Hurricane Sandy caused immense devastation along the East Coast. To our readers, clients, friends and families who may have suffered losses we extend our heartfelt sympathies. Our prayers are with you as you face the challenges of rebuilding your lives and your communities. To all those involved in the construction industry, natural disasters present many unique challenges, whether you are working on a project in an affected area or whether you are headed to the affected area to assist with the clean-up and rebuilding effort. While certainly not an exhaustive list, following are some steps you should take and issues you should keep in mind as the massive recovery and restoration effort continues.
- Assess all possible insurance coverages. As a threshold matter, you must timely notify your carrier of any loss. Immediately request copies of insurance policies from your carrier if your policies have been lost or destroyed in the storm. Thoroughly read and analyze all applicable insurance policies from beginning to end to get an understanding of all coverages and exclusions. Determine whether your commercial policies provide coverage for lost revenue or profits due to interruption of normal business activity. Maintain accurate records of all property that was lost or damaged in the storm and take steps to preserve and protect the project and property from any further loss.
- Assess the cause of the loss because causation is usually the key to insurance coverage. If there is more than one cause of the loss (for example, some combination of wind, rain, wind-driven rain, storm surge, flooding, ineffective water barriers, freezing, or negligent construction, etc.), then look to see whether your insurance policy contains an anti-concurrent cause provision. Assess whether each individual cause results in a covered or an excluded loss. Where a loss is caused by a combination of covered and excluded losses, an anti-concurrent cause provision may operate to deny coverage.
- Consider whether the project owner is responsible for the loss. In some cases contractors have been successful in avoiding responsibility for damages following a natural disaster where the damage was caused by design flaws in the drawings and specifications furnished to the contractor. For example, in an Armed Services Board of Contract Appeals case, the Board found that a contractor could recover damages related to a wall that collapsed during unusually heavy winds if the contractor showed that the collapse was due to a defect in the government-furnished drawings.
- Determine whether the storm caused the release of hazardous materials or led to mold contamination. Contamination of the project site by hazardous materials may create claims. Rainwater intrusion and flooding may lead to mold growth and also create claims. Determine what steps are necessary to prevent, contain and abate the contamination as well as protect against personal injury. Review your contract to determine who bears the risk for such contamination and review your insurance policies to determine whether there is coverage for the cost of clean-up and remediation.
- Don’t rely on a devastating storm to absolve you of duties imposed by contract. Generally, courts are extremely hesitant to allow the disruption caused by a hurricane to excuse the non-performance of a contractual obligation. One exception may be if performance is rendered impossible as opposed to being more difficult, more burdensome, or merely uneconomical. In some instances, impossibility of performance or commercial impracticability may justify an equitable adjustment under the contract’s changes clause or serve as a defense of a default termination or avoidance of damages assessed for delayed performance. If delays are due to causes that are beyond the contractor’s control, such as a hurricane, the delay may be excusable thus precluding the assessment of liquidated damages.
- Consider whether supply-chain disruptions have impacted your work on current ongoing construction projects. Will a delay in the delivery of specified major equipment require consideration of substitutions or redesign of the project? Will increased competition for labor, or a scarcity of labor caused by evacuations, cause an unanticipated spike in labor costs? Will disruptions to transportation cause an increase in the price of concrete, as it did following Hurricane Katrina? Who bears the risk of any additional costs involved? How does the contract allocate the risk of significant storm-related delay and cost impacts? Does the contract contain an Economic Price Adjustment Clause for Labor and Materials? When there is a storm-related jump in the price of gas, it is not unusual to also see an impact in the price of petroleum-based products including asphalt, roofing materials, plastic pipe and insulation. In a recent Arizona case, a contractor recovered delay damages on a public project based in part on Hurricane Katrina’s impact on the price of asphalt, a petroleum-based product. The contractor submitted a delay claim because the public owner issued the notice to proceed four months late. The court found that the additional cost of the asphalt was recoverable under the contract’s delay damages clause.
- Ensure that you have required licenses in place. If you travel to another state to perform construction or hurricane clean-up work, make sure that you have a thorough understanding of the host state’s licensing laws. There may be severe consequences if you perform work without being properly licensed. You may find, for example, that you have no right to file a lien or bond claim if you are not paid for labor, services or materials that you provide. You may also find that you have violated the host state’s consumer protection laws and as a result have become exposed to treble damages and the payment of a complaining party’s attorney’s fees.
- Consider whether the contractor adequately secured the project site. For example, are there local crane ordinances in effect which require that crane operators comply with hurricane and high winds preparedness standards? Were the standards met? What if the contract contains a “storm protection” provision assigning hurricane protection to the contractor? In one case, a contractor was found responsible for the cost of government-ordered preparations for Hurricane Hugo because the contract contained a storm protection provision which required the contractor to take such precautions if directed to do so by the contracting officer.
- Ensure that you have the appropriate building permits in place. Is there significant damage to an existing building that was constructed under earlier and now outdated code requirements? If a major rebuilding effort is required, will a major overhaul of the building be required in order to comply with the current building code?
- Ensure that environmental permits are in place. For example, if construction activities are required for response to a pubic emergency, such as a hurricane, determine which permitting agency governs stormwater and non-stormwater construction related discharges to public waters from the construction site. Determine when a stormwater pollution prevention plan (SWPPP) must be submitted. Note that where there is no delegated state permitting agency, the U.S. Environmental Protection Agency’s (EPA) 2012 Construction General Permit (CGP) provides immediate authorization for construction activities required for response to public emergencies, but requires submission of a notice of intent (NOI) within 30 days after commencing earth-disturbing activities and requires documentation in the SWPPP to substantiate the occurrence of the public emergency. The NOI certifies to the EPA that you are eligible to be covered under the CGP and it provides information on your construction operation and discharge.
- Public Assistance for debris removal may be available through the Federal Emergency Management Agency. Following a disaster declaration by the President and a designation for Public Assistance grant funding by FEMA, assistance for response and recovery operations is made available to eligible applicants. Four types of entities are eligible applicants: State governments; local governments; Indian Tribes or authorized Tribal organizations and Alaskan Native Villages; and Private Nonprofit Facility (PNP) organizations. Debris removal and monitoring contracts must meet certain rules for Federal grants in order to be eligible for reimbursement under the Public Assistance Program. To be eligible for Federal funding, applicants must comply with federal procurement standards. The applicant’s procurement process for debris removal and monitoring contracts must include: (1) competition, (2) a clear and definitive scope of work, (3) qualified bidders documented by licenses, financial records, proof of insurance, and bonding, (4) a cost analysis to demonstrate cost reasonableness, (5) compliance with all relevant local, State, and Federal requirements, laws and policies, and (6) clear documentation of the process/rationale followed in making procurement decisions. Applicants must also take steps to ensure there are opportunities to award contracts to minority, women-owned, and Labor Surplus Area businesses and firms whenever possible. (Labor Surplus Areas are government-designated towns and counties that have experienced severe unemployment.) This includes contracts with local organizations, firms, and individuals that support response and recovery activities in a declared major disaster or emergency area. Note that federal regulations do provide for procurement by noncompetitive proposals under certain limited circumstances. Applicants and contractors should also be aware that procurement policies must include procedures to handle protests and disputes related to contracts awarded. If a contractor believes that it has a basis to challenge an applicant’s procurement process, the contractor must act immediately to initiate a formal protest or risk losing its right to complain.
Source: Construction Connection