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Financial safeguards put in place at senior living facilities during the COVID-19 pandemic are leading to enhanced spending scrutiny — which can affect payments going out to contractors and project delays or possible cancellations.

During the continuing financial fallout of the pandemic, some organizations may feel the need to “tighten their belts” to increase liquidity, maintain profitability, and avoid financial peril — which can affect payment on ongoing renovation and new construction projects.

As highlighted by a recent Texas lawsuit between Interstate Restoration and a Brookdale Senior Living facility in Houston, Texas, contractors engaging with care home-related projects may be wise to pay special care to secure their rights to payment.

Amidst the initial effects of the pandemic on senior care facilities, an electrical fire broke out inside a top-floor unit of Texas care home Brookdale Senior Living in July of 2020. Fortunately, no residents or firefighters were injured, but the building suffered significant fire and water damage.

Brookdale hired Interstate Restoration to handle both mitigation work and restoration work of the facility. According to court filings, by August Interstate had completed all mitigation work and “substantial restoration work.”

Yet in the following days, Brookdale terminated Interstate’s contract, alleging the restoration work it had provided was substandard. A year and a half later, Brookdale has still not paid Interstate nearly $2 million for work completed.

$800,000 of this is for the mitigation work, which Brookdale did not report any issues with. Yet Brookdale is evidently withholding this payment as leverage over the remaining $1.2 million for the contested restoration work.

As a result, Interstate sued Brookdale for Breach of Contract and alleged there is no evidence to support claims of subpar work.

Brookdale is a chain of senior care facilities with over 675 communities in 41 states. To date, Brookdale has incurred a staggering $168 million of pandemic-related facility operating expenses since the beginning of 2020. This includes costs for PPE, medical equipment, cleaning and sanitation services, increased employee-related costs, and more.

The filings against the Texas location note that Brookdale has taken, and will continue to take, “actions to enhance and preserve its liquidity in response to the pandemic… including maintaining expense discipline.”

Could this “expense discipline” have contributed to Brookdale’s decision to withhold payment from Interstate? It certainly seems plausible, especially if Brookdale had a legitimate reason to suspect substandard work.

The construction industry is already full of financial challenges: Levelset’s 2021 Construction Cash Flow & Payment Report found that 97% of construction professionals experience stress from late payment and cash flow-related issues. $2 million held up for over 18 months can certainly contribute to a very tight cash flow situation for Interstate.

Contractors engaging with care homes and senior living facilities would be wise to increase their own scrutiny and make sure their right to payment is secured.

This isn’t the only senior care facility-related payment struggle, either: Levelset data reports at least seven different nursing homes, assisted living facilities, and memory care homes faced voluntary bankruptcy as of 2021.

Three others — North Olmsted Healthcare, Euclid Beach Healthcare, and Mayfield Heights Healthcare — have been forced into bankruptcy after creditors filed involuntary bankruptcy petitions for nearly $1 million in combined claims.

It appears that care facilities across the country are experiencing significant financial hardship. Many businesses may be looking for any reason to cut costs, which could lead to delayed or canceled construction projects and withheld payments.

Senior care is not the only industry that has been hit hard by the pandemic — construction professionals must be aware of similar risks across the economy.

It is incredibly important for contractors to read up on their state’s lien process and stay proactive when it comes to protecting the right to payment.