Many states are finally giving contractors the green light to go back to work. However, the jobsite during COVID-19 looks significantly different from the ones we last saw, just a few short months ago. Whether you’re a small specialty subcontractor or a national general contractor, the protocols extend to almost every construction project in progress, or about to start, across the country. While most contractors have been busy focusing on jobsite implementation of the new protocols, many have yet to realize how a lack of compliance can impact projects and cause significant payment delays.
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Construction Jobsites Require COVID-19 Compliance
Construction workers are among the highest risk groups for contracting coronavirus. 55 workers tested positive on a Texas A&M construction project. A hotel project near Google’s HQ in California was shut down after workers contracted the disease.
As a result of the increased risk, many states have issued new requirements for COVID-19 compliance that are specific to construction sites. Projects here in Washington state were allowed to reopen on May 5, 2020. All jobsites (except residential projects with less than six workers on-site) must meet the new Phase I COVID-19 construction guidelines for the safety of returning construction workers.
Some of these guidelines are not necessarily new, but simply reminders of existing requirements to keep workers safe and healthy. For example, the Occupational Safety and Health Act requires all employers to provide “a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.”
OSHA has published guidance on COVID-19 compliance specific to construction, which contains “recommendations as well as descriptions of mandatory safety and health standards.”
Most states use OSHA’s recommendations to craft similar guidelines, requiring measures such as:
- Personal Protective Equipement (PPE), such as face mask and gloves, required at all times on the project.
- Temperature checks before entering the site.
- Cleaning and disinfecting supplies readily available.
- Worker/visitor name and contact info collected daily.
- Maintaining social distancing among workers.
Penalties for non-compliance with OSHA regulations can be steep, from $5,000 up to $70,000.
Whoever administers the new guidelines on your project must be willing to enforce the latest safety standards, regardless of their personal or political opinions about the pandemic and the resulting global fallout.
Anything less than full compliance leaves your business at risk on many levels.
Impact of Non-Compliance on Construction Projects
But all the criteria and best practices in the world are worthless if jobsite enforcement is lacking. The problem is that one contractor’s non-compliance can have unintended consequences for another construction business, even if they are in full accordance with the new guidelines and procedures.
Since a potential exposure requires that the worker self-quarantine for 14 days before returning to work again. The worker’s vehicle and home (as well as the other people living there) are also at risk from COVID exposure.
No matter whose fault it is, failure to follow COVID-19 compliance guidelines can delay payments for everyone on a construction project. Non-compliance can get a project closed down for a 14-day quarantine period or longer, depending on your state’s penalties.
And that project shut down will minimize the amount of your monthly progress billing for that project. Not only that, it can put all progress payments on hold until the job reopens. The failure of any party to comply with regulations can dramatically impact your own company’s cash flow and bottom line.
The impacts of non-compliance can extend well beyond a single project. If your construction project is shut down because another contractor on the jobsite tests positive, you can quickly find yourself short-staffed.
Many states require automatic quarantine for anyone in proximity to someone who tests positive for coronavirus. A mandatory quarantine on one job can impact other project schedules, and delay payments across the board.
A job can get shut down in an instant for non-compliance issues, or if someone shows any COVID symptoms on the project that day. Another shutdown means no work for available workers or possibly no workers for compliant and available job sites.
State agencies responsible for worker safety can impose fines against the non-compliant contractor or project owner. These fines can be steep. OSHA penalties range from $5,000 up to $70,000 per violation. Here in Washington, the Phase I guidelines allow for a penalty of $25,000 per non-compliance occurrence.
Potential late fees on business accounts
When non-compliance delays your payment, it also increases your carrying cost. A mandatory two-week shutdown means that the payment clock of your supplier and other accounts continues to tick away as your progress billing and account receivables continue to shrink.
Contractor cash flows adversely affected
The construction payment process is already far from efficient, as reported in the 2020 National Construction Payment Report. The costs of compliance and non-compliance will severely impact your cash flow and bottom line for the foreseeable future.
COVID-19 Compliance Protects Construction Payments
To further demonstrate how these new protocols can affect your construction payments, I will share three different jobsite experiences I have personally had over the last month, here in Washington.
All of these projects are tenant improvement projects in existing office buildings with the common public areas, restrooms, elevators, and lobby, and open corridors to access the work area.
The Good: Perfect compliance leads to on-time payment
The Kent job met the criteria for an essential project during the shutdown. The emergency construction guidelines only required social distancing and frequent cleaning/disinfecting of common areas such as restrooms. Maintaining a readily available stock of the supplies was also a requirement.
The on-site super went above and beyond to meet essential project requirements. Almost hourly, the super made the rounds of wiping down all the door handles, light switches, the sign-in, and info table. Then at least twice a day, he would clean the restrooms, empty the paper towel trash, and then mop the ceramic tile floor. Every morning, as workers were signing in, he would remind us about staying six feet apart while working and taking breaks.
By following the rules, we all had a safe jobsite to work on, exposure risks kept to a minimum, and the project finished in a timely fashion. The only time that was lost was about a week to get the paperwork submitted and approved as an essential project.
As I finished the project, I thanked him for being so diligent about the new rules and looking out for everyone on the project. He responded that he was doing whatever was necessary to finish the work and move on to the next project.
The result – is a project finished on (a slightly modified) schedule, no confirmed exposure/risk to any workers, and minimal additional costs for the GC— there is virtually no potential risk of getting paid late.
The Bad: Sick worker delays project
I got scheduled to start a South Seattle job about three weeks ago, on a Thursday morning. The afternoon before, as I was loading my truck with the materials for the job, I got a text message. The superintendent was letting me know that one of the project laborers went home sick after lunch that day. The guy had a fever and was vomiting.
Per the current guidelines, everyone who had any potential risk of exposure must self-quarantine. That group included the GC super, a GC carpenter, and the laborer.
The laborer in question did test positive a few days later, but the other two went into self-quarantine (statewide testing options still aren’t readily available), and monitored themselves for the tell-tale symptoms. At the end of 14 symptom-free days, the project reopened.
As a result, the project was slightly behind schedule due to the 14-day shutdown. The GC plans to get back on track by scheduling remaining work in shifts. This project is now 80% complete, and all of the construction payments got paid on time.
By following the guidelines, even when there was a risk of exposure, worker safety was maximized by using face masks and gloves and maintaining proper social distancing. Compliance with the COVID-19 guidelines kept the construction schedule impact to a minimum.
The Ugly: Careless supervisor puts project & payments in jeopardy
The Factoria job is where everything went sideways. The GC project manager is a member of “the media is blowing this whole thing out of proportion” camp. He is not thrilled “with all of this stupid new paperwork” that he has to complete.
On my first day on the project, a Monday, coronavirus came up in conversation. It became apparent to me that I would need to be proactive for my safety.
“All these masks and gloves are a complete waste of time and money!” he said.
“Aw, come on, man, it’s all about the greater good,” I replied. “You know, the strategy is to flatten the curve. Less exposure means fewer people can catch it, then take it home or to the workplace.”
“I’ve seen all the news about it,” he complained. “It’s only a problem for people who already have health problems or old people! We got neither at my house, so why am I forced to stay at home?”
I finished grabbing my tools out of my truck. “No ‘old people’ at your house, huh? Well, what about the ‘old people’ on your jobsite, like me?”
The PM wasn’t on the job the Tuesday after Memorial Day. After I got home that afternoon, the PM called and checked in with me. He explained that his wife had to go to urgent care for severe allergies.
Once the doctor saw her symptoms, he ordered her to take the COVID test and for the family to start self-quarantine until the test results came back. The PM had moved materials in the freight elevator with me the Friday before.
His minimal compliance and the “not my problem” mentality has now impacted me, as I was forced to go into quarantine, too.
Eventually, her test came back negative, which meant I could go back to work again. But I was unable to be on any jobsite for eight days. Not only did I lose wages, my employer was unable to bill for the projects I would have been on during that time. My employer is now trying to play catch-up on several other projects.
It’s all because someone thought the guidelines were “no big deal; it’s all a propaganda stunt for some politicians.”
Compliance Supports Positive Cash Flow
When guidelines get correctly followed, no matter what your personal opinions may be around COVID, construction work can continue safely with minimal risk to workers. Performing work means progress billing amounts increase, resulting in higher receivables for the company. In other words, your cash flow will start to flow again.
Less than full compliance puts workers at a higher risk and increases the project’s potential to be shut down. A two-week shutdown will eliminate one-half of your progress billing for the month on the project. If a few of your projects got shut down again, what would that do to your cash flow today?
Granted, you can always bill for work at the end of the next month, but the issue of less than full compliance has delayed another construction payment for your company.
Create a COVID-19 Compliance Plan to Protect Your Construction Payments
Many construction companies are implementing their own “COVID-19 Compliance & Safety Plan” as workers return to the jobsite. The CDC released guidelines for employers to create a COVID-19 response plan. The AGC has created a Sample Plan for COVID-19: Exposure Prevention, Preparedness, and Response that you can easily modify/update for your specific trade.
There are several steps you can take right now to protect your receivables, as everyone gets on board with the new way of taking care of business.
- Use preliminary notices to protect your construction payments.
- Comply with the COVID-19 construction guidelines on every job.
- Train your employees as to what COVID compliance means and what it should look like on a project.
- Instruct your workers NOT to stay on jobsites that are not compliant. It isn’t worth the risk to them or their families.
- File a mechanics lien or bond claim on any project shut down due to COVID, on which you haven’t received payment yet. You can always release the lien or claim after your invoice gets paid.
If a job goes sideways now, your workers and their families, construction payments, and cash flow are as safe as possible.