The inspection process might not be the first thing you think of when you consider how the Coronavirus shutdown affects construction. It’s more likely that you’ve considered man-power issues, supply chain problems, and general cash flow challenges. If you consider that many government agencies and offices are either closed or limiting their services throughout the pandemic, you’ll realize that a delay at the point of inspection could be a reality for your job. If no building inspectors are working, no projects are being inspected. Here are some steps you can take now to get paid if your inspection is delayed.
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COVID-19 is delaying inspections – even when construction is allowed
Even in areas where construction has been deemed essential and allowed to continue, one of the major hurdles can be getting completed work inspected. As you know, inspections occur at various points of a project, whether it be between phases or at the point of substantial completion. A building inspector needs to arrive on-site and certify that the work being completed meets the standards and codes required.
The inspection doesn’t even have to pertain to your company’s work. Another sub on the job might require approval before you can begin your portion of the project. If they’re unable to complete their stage, you could be sitting on an expensive pile of materials, waiting to get started.
Retainage money can be tied up in projects awaiting substantial completion sign-off as well. While this is a similar issue to the one we just mentioned, it might be even more frustrating, as it pertains to a project that you’ve seen to completion and expected to be paid for. No one likes having retainage withheld, and at 5% to 10% of the contract’s value, your company will need that money to survive the pandemic-spurred recession.
That retainage might make up your entire profit margin on a job. Waiting for a building inspector to sign off on a Certificate of Occupancy in order to get paid could be downright painful for your bottom line.
How inspection delays can affect your construction business
While coronavirus continues to cause issues across all industries, this particular situation boils down to a problem of payment. An owner or GC may not feel inclined to pay you for all of your work if an inspection has not been performed and a CO hasn’t been issued.
Also, these same parties may feel that since they’re withholding this money from you, they can exert leverage over you to complete work that wasn’t in the contract.
While you’re waiting for an inspection, the GC uses your progress payment or retainage as the carrot on a stick. This can crush your cashflow and cause your company to doggy-paddle through the recession, hoping to keep its head above water.
Check your contract delay provisions
It’s not all doom and gloom, however. If you’re concerned that the timeframe in your contract will run out before the project is completed due to inspection delays, or most other COVID-19 related delays, you’re more than likely protected by your contract.
AIA contract delay clause
While the AIA doesn’t specifically mention force majeure in their contracts, the general conditions set forth in section 8.3.1 of A201-2017 entitle the prime contractor, and subsequent subcontractors, to an extension delay if necessary caused by circumstances beyond their control:
8.3 Delays and Extensions of Time
8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by (1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor; (2) by changes ordered in the Work; (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 220.127.116.11, or other causes beyond the Contractor’s control; (4) by delay authorized by the Owner pending mediation and binding dispute resolution; or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.
ConsensusDocs contract delay clause
Similarly, ConsensusDocs 410 considers government actions – closing offices and shutting down construction projects – as excusable delays (see bold sections):
6.3 DELAYS AND EXTENSIONS OF TIME
6.3.1 If Design-Builder is delayed at any time in the commencement or progress of the Work by any cause beyond the control of Design-Builder, Design-Builder shall be entitled to an equitable extension of the Date of Substantial Completion or the Date of Final Completion. Examples of causes beyond the control of Design-Builder include, but are not limited to, the following: (a) acts or omissions of Owner or Others; (b) changes in the Work or the sequencing of the Work ordered by Owner, or arising from decisions of Owner that impact the time of performance of the Work; (c) encountering Hazardous Materials unanticipated by Design-Builder, or concealed or unknown conditions; (d) delay authorized by Owner pending dispute resolution or suspension by Owner under §12.1; (e) transportation delays not reasonably foreseeable; (f) labor disputes not involving Design-Builder; (g) general labor disputes impacting the Project but not specifically related to the Worksite; (h) fire; (i) Terrorism; (j) epidemics; (k) adverse governmental actions; (l) unavoidable accidents or circumstances; (m) adverse weather conditions not reasonably anticipated. Design-Builder shall process any requests for equitable extensions of the Date of Substantial Completion or the Date of Final Completion in accordance with the provisions of ARTICLE 9. The Design-builder shall have the burden of demonstrating the impact and shall furnish the Owner the supporting documentation relating thereto as the Owner may reasonably require.
Always read your contract – and the one above you
What this means is that you won’t be held responsible for missing deadlines and completion dates due to Coronavirus-related delays. However, this is the time to point out that you need to read and understand the prime contract before you sign your own contract. If these or similar standards don’t exist in the prime contract, then you shouldn’t expect them to apply to your contract either.
What to do if your money is held up by inspection delays
You may feel that you don’t have any options since this stage of the project is being held up by powers outside of the owner’s control. The reality is that anytime you’ve made an improvement to a property as a result of a contract, you have a right to be paid for your work.
If you’ve done work on a property and that money is being held up by Coronavirus-related regulations or closings, including an excessive delay in the inspection process, you generally have the right to file a lien and get paid for your work.
Getting paid on time starts with preliminary notice
If you haven’t started already, you should be sending preliminary notices on all your jobs: it’s more important now than ever. These friendly introductions are the first impressions GC’s and owners may get from you. They’re often enough to tell them your company is a professional outfit and intends to be paid. More importantly, in many states preliminary notices are required to protect your right to file a mechanics lien.
Notice of Intent gets the owner’s attention
If you’re starting to experience payment issues, whether it be due to inspections or any other reason, sending a notice of intent to lien puts the GC and property owner on notice that you plan to be paid for your services, even if that requires filing a lien on the property. No one wants to deal with a lien against their job or property, so this is often enough to open up communication. You and the other parties involved may have the chance to come to a resolution without filing a lien against the property at all.
A mechanics lien prioritizes your payment
If your professional first impression and notice of intent haven’t gotten the owner or GC’s attention, filing a mechanics lien definitely will. A mechanics lien may be the necessary and logical next step towards getting paid. If the paying party has decided not to pay you due to the project stalling at the inspection process, filing a mechanics lien for an overdue progress payment or outstanding retainage money will help to get your business paid for the work you’ve completed.