With the 2019 Atlantic hurricane season upon us, construction industry players must take steps to mitigate risk in the event of a storm. Now is the best time to make sure your business is ready to address any challenges the season may bring.
The AIA-A201 requires that contractors take reasonable precautions to prevent damage, injury, or loss to work, materials and equipment. It also requires contractors to comply with laws and ordinances concerning safety.
When hurricanes threaten, equipment must be secured and materials should be removed from the project site whenever possible. The costs of demobilization and remobilizing can be significant. Moreover, progress along the critical path may cease temporarily.
Although the AIA-A201 doesn’t expressly state that the owner is responsible for these costs and delay, it provides a mechanism whereby the contractor can obtain a change order increasing the Guaranteed Maximum Price or Stipulated Sum and the Contract Time. Similarly, if the contractor fails to take reasonable precautions to prevent damage, the owner can hold the contractor responsible for damages that it suffers, regardless of whether such damages are covered by insurance.
This bulletin provides guidance for owners, contractors, and subcontractors preparing for significant weather events. It assumes that the Prime Contract includes an unmodified version of the AIA-A201-2007 General Conditions. The considerations below do not apply to every situation.
In its unmodified form, the AIA-A201 gives the contractor strong incentives to take every reasonable step to remove materials and equipment to secure the project site. There is no downside for the contractor, since the owner is responsible for all costs and delay. Plus, sparing no expense protects the contractor from a claim by the owner that it failed to take sufficient steps reasonably required to prevent damage.
However, it may not always be in the owner’s best interest for the contractor to go overboard with removing materials and equipment from the project site. Pursuant to § 11.3, the owner is required to maintain property insurance on an “all-risk” policy form. In theory, these policies protect owners from damage to the project associated with the contractor’s failure to secure the site. Moreover, “all-risk” insurance policies reimburse the owner for the costs of mitigation if a loss occurs. Thus, in the event that contractor does a poor job securing the site and the owner incurs damages, it can actually benefit the owner.
Accordingly, because the owner bears all of the costs, but shares the risk of loss with its all-risk insurer, it may make sense for the owner to provide guidelines to the contractor concerning what steps the owner believes are reasonably necessary under the circumstances.
The owner should prepare for the possibility of an insurance claim by thoroughly documenting the status of the project, preferably through video and photographs, so that the status of project completion is not subject to dispute.
If a loss is incurred due to the contractor’s failure to take reasonable steps to secure the project, it is important for the owner to remember that it has 21 days from the date of the loss to make a claim against the contractor by giving written notice of the claim to the contractor and the Initial Decision Maker.
Although the A201 gives contractors the right to act in their discretion and protect the project site without obtaining preapproval for costs from the owner and architect, every effort should be made to coordinate with and keep the owner apprised of the costs associated with hurricane preparation efforts. By reaching an agreement with the owner concerning the reasonableness of preparation efforts, claims can be avoided.
Subcontractors should be made aware that you expect them to submit change orders for additional compensation based upon the additional work required to secure the project site. It is human nature to work harder and to do a better job when we are being compensated for our efforts. They should also be encouraged to keep contemporaneous records of the time spent, since the contractor may need the subcontractor’s records in order to support its claim.
Both the extent of preparations and the status of the work should be thoroughly documented via video and photographs. Start by documenting the status of the work, as well as the equipment and materials on-site before hurricane preparations begin. Once preparations are complete, document the changes. This will help demonstrate the extent of your efforts to prepare the site for the storm, which helps to show the value of your claim and the reasonableness of your efforts. Documenting the status of the work will also help establish what you are owed for work performed prior to any losses. It will also help the owner with any insurance claims.
If no agreement can be reached with the owner, written claims for the costs of hurricane preparation and additional time to reach substantial completion must be submitted to the owner and Initial Decision Maker within 21 days of the start of hurricane preparations. If a claim is not timely submitted, it may be deemed waived. This is particularly important for claims seeking additional time. They are often overlooked. A contractor cannot wait until the end of the project and explain that it is late because of a storm. It must make the claim up front.
Although few contractors use unmodified versions of AIA-A401, many incorporate the Prime Contract into the Subcontract, thereby incorporating the A201 General Conditions. Most subcontract agreements require the subcontractor to assume all duties to the contractor that the contractor has assumed to the owner. Thus, subcontractors are required to secure the project site on behalf of the contractor. To the extent possible, all instructions received from the contractor concerning project site security should be followed. If it isn’t possible to follow the contractor’s instructions, the reasons why it is not possible should be documented and the contractor should be informed so that it has the opportunity to try to supplement your forces.
Both the extent of preparations and the status of the work should be thoroughly documented via video and photographs. Start by documenting the status of the work, as well as the equipment and materials on-site before hurricane preparations begin. Once preparations are complete, document the changes. This will help demonstrate the extent of your efforts to prepare the site for the storm, which helps to show the value of your claim and the reasonableness of your efforts. Documenting that status of the work will also help establish what you are owed for work performed prior to any losses. It will also help the contractor and owner with any insurance claims.
All costs associated with securing the site should be documented and a claim should be submitted to the contractor immediately after your work to secure the site is complete. Subcontract agreements generally have very short claims periods. You do not want to forfeit your claim by failing to submit it in a timely manner.