March 24, 2020

Coronavirus Update: Construction Industry

INDUSTRY OVERVIEW

The construction sector has felt less of an immediate effect than others as existing projects continue to progress.
The sector is expected to see a slowdown in new projects as businesses assess the coronavirus impact on their revenue and their ability to invest in capital projects.
The Federal Reserve has lowered interest rates in an effort to spur investment in construction, real estate and equipment.
Construction firms are reviewing contracts with customers regarding responsibility for cost overruns and project delays. They are also reviewing insurance policies regarding business interruption coverage.
Many construction materials are produced abroad, including in China; imports have slowed due to production cuts and port delays.
Construction companies are stressing the importance of hygiene, social distancing, and staying home if sick to keep their employees and subcontractors on the job, as working from home is not possible in this industry.

MARCUM VIEW

Prepare for Business Interruption

With potential challenges in accessing materials as well as employees having to address personal demands related to their own health and the health needs of their families, construction firms should expect and prepare for interruptions. They should proactively review insurance policies as well as contracts with customers to understand terms and conditions related to slowdowns.

Cross-Train Employees

Construction companies have faced shortages and challenges in recruiting the right labor for a number of years. As a result, many have already sought to train employees to handle more responsibility. The need for cross-training is now more critical than ever as firms will likely see employees pulled away from jobs for personal health and family reasons. Cross-trained employees are the key to reducing slow-downs and shut-downs of jobs in process.

Preparation for Job Shutdown

Firms might be forced to shut down some jobs altogether for at least a period of time. With that comes uncertainty about the economic impact on construction customers and whether—or at least, when—those jobs would be given a green light to resume. Construction firms should review their current project lists and evaluate which are the most at risk for shut-downs based on a variety of factors, including employee shortages and contract dissolution.

Manage Supply Chain Issues

From the aforementioned challenges around import slowdowns to the voluntary and mandated closures of retail/wholesale outlets, construction companies should expect some issues in obtaining materials. They could begin reviewing options, including replacing foreign-based suppliers with those in other markets (domestic or abroad) as well as other outlets.

Read Your Contract and Understand the “Force Majeure Provision”

Contracts usually have some fairly boilerplate text around “acts of nature/God/etc.” Be sure to read them now and understand the nuances that might exist in every individual contract.

Employee Education about COVID-19

From the basic reminders around frequent handwashing to the symptoms most commonly associated with the novel coronavirus, be proactive in educating your employees around their safety. Consider posters, emails, and other forms of communication. Enlist your human resources leaders to coordinate and advise around short-term policy-setting and other guidelines.

Develop Alternative Childcare Arrangements

If feasible, look into arranging for childcare options that are safe and trustworthy to alleviate some burden on employees who could otherwise continue working if not for those pressures related to school closures and other needs involved in childcare.

For more information about the impact of the coronavirus on the construction industry, please contact Joseph Natarelli, Construction Services Leader, at 203.781.9710 or email Joseph.