Steve Lesser, the chair of Becker’s Construction law practice, says the key words right now are “Wait and see.”
"The smart money rests on the principle that full speed ahead with a planned construction project does not make business sense,” he said. “Take a breath, slow down and know that every day may bring more information, and the more information we have the better we can predict what to do.”
Here are five things the construction industry needs to consider in dealing with the coronavirus:
Employee Health and Safety
No surprise, every bit of advice boils down to the simple things: wash your hands, cover your coughs, avoid touching your face. But there are very real dangers that come along with the coronavirus that aren’t merely the infectious viruses themselves: anxiety and fear. Employees who are concerned for their safety are going to have their minds in more than one place, which makes a job site more dangerous. It’s important for foremen and site managers to control the hysteria and know the facts.
And, of course, there are going to be employee shortages due to health concerns, which will only raise anxieties and add to on-the-job stress. “Factory workers, construction workers, supervisors and managers could all end up quarantined in a city like Seattle and not be available to work,” contruction attorney Steve Lesser said. "Absent a reliable work force, projects become stalled."
“If you have a subcontractor whose work force becomes unavailable, who is going to pick up the slack to perform that work?” he asked. “That’s a real problem especially here in Florida and elsewhere where they have specific licensing requirements associated with the performance of specialty trades such as roofing, electrical and swimming pools.”
China, who was the first hit by the virus and is only now, months later, starting to see an end in sight, has been locked down and many shipments of raw materials have been delayed or cancelled. Forecasts by the New York Times show that shipments of everything from cars to smartphones will be delayed indefinitely.
For commercial builders, this could mean big business losses due to slower project completions and higher material costs.
Nearly 30% of all US building product imports come from China, but some American firms say they rely on China for up to 80% of their material. One example is the home builder Toll Brothers in California who say they have not been able to source lighting fixtures and small appliance which will delay the completion of many of their homes, making them late to market and hurting their bottom line.
Quarantines and Travel Bans
While many schools and business have shuttered their doors and windows, and many offices are taking a work-from-home approach, that can’t be done in the construction industry. But one case in a company could shut down the entire operation. According to Balfour Beatty CFO Leo Quinn, no projects have been halted yet but they’re waiting to see.
“Business does seem to be operating as normal. But again, we're monitoring the situation very, very carefully,” he said, adding that an outbreak would prompt a 14-day quarantine shutdown.
In a Skype call—that was mandated because air travel was cancelled—one company exec said “I’m not sure how we will construct buildings and roadways without physical presence so it will be interesting to see what possible solutions people come up with for that.”
Despite the coronavirus falling into what’s known as an “act of God” clause in some contracts, the majority of contracts make the builder responsible for completing a project on time and for cost overruns that accompany that.
“There are many terms that will be relevant to those discussions, including the various contractual terms relating to the contractor’s schedules, substantial completion, delays, liquidated damages and other contractual provisions,” said Michael Keester, a partner at law firm Hall Estill.
“There may be some opportunistic claims, but the impacts of the coronavirus, particularly on the supply chain, are so broad that we expect there will also be many valid claims,” he said.
The volatility in the stock market and oil prices have definitely scared investors and citizens alike. “There’s a level of hysteria out there,” one insider said. “People are freaking out.”
"It has totally muddied the outlook for 2020," said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. "Remember, the event is still going on, so you cannot do the economic impact if the event is not over."
“Executives should be playing for the long-term, because the short-term will be somewhat short on opportunity. That said, firms that are sufficiently entrepreneurial can prosper even during difficult economic times.”
"In construction, everything comes down to time and money. If you look at it that way you see how unpredictable this virus is on the industry,” Steve Lesser said. “We don’t know how big it’s going to be, how long it will last and what its full impact is going to be.”