Failing to Distance Socially Can Cost You $100,000+ (Seriously)

Leonard KlingenCovid-19 Coronavirus, Government Orders

Corona Lockdowns

MUNICIPALITIES ENFORCING CDC DISTANCING RECOMMENDATIONS

Miami-Dade County’s Emergency Order 13-20 requires all open businesses to take reasonable measures to ensure that appropriate social distancing is maintained.  This includes floor markings at six foot intervals and other visible means to allow people to maintain proper distancing.

That precaution will work in an existing building, but one of the characteristics of a building under construction is that it changes every day.  Floor marking just isn’t possible, but other safety measures are. These include attending morning meetings no more than 10 at a time and holding them outdoors, not sharing tools among workers, asking workers to leave their boots at the site, and staggering shifts where two trades are working in the same close areas.  Most importantly, construction employees are required to make reasonable efforts to keep six feet apart, a distance almost anyone in the industry can accurately estimate without floor markings or a tape measure.

The Miami-Dade Police Department will be monitoring open businesses, including restaurant pick-up windows, gas stations and construction sites, and will be shutting down those that are not enforcing distancing requirements.

CONTRACTORS COMMITTING TO COMPLIANCE

On March 23, the South Florida AGC issued a Joint Construction Industry Commitment, signed by 30 leading contractors and developers, pledging to enforce a comprehensive set of regulations designed to meet and exceed local compliance requirements.  Click here. The City of Coral Gables has reproduced this set of regulations almost verbatim and turned it into its own set of “COVID 19 – Construction Job Sites Mandatory Compliance Guidelines,” which opens with the admonition that “Jobsites not adhering to the guidelines below will be shut down until further notice.”  Click here.

WHAT COULD GO WRONG?

Construction of a residential high-rise is nearing the point of dry-in, there are framers, electricians, plumbers and HVAC workers all over the building, and the job is just barely on schedule.  The project is worth about $35 million and there are heavy liquidated damages that flow down to the subcontractors. Local authorities inspect the project.  They find five workers in a corner enjoying a friendly and sociable lunch break and none of them is more than two or three feet apart. The local authorities shut down the project immediately and send home all the workers.  All jobsite activities come to a complete halt and only a skeleton crew remains to clean up and secure the site.

So what happens next?  That depends on several factors, including the basis of the compliance failure, who the offending party was, and on the availability of yet-to-be-defined remedies.

As stated in the Coral Gables Mandatory Compliance Guidelines, non-compliance can be found if the general contractor has failed to provide adequate hand washing stations, or has failed to practice or enforce distancing requirements, or if a subcontractor’s crew has failed to maintain the requisite distancing, or for a number of other reasons.

There are three scenarios:  subcontractor-caused lockdown, GC-caused lockdown, and owner mandated lockdown.

Scenario A: Subcontractor not complying

Six feet apart is a long way, and each worker will require about 113 square feet (a circle with a 6’ radius) to maintain that distance from fellow workers.  If a group of workers is found together in a 100 s.f. corner during lunch break, or even to examine a possible conflict between HVAC and plumbing lines, a lockdown is likely.  The project will be closed in its entirety, even if the non-compliant conduct was caused by a subcontractor. Such a project-wide lockdown requires extreme vigilance by the subcontractors and the general contractor, an almost impossible job on a high-rise.

Subcontract clauses

The AIA and ConsensusDocs subcontracts, as well as the numerous subcontracts written by our region’s general contractors, make it clear that the subcontractor whose actions caused the shutdown will be responsible for the enormous costs of such an action.

Requirement to obey safety regulations

In the AIA A401 Subcontract, the Subcontractor is required to comply with “orders of public authorities bearing on performance of the Work of this Subcontract, and “shall take reasonable safety precautions with respect to performance of this Subcontract, shall comply with safety measures initiated by the Contractor and with applicable laws, ordinances, rules, regulations and orders of public authorities for the safety of persons and property in accordance with the requirements of the Prime Contract.”

Similarly, the ConsensusDocs 750 subcontract requires a subcontractor to implement safety measures conforming to “those required or recommended by governmental and quasi‐governmental authorities having jurisdiction and by the Constructor and the Owner,” and “shall stop any part of the Subcontract Work which the Constructor deems unsafe until corrective measures” have been implemented.  Additionally, ConsensusDocs 750 explicitly holds the Subcontractor “liable to the Constructor and the Owner for all loss, cost, and expense attributable to any acts or omissions by the Subcontractor, its employees, and agents resulting from the failure to comply with Laws, including, any fines, penalties, or corrective measures.”

Several GC-written subcontracts have borrowed heavily from the ConsensusDocs 750 safety language, but many simply require the existence of a safety plan and repayment of OSHA fines.

Delay clauses

If a subcontract does not expressly provide for the recovery of costs caused by a subcontractor safety violation, such relief can be found in the delay or default articles of the contract.  Subcontracts almost unanimously consider a subcontractor-caused delay to be a default, and most default clauses hold the subcontractor liable for all costs needed to complete the Work, as well as delay and other consequential damages which result from the default plus attorneys’ fees and other legal fees and costs.  Although default provisions generally provide for a cure period, allowing the subcontractor to correct the default within a certain period of time or face termination, a lockdown will prevent the offending subcontractor from accessing the site to cure its default, and termination is almost inevitable.

Indemnification clauses

Indemnification clauses require the subcontractor to defend, indemnify and save harmless the contractor, as well as the owner, the architect and possibly others, from any claim attributable to bodily injury, sickness, disease, or death, or to damage to or destruction of property other than the work itself, in any way caused by the subcontractor.  Although a lockdown might not be directly attributable to sickness or disease, the offending subcontractor should expect to have the GC and all other subcontractors try to hold it accountable for any future infection in any of their employees.

The enormous cost of non-compliance

Damages for which a subcontractor could find itself liable include extended GC overhead costs, cost of the GC’s skeleton crew, the cost of ongoing rentals, costs of non-cancellable orders, government-imposed fines, and liquidated damages.  These costs alone can run to tens of thousands of dollars a day, on top of which the offending subcontractor may face lawsuits from the other thirty or forty subcontractors whose livelihood has been affected by the shutdown. Such numbers will quickly exceed a company’s ability to pay, and it would be best to review the CGL policy as soon as possible.

Insurance coverage for the cost?

The Insurance Information Institute notes that a standard CGL policy includes “disease” under its definition of “bodily injury.”  Absent any coverages-altering endorsements, an insured is probably covered if it accidentally helps to spread a disease. Watch for mold and pollution exclusions that may preclude coverage.  In one such exclusion precluding coverage for microbes in or on the building (think Legionnaires disease), there is an exception for microbes that were transmitted directly from person to person, which is believed to be the most common method of COVID-19 transmission.

Whether a CGL policy covers the costs of an insured’s negligent conduct that caused the project to be locked down is an open question at this time, and relief from an insurance carrier would be many months away

Remedies

Despite the huge impact that a job lockdown would have on the owner, the contractor and its subcontractors, there are no published measures in place for re-opening a project once compliance is re-established.  The Coral Gables regulations that state a jobsite will be closed “until further notice” runs the risk of being unconstitutionally vague and of being a punishment that is disproportionate to the “crime.” The same holds true for project lockdowns in Miami-Dade County, where enforcement is based solely on the social distancing requirement in Emergency Order 13-20.  Can a site be locked down if workers are too close together on their way into the jobsite? How many non-compliant workers are needed to shut down a whole job? How long must the workers be violating the distancing requirements to be deemed non-compliant: thirty seconds? one minute? five minutes? The regulations as written leave arguably too much discretion in the hands of the enforcing authorities, but such arguments can be avoided entirely by strictly enforcing the regulations recommended by the Joint Construction Industry Commitment mentioned above.

We are seeing every day that mitigation of the pandemic’s effects requires fast and decisive action that is often ad hoc and less than fully thought out, and it is likely that many of the emergency orders would not stand legal scrutiny.  However, their implementation has been deemed essential by sincere and hard-working officials faced with something utterly novel and unprecedented and, in the case of construction sites, work has been allowed to continue relatively unabated.  That said, owners and contractors affected by an imposed lockdown should be lobbying their local officials with a proposed set of guidelines to permit re-opening locked down jobsites, perhaps as follows:

The contractor, if it hasn’t already done so, prepares a detailed set of protocols for COVID-19 mitigation, that includes consequences for employees’ and subcontractors’ non-compliance, and has all employees and subcontractors sign off on it;

The offending subcontractor prepares a detailed set of protocols for COVID-19 mitigation, that includes consequences for non-compliance, and has all employees sign off on it.

Contractor deep cleans, in accordance with CDC requirements, the area or areas where the non-compliance took place.

The contractor agrees to permit more frequent site inspections for a period of [xx] weeks to verify compliance.

As long as the municipal authorities allow construction to continue, a contractor and its subcontractors ought not to be punished “until further notice” by the actions of a handful of non-compliant workers.