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CONSTRUCTION INDUSTRY CONCERNS DUE TO COVID-19

CONSTRUCTION INDUSTRY CONCERNS DUE TO COVID-19

The impact of the Coronavirus is being felt around the world. The disease has affected global markets, complicated international business and added severe pressure to small businesses everywhere. Concerns over what might happen has left several American industries scrambling, including construction. Despite the uncertainty, experts predict the pandemic will have ramifications for several aspects of U.S. construction. Some of these concerns include:

1. Employee Health and Safety
First and foremost, companies in affected regions say they are concerned with employee well-being. The good news is that the risk of transmission for those employed outside the healthcare sector is low, according to OSHA.
Even though we are all sick of hearing it (pun intended) Always a reminder to your teams to use good hygiene including frequent hand-washing, covering coughs and avoiding touching your face. Keep in mind, a worker out sick is just as bad as not having a qualified worker at all; a loss for everyone. Be smart, stay healthy, think of your co-workers and don’t get them sick. We don’t want to risk a stalled project due to an entire crew infected by one person.

2. Cash is Critical
As the saying goes, “Cash is King”, now more than ever, maintaining cash flow is going to be key in the upcoming weeks and months. Consider your monthly cash commitments and review your budget to determine required monthly expenses versus discretionary activity that will now be limited (i.e. travel and meal expenses). Another wise step would be to reach out to your lenders and verify the status of your line of credit and borrowing limits. Even consider borrowing from an endowment corpus. These steps could help your business in the long run.

3. Legal Issues
While the coronavirus pandemic was unforeseeable, contractors may still be contractually responsible for delays or cost overruns on current projects. Both contractors and owners will be reviewing contracts to see what contractual rights and duties exist in light of these conditions. Lawyers recommend knowing exactly what is in each contract, and taking special note of any force majeure provisions that allow work to be suspended or terminated when certain extenuating circumstances arise. Whether something qualifies as a force majeure event will vary by jurisdiction and contract, but force majeure will almost certainly apply in some coronavirus-initiated situations.

4. Global Uncertainty
In construction, everything comes down to time and money. While the expectation is that the U.S. economy will soon enter recession, non-residential construction typically lags the overall economy by 12 to 18 months. This means that many contractors can expect a far more difficult year in 2021. Remember, the crisis is still going on, so you cannot know the economic impact if we don’t know how big, how long and what the full consequences of the crisis is going to truly be.
A significant portion of construction materials come from China and aboard. Chinese government containment efforts and quarantines have slowed or shut down factories in dozens of the country’s cities and provinces, leading to forecasts of a sharp falloff in production of everything from cars to smartphones, according to the New York Times.

Contractors are also worried about material delays that might slow existing projects. By conservative estimates, nearly 30% of all U.S. building product imports come from China, but some American construction firms rely on China for up to 80% of their materials. This could mean higher material costs and potentially slower project completions. Clients need to aggressively seek out alternative suppliers in the U.S. or in countries that haven’t been negatively impacted by major supply chain interruptions.

5. On Edge- Both Clients and Lenders
One of the most devastating consequences of the virus could be that it unnerves clients and lenders. Financing may dry up for new jobs and owners may table current projects until the uncertainty passes. Some jobs may be cancelled due to the uncertainty while others could be put on hold as more individuals are diagnosed/tested for COVID-19.

Insurance policies can help mitigate the effects of shutdowns and delays. Construction pros across the country need to check their policies to see what types of situations are covered. Business interruption coverage, a common endorsement to a commercial property policy, may or may not offer aid, depending on the terms of the policy and whether the impact of the virus constitutes an “occurrence”. Other possible avenues for coverage include; workers compensation for outbreak of sickness or disease, trade disruption insurance for contractors with international supply chains and travel insurance to protect firms whose employees travel frequently for business.

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