The COVID-19 pandemic has increased the risk that design professionals have always faced on their projects due to delays. It has been almost a year since WHO declared the coronavirus outbreak a public health emergency of international concern. The pandemic has threatened supply chains, design professional and contractor safety and governmental agency shutdowns have slowed permit reviews and inspection capabilities. Our planning and response to these issues in the time of COVID-19 now will determine the future course of how we can manage our risk going forward.
We will present some important considerations that design professionals should keep in mind as they manage and evaluate their response to project delays, closures, and design professional availability issues during this pandemic to help minimize these impacts. Design professionals have always had to manage the process of submitting designs to the public agencies for approval of the project. The process is one that requires expertise and an understanding of how the particular planning and permitting departments work. Planning approval involves not just the local planning department, but sometimes, subsequent approvals by the city council when master plans are approved but require changes for approval of the project. Here, delays are not only typical, but expected at this time. The design professional’s job is a careful dance through a myriad of rules, regulations and road blocks. Nowadays, with the pandemic, design professionals are faced with permit reviewers working from home, who have difficulty accessing the drawings for review. We have heard of 13-day delays just from the time drawings are sent to the building department to receipt by the plan reviewer. We may also see decreases in funding for planning and building departments and the increased pressure on local city officials to provide services for essential projects rather than what may be considered non-essential projects. Accordingly, the process for obtaining planning and permitting approvals is becoming more difficult, resulting in delays.
Design professionals that are working for developers, businesses and even homeowners are starting to receive more complaints about these delays. Complaints lead to claims, because to their clients, time is money. When there are delays, then this costs them money, and they often look for someone to blame, even in this unprecedented time where we are all living through the pandemic. Delay claims are often driven by contractor change orders requesting additional costs for extended overhead, increased labor and material costs due to lack of access, labor shortages and inspection delays. The claims for delays are also driven by the owners who have increased financing costs, lost revenue for rents or sales, and lost tax credits for funding certain types of projects. Altogether, the pressure is placed on the design professional to deliver, and design professionals are quickly blamed for any delays by the planning or permitting departments that are out of their control. However, here are some ways to manage this type of risk and avoid claims by owners for delays.
MANAGE CLIENT EXPECTATIONS
One would think that understanding the problem with the pandemic would easily allow design professionals the opportunity to advise and potentially manage the client’s expectations. However, a consistent comment that the owners make in delay cases is that they were surprised by the delay and these additional costs. The surprise is what triggers most owners to have a negative reaction to the process. If the design professional meets with the owner and represents that the process will take only a few weeks or months, then the owner has this expectation set in their mind. The expectation is what will drive a series of decisions and schedules, which for business minded people are the key to a successful project. When moto “time is money” is driving the owners’ schedules, owners will place unrealistic deadlines on design professionals to complete work. Design professionals need to stand up against owners who think Rome could actually be built in a day. All too often, design professionals want to please their client by agreeing to a deadline that is unrealistic. Design professionals have to manage these expectations by presenting realistic timeframes for deliverables and obtaining approvals. The design professional’s role as an advisor in the process requires this and if the design professional agrees with unrealistic timeframes, then the design professional becomes the target when things go wrong.
Design professionals know that planning and permitting departments do not always review and approve at the same speed. Anecdotally, a building department in a major city in California had only two permit reviewers working from home on projects. Understanding and communicating the status of permitting agencies in your local jurisdiction to the owner will help to set their expectations on when their projects will be approved. This is where the design professional once again can manage the owners’ expectations by explaining the process, how approvals fit in the schedule and the very real possibility that it is not going to get approved the first time which will make the process even longer. By managing these expectations, realistic schedules can be set, and your relationship with your clients will start to matter
USE DOCUMENTATION TO PRESERVE THE RECORD
Everyone will remember this pandemic, and disasters have a way of focusing attention on the problem. When there are delays due to the pandemic, most owners will be understanding. However, as time passes and a new normal emerges, we may find that owners will forget what was said or will recall something that was said at a time before there were changed circumstances. The defense of these claims is dependent on good documentation. The lack of documentation is often what drives the claim in to a spiral downward. Documentation after the delay is suspect and unreliable. Contemporaneous documentation before the delay is what will set the record straight. The first contact with the client often involves the submission of a proposal. The proposal will often times contain a schedule for completion of the services. The proposal is where expectations are set and where, if the schedules in the proposal are not met due to delays, the owners could try and use this against the design professional in a future contract dispute. TBA is a great place holder, but at some point, it has to be determined what that means. Document the agreed upon and realistic schedule for services and build into it a realistic timeframe for approvals in light of the current pandemic.
During this time of projects are moving forward, the design professional should create documentation for the file in the form of emails with updates on timing and memorializing conversations with the owner in meeting minutes. When something goes wrong or there is a delay in the planning and permitting departments, design professionals need to provide an update to the owners in writing.
Another useful method to manage planning and permitting delays in this time of COVID-19 is to include clauses in the contract that set expectations for the owner. For example, the Standard of Care clause is a reminder to the owner that the design professional is providing services in a manner that is usual and customary for professionals practicing in the same jurisdiction and under the same circumstances. Owners need to be aware that the way planning and permitting works in Ohio may not be the same as they do in California. This clause sets the tone that the services are provided under local constraints and conditions. Contract clauses that confirm the owner and design professional understand and agree that the design process is not a perfect process and that interpretations of code by local jurisdictions could cause the designs to be rejected are also helpful in this situation.
Subject to the advice of counsel, you might also want to consider proposing a Force Majeure clause to establish a joint understanding. A Force Majeure clause does not exist in the standard AIA language in a B101 or C101 agreement. A Force Majeure clause is meant to address what happens when an unforeseeable event occurs that neither party controls. An example of a Force Majeure clause reads as follows:
“Each Party shall be excused from the performance of its obligations under this Agreement to the extent that such performance is prevented by force majeure (defined below) and the nonperforming Party promptly provides notice of such prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues. The Party affected by such force majeure also shall notify the other Party of the anticipated duration of such force majeure, any actions being taken to avoid or minimize its effect after such occurrence and shall take reasonable efforts to remove the condition constituting such force majeure. For purposes of this Agreement, “force majeure” shall include conditions beyond the control of the Parties, including an act of God, acts of terrorism, voluntary or involuntary compliance with any regulation, law or order of any government, war, acts of war (whether war be declared or not), labor strike or lock-out, civil commotion, epidemic, pandemic, closing or reduction of force by governmental permit reviewing entities, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe.
In addition, if the delays resulting from any such causes increase the cost or time required by the [Design Professional] to perform its services in an orderly and efficient manner, the [Design Professional] shall be entitled to a reasonable adjustment in schedule and compensation.” [Emphasis Added]
Design professionals are receiving contractual amendments to reimburse the contractor for all cleaning costs and delays if the jobsite needs to be closed due to a positive case from the design professional. These amendments should be rejected due to numerous concerns, including the fact that overall site safety is not the responsibility of the design professional, and it is virtually impossible to prove a person was the cause.
Finally, exculpatory clauses such as a waiver of consequential damages could at least limit the liability associated with any unexpected delays due to the pandemic. Typical damage claims for delay involve mostly consequential damages, such as loss of use, lost of profits, loss of income, loss of reputation, unrealized savings or diminution of property value. A waiver of consequential damages could significantly reduce any delay claim against the design professional and focus the owner on direct costs, if any.
During these difficult times, help your client understand the potential for planning and permitting delays by managing their expectations and allow them the opportunity to plan accordingly. Memorializing these understandings will keep everyone in check. Incorporate these concepts into your contract. The solution to the problem of managing planning and permitting delays in the time of COVID-19 is not simple. It is fluid and requires thoughtfulness and always keep in mind that clients do not like surprises.