Re-evaluating delayed capital projects

Capital projects were among the many aspects of life disrupted by COVID-19. Numerous companies saw their projects delayed, descoped or re-phased. Now many owners are considering restarting or even accelerating those projects–but it would be a mistake to assume that all the pieces are ready to be picked up where they were left off. For a resumed project to be successful, previous plans, safety approaches, supply chains, workforce availability, schedules and benchmarks must be re-evaluated.

As a result of COVID-19, construction industry owners, contractors and suppliers need to address both short-term and long-term business challenges while developing strategies for project execution in the new environment. Communication, collaboration and flexibility are critical for all project stakeholders.

It is best to begin with the basics: does the project still meet the business’s needs, considering that market factors may have shifted? For example, an unintended outcome of the initial wave of COVID-19 manufacturing slowdowns was a significant decrease in overall baseload energy consumption. With such a short-term decrease in commercial power needs, utilities are re-evaluating operating and maintenance cycles for existing facilities. Until the manufacturing sector sees a substantial rebound, expect that power providers will continue to evaluate upcoming maintenance and outage needs in line with current pandemic forecasts.

Fundamental tradeoffs may need to be made between cost and schedule as new goals and timelines are reassessed and negotiated. Make sure the team understands how cost or schedule will be impacted by new safety and COVID procedures. While added safety protocols on active jobsites have certainly slowed the overall pace of work in order to accommodate new social distancing norms, project teams must maintain the perspective that a lack of stringent site safety protocols could lead to far lengthier site closures due to mass infection among craft personnel, or loss of key management assets.

Another aspect of the project that can no longer be taken for granted is the validity of capital costs as they were assessed at project outset. Costs for contractors, labor, materials, critical process equipment, fabrication and more may have changed. Supply chains and lead times for materials and equipment may have also been dramatically affected by the pandemic. Owners and project representatives should communicate with all contractors, suppliers and vendors one-on-one, confirming that they are still available to handle the project and re-examining variables. Identify, for example, scheduling issues such as whether any milestones have been missed. It is also important to assess where contracts and financials stand, including construction work that has been completed and/or paid for. Performing a site assessment is critical for viewing construction status first-hand. Additionally, the team should re-assess where the project stands with permitting.

The pandemic and economic challenges have impacted numerous contractors in different ways. Before restarting a project, owners should review and address the previously selected contractors to verify their financial stability. Changes in the project scope and schedule could impact the proposed project team. As many contractors have downsized, key members of the project team may no longer be available. Craft availability continues to be a critical challenge, as regional labor pools are subject to myriad state and local regulations pertaining to COVID (travel, lodging, etc.), potentially impairing a contractor’s ability to ramp up to meet schedule commitments in a timely manner.

Even once construction has resumed, there will likely be changes to business-as-usual on the jobsite. Experts predict that restrictions will be lifted gradually, probably with inconsistencies between geographic areas and possibly with some new waves of lockdowns and disruptions. To the extent possible, these changes should be enumerated and planned for during the project re-evaluation stage. For example, social distancing, sanitizing, disinfecting,  and cleaning requirements will certainly require new provisions in place for jobsite safety and may reduce jobsite productivity. Safety managers will need to include training and screenings for their safety programs and site-specific plans. Site security measures should be ready to put into place should the site experience another full shutdown. Maintaining flexibility is key; while it is impossible to foresee exactly what will affect the project as time goes on, multiple “if/then” scenarios can be established and accommodated.

New contract terms and conditions, as well as project documentation,  may be required to address COVID-19-related liability. A re-examination of all parties’ insurance policies and coverage is advisable. Additionally, in upcoming months, firms would do well to watch court decisions that are being handed down interpreting a previously little-used contract clause known as force majeure (defined as unforeseeable circumstances that prevent someone from fulfilling a contract). These court decisions will determine the extent to which the pandemic will be considered a force majeure event that mitigates some contractual obligations.

Addressing Project Variables as a Team

Having project stakeholders from all sides work together as a coordinated team was important even before the pandemic, considering the ever-growing complexity of capital projects. Now, COVID-19 has introduced an even greater degree of complexity. While anxieties spurred by the economic and health crises could understandably provoke quick reactions, causing firms to conservatively address risks and protect their own interests, in fact it is more imperative than ever to work as a team, gather as much up-front information as possible and follow through with systematic deployment.

By engaging contractors early in the re-evaluation process, owners can benefit from effective collaboration and analysis. Applying the principles of early contractor involvement, or ECI, contractors and owners can work together during the re-evaluation process to achieve greater certainty in terms of estimation/cost, project planning, safety, communication, constructability and risk management. This approach also reduces errors and changes in latter project phases.

Working together to re-evaluate capital projects is in everyone’s best interest. It offers the best way to minimize fallout from COVID-19 disruptions, getting projects back on track for predictable outcomes.

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Shawn Buchanan has over 20 years of experience in the petrochemical, process and power markets, including multi-million-dollar capital construction, maintenance and turnaround projects. Areas of technology expertise include Primavera, SAP, Hard Dollar, AutoCAD, Bluebeam and InEight. He holds degrees in Construction Management Technology from the University of Houston and Environmental Design from Texas A&M University. e: p: 678.535.5392

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