property, she said, citing existing City and County orders explicitly stating this. For the issue of exclusions, Ashley urged policyholders to review policy language thoroughly. “The success of your claim is going to rise and fall on the particular wording of your insurance policy and how it applies to your specific loss.”
She said it was crucial to “give notice under any insurance policy that might respond to your loss.” Failing to do so in a timely manner could leave claims vulnerable to a late-notice argument from the insurance company. She highly recommended developing a “coverage roadmap” before beginning the process.
Like Jordan, Hanover is also urging contractors to give notice as soon as possible. “And along with that notice goes the obligation to implement project controls now… create cost accounting systems that would allow the contractor, the owner, and other stakeholders to see what the economic impact has been,” he said.
Many attendee questions revolved around contractual issues, insurance coverage issues, potential claims or litigation, and future changes in the industry.
Panelists answered questions about how COVID-19 would affect contract interpretation and potential claims.
“I think we’re looking at three or four provisions of the contract carefully,” said Hanover. “The first is the force majeure [clause], and I think that ultimately is not going to be where the focus is.” While he believes that most people will determine the pandemic is a force majeure event, that will not address the issue of funding, which will lead to delay provision reviews. While some provisions specifically address pandemics, many are silent on the subject.
“The three critical components of progressing the job are going to come into play, which are labor, because either workers are reluctant to come to work or they have other opportunities …. the supply chain … because the world’s economy has been disrupted … and then I think the financial impacts,” he said. “I think we’re going to see a lot of change orders, we’re going to see a varied approach among different owners.”
Gehrig also highlighted the force majeure clause, change in law provisions, and change order provisions as key contract provisions. He agreed with Hanover, stating, “COVID-19 doesn’t belong in the force majeure clause going forward. We all know about [COVID-19], it’s no longer an unforeseen event.”
Some attendees asked about proposed legislation that would compel property insurers to retroactively cover COVID-19 losses regardless of exclusions or physical damage. Jordan still advised giving notice: “Don’t bank on the [legislation] being passed. Don’t rely on that while foregoing your insurance claim.”
Panelists also discussed future changes in the industry. Jordan warned that insurance companies were already modifying policy language in proposed renewal policies to try and block future pandemic claims. Hanover speculated that some sectors of the industry who might suffer more could receive reallocated resources, such as transportation and hospitality projects.
Loegering and Gehrig discussed how to balance COVID-19 issues within future contracts. “It makes sense to have clear terms and conditions for what you expect the contractor to do during the course of construction … but it will be difficult to anticipate everything,” said Loegering. Overall, panelists urged patience, communication, and flexibility while everyone adjusts to the new reality.
“I hope that all owners and all public agencies really do look at this as a situation where stakeholders really have one interest, which is to get the project over the finish line and to try and have a successful project,” said Hanover.
“I’m advising our clients to be flexible and fair with their contractors … we really are in unchartered waters …. and we’re all trying to do the best we can to bring our projects over the finish line successfully with as little disruption as possible and I think that’s going to require adjustments from parties on all sides,” said Gehrig.
For more information about LACBA webinar events and related resources, please visit https://www.lacba.org/. Please email us at inquiries@hka.com for more information on how your firm can best prepare for the impacts of the COVID-19 pandemic. Webinar summary provided courtesy of HKA business development administrator, Kayla E. Begg.
I hope that all owners and all public agencies really do look at this as a situation where stakeholders really have one interest, which is to get the project over the finish line and to try and have a successful project”John Hanover, Partner Alston & Bird, LLP
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