What to Do When A Construction Project Is Delayed

Pandemic-related supply-chain disruptions, manufacturing delays, and labor shortages are leading to building supply shortages and longer wait times for deliveries. 90% of contractors say plywood has been harder to come by, and 75% are finding vinyl siding harder to get, according to a survey by the National Association of Home Builders. Between rising costs and slow deliveries, many of your insureds (homeowners, developers, and contractors) will end up overseeing construction projects that are delayed past their expected completion dates. When projects take longer than expected, there are many things your insureds need to do to make sure their project can continue. Here are some reminders you can give them.

1. Extend Their Builder’s Risk/Wrap-Up Policy

When your insured secured their insurance policy to cover the project, the policy was written to cover the length of the project. If the completion date changes, they will have to ask for an extension. They should contact their insurer at least 90 days before the expiration date to make sure there’s no lapse in coverage. They should know it’s possible they may pay a higher rate for the extension because the market has fluctuated since they initiated the policy, and it’s possible the carrier could deny an extension. If they start the process soon enough, they’ll have time to apply for coverage with another carrier if needed.

2. Consider Project Suspension or Termination Options

Depending on the delay, they could consider suspending construction for a time or terminating the project for now. They need to consider that if they decide to suspend or terminate, they may still be required to pay the contractor’s costs for lost deposits or termination fees on equipment, payment for materials ordered, or other demobilization costs. They also need to think about the ability to quickly restart the project after it’s been suspended and what additional costs may be associated. Warranties on performed work or partially performed work may also be an issue.

3. Apply for Permit Extensions if Needed

In most states, If your building permit expires before you’ve completed the project, you’d have to reapply for the permit as if it were a new one … which could take more time and cause more delays. Therefore, if your insured knows their project will be delayed and the permit may expire before completion, they should apply for an extension if they’re responsible for the project permits. Rules for how to apply for extension depend on the state. 

4. Extend Rental Agreements

Besides permits and insurance, your insured may also have rental agreements for construction equipment or for storage space to store equipment, appliances or materials that will go inside the building, or building contents like furniture if it’s a renovation. If they leased equipment or spaces for a certain amount of time, they may need to extend or renew their leases. 

5. Consider Contract Notice Requirements

A standard contract usually requires a contractor to provide notice to the owner in the event of a delay, within 21 days of the event causing the delay. If a contractor learns  the delivery of needed materials will be significantly late and that will delay construction, then they have three weeks to notify the owner. This paper trail is important, because if the contractor is required to complete the project by a certain date as a part of his contract, this will help establish a “claim” as to why failure to complete by that date is not the fault of the contractor, freeing him from penalties. Owners need to consider how they respond to and acknowledge these notices, whether a response is needed and how that response will impact the future of the project. For example, the owner should avoid using any language that establishes a “course of dealing” that would modify or change their contract.

 

Quaker Special Risk provides customized coverage for Builder’s Risk policies, as well as professional and environmental policies. When projects are delayed, our underwriters are able to provide options to keep you covered. Contact us for more information or a quote.

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