Filed Under:Risk Management, Corporate Risk

Risk management and contracting after Hurricane Irma

This Tuesday, Sept. 12, 2017 photo, shows a damaged crane from Hurricane Irma in Miami. Part of the crane fell in a bay-front area filled with hotels and high-rise condo and office buildings, near the AmericanAirlines Arena, where the NBA's Miami Heat play. (DroneBase via AP)
This Tuesday, Sept. 12, 2017 photo, shows a damaged crane from Hurricane Irma in Miami. Part of the crane fell in a bay-front area filled with hotels and high-rise condo and office buildings, near the AmericanAirlines Arena, where the NBA's Miami Heat play. (DroneBase via AP)

Hurricane Irma paralyzed South Florida's construction industry for the better part of two weeks.

Construction projects were forced to stop production, causing costly delays and damages.

The economic impact for South Florida's construction industry in the aftermath of Hurricane Irma is still unclear. What is clear is that construction professionals are already feeling the challenges resulting from Irma's wake.

Shortages of workers, materials and equipment exacerbate the direct impact of the storm, while owners and contractors scramble to get their construction projects back on track. It is for this very reason that construction professionals must be diligent in their post-Irma risk management strategies to minimize losses.

What notices are required?


Construction professionals on projects directly impacted by Hurricane Irma should, if they have not already done so, immediately review each project's contract documents to determine what notices are required for delays and extra costs arising from the hurricane. Contract notice requirements and time limits vary, whether for force majeure or other similar time and compensation rights.

There is no effective one-size-fits-all solution. While the initial notice letters will likely look very similar, it is crucial that each is sent as required by the contract. Particularly, each contract's requirements should be reviewed for necessary content, form of delivery, and designated notice recipients. Follow-up notices and time periods differ from contract to contract and should be tracked to ensure compliance.

Estimate of overall impact


The initial notice should explain the cause for the delay and should reserve rights for time and money. Take care to advise that due to the dynamic nature of the ongoing situation, no reasonable assessment of the total impact to the project can be currently made, but that an estimate of the overall impact will be provided as soon as conditions permit. Consider the possibility that impacts may not result exclusively from the hurricane or the site itself, but that follow-on impacts (shortages of labor, material, equipment or fuel) may affect the project as well.

Related: Know these covered losses and exclusions after a collapse

Some contracts may require critical path method (CPM) support or analysis to substantiate a claim for additional time. If this is the case, the CPM schedule should be reviewed prior to performing a time impact analysis to verify that the baseline reflects current logic and restraints and that it will support the delay claim.

Some notice provisions will require the contractor to identify affected activities and estimate the time for delay; as noted above, the submitted time impact analysis might comply by estimating the time of delay but any such estimate should be sent with a disclaimer that explains that it is provided only for convenience and that it is subject to revision as the delay continues and as it is easier to measure the extent of the delay.

An aerial view of Jacksonville, Fla. after Hurricane Irma

In this Monday afternoon, Sept. 11, 2017, provided by DroneBase, an aerial view of Jacksonville, Fla., is seen. (DroneBase via AP)

Evaluate all insurance potentially impacted & understand coverages


For each project, the insurance programs in effect should be evaluated. Appropriate notices of claim must be issued to all applicable insurers. Consider builders risk, general liability, professional liability, and pollution liability policies. Work with risk managers and insurance professionals to make sure all insurers are on notice for each impacted or potentially impacted project and to understand applicable coverages.

Related: The first 60 days post-Irma are critical to your insurance coverage

Owners, contractors and subcontractors should all work together to mitigate losses and protect undamaged property from further damage. Damaged property should be segregated, and all water-damaged materials should be removed. Insurance adjusters should be consulted before any materials are discarded.

Documentation of losses is critical


The proper and complete documentation of losses is critical. Thoroughly record and document all categories of damages, physical losses and business interruption, including staff time dedicated to clean up and hurricane related efforts that would not have otherwise been expended but for the hurricane. Documentation includes taking ample time-stamped photographs and videos to memorialize all damage before mitigation efforts have begun and establishing a separate cost accounting system under which all Irma loss-related costs will be captured.

Additional expenses, costs and damages may include expenses incurred to speed up debris removal or repair to property (overtime wages and express transportation charges); expenses associated with the enforcement of laws or ordinances regulating repair; costs to demolish and rebuild damaged buildings; debris removal expenses; costs for pollutant cleanup and removal; and preservation costs. This list is obviously not exclusive, and contractors should openly discuss with all projects participants and personnel the potential causes and categories of increased costs and expenses.

Related: What if an Irma-like hurricane hit the New York City metro area?

Hurricane Irma will certainly not be the last severe weather event to impact South Florida. It should be seen as an opportunity to hone and further develop a pre-storm preparation and response. Contractors should conduct "lessons learned" meetings to determine what worked, and what did not, and identify what to do differently moving forward. This is likely the best way to mitigate and minimize the risk of loss for future events.

Adam P. Handfinger is Miami co-partner in charge of the national construction law firm of Peckar & Abramson. Freddy X. Munoz is an associate in the firm's Miami office. Contact Handfinger at ahandfinger@pecklaw.com and Munoz at fmunoz@pecklaw.com.

Originally published on Daily Business Review. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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