Weather Delays & Construction Contracts - Are You Prepared?Posted by Todd Taylor, AFSB, CPCU
Did you know that since 1980, there have been 246 weather-related disasters in the U.S. that cost $1 billion or more?
Tropical storms, hurricanes, tornadoes, floods, wildfires and blizzards are striking the U.S. with increasing ferocity and can severely impact construction projects.Think back to 2017, which the National Oceanic and Atmospheric Administration says was the costliest year ever for natural disasters. Over $300 billion in losses! A major reason: the triple pounding of Hurricanes Harvey, Irma and Maria. Sixteen separate events that year cost more than $1 billion each.
Extreme Weather Is Becoming a Way of Life
In my home state of Florida, we’ve had our share of extreme weather. Sometimes the rains never seem to stop. Construction crews arrive each day to flooded work sites. They spend hours pumping out water. I’ve even heard tales of alligators swimming in trench boxes!
Falling behind schedule on a construction project can be costly — for the contractor, the owner and the bondholder. When the rains come, no one should be wondering, “Did the contractor plan for weather delays? Can he get relief under the terms of his contract? What’s the impact on his cash flow?”
|"When Katrina hit NOLA I had a number of bonded contract sites that were impacted. Within a week I was there visiting the jobs sites and my eyes were opened to how prepared a contractor needs to be, especially under the duress after a damaging weather event". -
Rich Sghiatti, RVP - ORSC Southeast region
A co-worker at Old Republic Surety, Rich Sghiatti - RVP, had a real eye-opener when Katrina hit New Orleans in August of 2005. He had several bonded contract sites that were impacted. Imagine your workers are displaced, your trucks are under water, your tools are gone – but you have a job to do. Or –
if you are luckier than most – your job site isn’t impacted with the flooding – but there’s no electricity, no water and transportation is non-existent. Rich cannot emphasize enough the importance of having a response plan in place. At the time of a weather disaster – contractors are under extreme duress and should not be creating their plan on the fly.
Ins & Outs of Weather Delays: Be Prepared and Know the Limitations
Here are seven points that bond producers, underwriters and contractors need to take into consideration to be more prepared for extreme weather events:
- Have a Response Plan. Similar to a disaster recovery plan smart businesses have today, contractors need to have a Response Plan for each and every job site. Information that is essential to include in the plan would be:
- Key employees contact information.
- A list of employees and sub-contractors that includes their contact information (cell number) to reach out to them to determine if they will be able to come to work.
- Insurance carrier contact information and policy numbers.
- Emergency procedures.
- Contact information for equipment companies, suppliers and vendors connected with the job.
- Resources for generators, lighting, fuel and bathroom facilities.
- Resources for temporary housing, transportation, medical triage, security, food and WATER while back on the job. Alternate routes should be scouted out - roads in and out may be compromised. Workers may not be able to easily get to a job site, if at all (they may have had their vehicle damaged or flooded) A make shift temporary housing camp may need to be set up, busing arranged at a pick up point.
- Clean up of debris and disposal would need to be planned.
These are just some of the biggest obstacles, but we can’t put enough emphasis on medical (hospitals and local medical facilities may not be open or available or be able to get to even weeks after a storm comes through), drinking water and food (workers will not be able to “go out to lunch” a make shift tent meal hall would need to be set up and serve your workers), water for the construction site, and security is very important. Remember in areas like this the police are spread thin and not focused on theft. And let’s not forget many of the workers may have their own homes damaged and problems of their own, so work resources become thin.
- Anticipate bad weather days when bidding the contract. Understand the difference between “expected” and “unexpected” weather delays. Remember, time relief will not be granted for expected delays. Even if time delays are granted for unexpected delays, they will not include the added costs of labor, fuel, supplies and equipment rental needed to get the project back on track. Weather risk must be factored in at the outset, especially if the project has a tight timeline or the contractor has no prior experience with the owner.
- No contractor is exempt from delays. Sure, underground and site contractors are the most affected by weather events such as floods and hurricanes. But, on large projects, nearly every contractor can be impacted, depending on the severity of the event. Everyone’s work schedule will be affected, putting pressure on labor and equipment costs. Make sure your contractors aren’t already stretched and have the cash flow to withstand a work stoppage, followed by an acceleration of the work schedule.
- Understand key terms such as “force majeure” and “acts of God.” Force majeure is a French phrase meaning “superior force” that is commonly used in delay clauses. It covers weather events and many other events outside the control of both parties, including labor strikes and nuclear war. Acts of God is a separate legal phrase within the force majeure clause that includes floods, hurricanes, earthquakes, etc. Most clauses only suspend performance for the duration of the force majeure. Check to see what is in your contract and what is covered.
- Know what’s in your contract. Understand the delay provisions in the contract, as well as any general and supplementary conditions. When must the contractor provide notice of delay? When are time extensions allowed? Can there be price increases? For example, extensions are generally allowed for unexpected force majeure events, but not a change in contract price or other remedies.
- Prepare for unexpected weather claims. Even before an event, a contractor can be proactive by making sure all parties fully understand and agree on how a weather delay claim will be handled. Weather data for the site area can be obtained from the National Weather Service when establishing the number of weather delay days or “float” for the job.
- Document everything. Maintaining accurate job site records and updated schedules will be crucial if a claim arises. And, frequent updates to the project schedule can be very helpful in documenting the impact of a weather event on the critical path. Good field records can be used to determine the number of delay days needed to complete the project. Once the recovery schedule is established, the contractor should work to keep the project from delaying any further and provide documentation regularly to the owner.
It was the writer Charles Dudley Warner who first said, “Everybody talks about the weather, but nobody does anything about it.” With extreme weather disasters predicted to increase in severity and cost in the coming decades, responsible contractors and bond producers can’t afford to just talk about the weather. They need to do something about it.
You can’t stop a superior force or an act of God, but you can prepare for one. Make sure you are ready for when the rains come.
This article is for informational purposes only, and not intended to be legal advice. You may wish to seek the advice of counsel, as contractual obligations can vary greatly from state to state or from one contract to the next.
Todd Taylor is a contract surety bond manager with our Orlando Old Republic Surety branch office. He’s worked in the surety industry in the Midwest and Florida over 25 years. He has a bachelor's degree in business finance and CPCU, AFSB designations. He enjoys travel and photography.