Getting through the crisis with good construction site management

Delivery delays, quarantine orders, insolvencies: the COVID-19 pandemic has also affected the construction industry and is jeopardising the completion of projects. How developers, project companies and participating firms can overcome emerging challenges – and what lessons can be learned from the current situation.

The Y-Towers complex in North Amsterdam is one of the largest construction projects in the Netherlands. It features what will be the tallest hotel in the Dutch capital, at 33 storeys, with operator Maritim planning to offer 579 rooms. The neighbouring residential tower will accommodate 174 apartments, including ten floors of serviced apartments. An underground car park with 605 spaces also forms part of the project. Total investment is correspondingly high, with investor Union Investment budgeting around EUR 460 million. The ambitious deadline of the end of 2022 remains in place despite the COVID-19 pandemic, which has thrown timelines elsewhere into disarray.

Work on Y-Towers is only slightly behind schedule, despite the fact that early on in the pandemic the general contractor, who is based in Northern Italy, found that its processes were being impacted. The subsequent closure of borders within the EU also meant that foreign workers were unable to travel to the Netherlands and deliveries of materials were held up. This unprecedented situation was mitigated by effective construction site management. “We had to make a number of operational changes,” says Bent Mühlena, head of Real Estate Project Management at Union Investment. “That’s challenging because the work of the individual trades needs to be carefully synchronised, like intermeshing gears.” But bringing forward some tasks, delaying others and making various tweaks did the trick. “We were the only construction site in the area where the cranes kept moving,” adds Mühlena, describing the situation as “completely new territory”. This successful outcome is a tribute to the close collaboration with all parties involved.

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The coronavirus crisis has shown that “an event can occur unexpectedly which nobody is prepared for and which affects everybody equally,” explains Stefanie Lütteke, senior project team leader at consulting and planning company Drees & Sommer. Although everyone involved in the project initially faced huge uncertainty, most companies are now up to speed with their crisis management. According to Lütteke, “internal controlling and risk management in particular have been ramped up. Project developers and investors are now examining upcoming projects in terms of their compatibility with the post-coronavirus working and business environment. That means an even greater focus on flexibility and digitalisation.”

If deliveries fail to arrive or workers catch coronavirus, that may “obviously still cause a construction site to grind to a halt,” says Lütteke. “Defining risk scenarios in advance, including drawing up appropriate guidelines, gives everybody involved the confidence to deal with the risk when it arises.” Good planning helps to minimise the consequences of such unforeseeable events. “The contractually agreed timetables need to be coherent and coordinated across all services,” explains Lütteke. “The schedule should include a buffer so that deadlines aren’t immediately impacted.” That applies equally to private housing projects and major real estate developments like Y-Towers in Amsterdam, because if the firms involved fall behind schedule it is difficult to get everyone to commit to new binding deadlines.

It would be a real positive if the authorities were inspired by coronavirus to expand their digital services
Stefanie Lütteke, Senior project team leader at consulting and planning company Drees & Sommer

Ultimately, the risk lies with the construction company, which must ensure that it can meet its contractual obligations, explains Union Investment expert Mühlena. “If things do go wrong, it’s important to communicate openly so that all players can work together to find a solution.” In exceptional situations, the best way forward is a partnership approach based on patience and understanding.

Depending on the construction contract, it may also be the case that performance deadlines are automatically extended in the event of force majeure, such as a pandemic. “Whether the construction delay was really caused by coronavirus needs to be assessed on a case-by-case basis,” says Christoph von Klitzing, a legal expert at building society Schwäbisch Hall. This reflects the duty of the construction company to maintain a pool of personnel in case of absences. Having said that, claims for damages against construction companies only arise if the company itself is liable for the delay. “Where a delay is caused by COVID-19, that is not generally the case,” advises von Klitzing. Accordingly, “In most cases, developers must bear the additional costs themselves.”

Difficulties arise if one of the firms involved in a project becomes insolvent. “Here it’s advisable to be proactive and insist on sureties and retention clauses when agreeing the contract,” says Mühlena. “In future, all construction contracts will include a COVID clause.” In order to continue work in the event of insolvency of the general contractor, the ability to form agreements with subcontractors is an important option. However, “Every construction site is unique, so you need to find bespoke solutions,” adds Mühlena. “It’s very important to perform extensive credit checks on the companies involved in the project in advance, so you don’t get into situations that might jeopardise construction progress.”

In future, all construction contracts will include a COVID clause. It’s very important to perform extensive credit checks on the companies involved in the project in advance, so you don’t get into situations that might jeopardise construction progress.
Bent Mühlena, Head of Real Estate Project Management at Union Investment

If despite taking every precaution a company is hit by insolvency, swift action is required. For work to be passed to a successor company as smoothly as possible, good documentation is essential: site journals, incremental acceptance reports and inspection records become especially important – and should be maintained anyway in case of disputes between the construction company and the client, according to the project management expert. “Documentation can never be too detailed.”

Even with effective preparation, there are some delays that construction firms and project companies cannot avoid, namely those caused by the authorities. “During the pandemic, some government offices were shut for months. Processing of planning applications was among the activities affected,” reports Union Investment project manager Mühlena. Necessary coordination with the relevant official bodies was impossible, confirms Drees & Sommer expert Stefanie Lütteke. “In-person meetings were not possible and the technology wasn’t in place for video conferencing.” Overall, approval processes took longer as a result. “It would be a real positive if the authorities were inspired by coronavirus to expand their digital services,” adds Lütteke.

In some cases, construction companies and investors have actually benefited from COVID-19. Mühlena relates that a hotel refurbishment in Hamburg progressed more quickly during lockdown. “There were no guests to worry about during the remodelling work, so daytime noise and disruption weren’t an issue.” The same applied to replacing the flooring in a shopping centre: “We were able to carry out the work faster because the shopping centre was closed and we weren’t restricted to night-time working.” That demonstrates the upside of these very unusual times.

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