By / Geza R. Banfai • Counsel, McMillan LLP
A pandemic is a terrible thing—and a terrible thing to waste.
Amid the disruption and the suffering, the industry has also experienced opportunities to make positive adaptations, if only because they have been thrust upon us by circumstances no one wanted and few anticipated.
It’s worthwhile to take stock and consider some useful lessons learned going forward. Here are five:
1. The Contract Matters. Really.
When covid-19 struck and project participants were suddenly faced with mandatory enhanced site safety measures as well as the threat of shutdowns, the questions became, “Who pays for this? And what about the schedule?” Their contracts, which may have been only cursorily reviewed, if at all, suddenly assumed a renewed significance.
Among the clauses reviewed were those which normally didn’t receive much attention, such as the force majeure provisions. As between owner and contractor, the usual allocation of risk of events beyond the control of either party is that the owner absorbs the delay caused by the disrupting event and the contractor absorbs the costs. While this may be reasonable in an isolated case, a contractor may have trouble assuming these costs across its entire portfolio of contracts, and a different allocation of the risk may be appropriately negotiated. However force majeure risk is allocated, the point is that it is now real, no longer theoretical, and worth considering seriously.
This is just one example illustrating a point which is often overlooked: the contract is there to cover more than the normal, expected elements of the parties’ relationship. It is also there to deal with the unexpected, and sometimes that is its most valuable function.
2. A Risk Not Understood is a Risk Not Managed.
Among the costs associated with the pandemic are the direct, easily identified ones, such as the costs of PPE. But there can be others, less readily apparent but just as impactful, such as loss of productivity due to physical separation requirements or restricted access to the construction elevator, and schedule impact due to material supply disruptions.
Contractors are masters of the art of risk assessment. An important lesson of the pandemic has been that this imaginative exercise of anticipating possible events is sometimes more involved than may have been thought and that even the customary assumptions may not always be true, such as that the workforce will reliably be there and that the materials and supplies necessary to do the work will arrive on time. It’s now necessary to go deeper when assessing possible contingencies and accounting for them in an intentional way by either pricing them, mitigating them, or making sure they can be absorbed.
3. Cash is Still King.
Any wide-spread shock usually disrupts the normal flow of cash down the construction pyramid, and the industry has seen this with the pandemic. For the trade contractor at the bottom of the chain, this can be devastating. It is the trade contractor who usually has the largest payroll obligations on a project, and these cannot be suspended. The trade contractor is also directly dependent upon material supply arrangements, which can instantly cease if the bills aren’t paid.
The pandemic has highlighted the importance of both maintaining a healthy reserve of cash and in managing its timely collection. By fortunate coincidence, trade contractors in Ontario received some help here, in the prompt payment and adjudication scheme implemented by the Construction Act just before the pandemic. These initiatives will surely follow in other provinces, hopefully accelerated by recent experiences.
4. Give-and-Take Remains Wise.
With the sudden arrival of covid-19, the industry was faced with a common enemy which, for the moment at least, unified people. The watchword of the day was, “Talk to your contracting partners, be open with them, and make reasonable accommodations and compromises for the sake of keeping projects going and keeping people in business.”
This was a welcome mood amid an industry that too often retreated into a state of “Come hell or high water” self-interest when the unexpected happened amid the dynamism of a construction project. Standing on the principle of one’s strict legal entitlements, while satisfying, is a poor strategy today when it results in project failure tomorrow. The pandemic gave us a glimpse of a bigger picture, and this should not be lost when more normal times return.
5. Consolidate the Learning.
Each of us in the past year has occasionally wondered, “Will we ever return to life as it was before this pandemic?” The best answer may be: “We should most certainly hope not!”
Covid-19 has disrupted our lives profoundly, but it has also prompted healthy change in the way in which we work and in our general outlook upon the world. This goes far beyond becoming adept at Zoom meetings and includes all the new and different ways we have learned to work together with one another, both within our organizations and across the broader industry. Coupled with this is a deeper appreciation for our business and personal relationships and a keener sense of the fragility of things.
There is value in pondering this and in doing the necessary within our organizations to maintain the momentum over the coming months and years. Institutionalize the learning and make it part of the culture of our firms and the broader culture of the industry.
And in truth, that may be the most important strategic lesson of all. ▪
