COVID-19: The Construction Industry

We are in unprecedented times. With the continuing developments surrounding the fallout from the COVID-19 pandemic, “best-in-class” contractors are focused on the following priorities;

  1. Employee Health and Safety – A myriad of Toolbox Talks and Policies have been developed to navigate the physical wellness and mental health of contractors’ most valuable asset, their employees. Employee anxiety is currently a top concern. How workers address community and personal challenges, is elevating the growing need to navigate and balance life with the support of their employers.
  2. Communication – Internally and externally, it is critical to manage expectations and emotions. Cascading positive and continuous messaging with observations and solutions to your team and trading partners, will keep all parties engaged and committed. Make sure your upstream commitments are reasonable and clear so there remains consistent execution of tasks including with your downstream subcontractors and suppliers. Cooler heads and calm hands will prevail.
  3. Travel Bans and Quarantines – To help prevent the spread of the virus, owners and contractors are mandating travel bans and moving to telecommuting and other remote technologies. A 14-day or more quarantine shutdown by an owner and/or workforce could have a significant effect on the success of a project. Proactive steps should be taken to mitigate and reduce exposures.
  4. Labor Shortage and Material Delays – Emergency protocols and the prospect of government shutdowns, will trigger a variety of challenges. Transportation stoppages and school closings, may make it difficult or impossible for many employees to just get to work. Along with those being quarantined or affected family members, a now unreliable work force could stall projects and push completion schedules. This will become increasingly more critical with specialty trades and skilled workers. The U.S. economy dependency on Chinese-made goods and materials will quickly become a bottleneck for construction projects with slowing or the shutdown of foreign factories and trade. This will not only delay projects but further drive up construction material costs. Aggressively developing supplemental workforce options and alternative suppliers will significantly curb the negative impact of these potential land mines.
  5. Economic Impact – The government, owners, lenders, subcontractor and suppliers, are all just now seeing and feeling the financial muscle of COVID-19. Coming off a historic long bull market run, the squealing of the economic emergency break has been deafening. It is obvious to see the difficulties ahead for certain market sectors like hospitality, food & beverage and financing sensitive commercial project. Confirming project financing commitments and matching revenues to expenses to maintain positive cash flow will be critically important to remaining viable for contractors in the coming months. Contractors should be evaluating stimulus funds available to offset related expenses.
  6. Contractual and Legal – While the worldwide effects of the COVID-19 virus were unforeseeable, both owners and contractors will no doubt be reviewing the merits of the contractual rights and obligations associated with the resulting damages. Cost overruns, delays, liquidated damages and other scheduling conflicts will all be on the table. Forced Majeure contract provisions allowing for suspension or termination of work will be interpreted by contract and jurisdiction. Act now to work protect your claim rights and cash flow.
  7. Risk Management and Insurance – Like others, the insurance industry did not contemplate COVID-19. Identifying each situation and incident that is unique and how any insurance policy responds, will be specific to the coverage terms and conditions of that policy. However, there are some guiding principles with certain policies that are important to understand. One of the most common insurance related questions we receive relates to coverage for Business Interruption or loss of income if a government authority requires a business to close. In short, coverage for business interruption would not be provided because there is no direct damage to property caused by a covered peril that led to the loss of business income. If the insured premises are infected, you have a better argument to make, but still there is no guarantee. In addition, some policies may have sub-limits that by name appear to provide limited coverage, but these need to be carefully reviewed. If in doubt, turn in the claim to your insurance company. Will Workers Compensation respond to COVID-19? Two tests must be satisfied before any illness or disease, including COVID-19, qualifies as occupational and thus compensable under workers’ compensation: 1) The illness or disease must be “occupational,” meaning that it arose out of and was in the course and scope of the employment; and 2) The illness or disease must arise out of or be caused by conditions “peculiar” to the work. Course and scope are a function of the activities and can be evaluated by whether the employee was benefiting the employer when exposed to the illness or disease. An illness is “peculiar” when such disease is found almost exclusively to workers in a certain field or there is increased exposure to the illness or disease because of the employee’s working conditions. It is important to remember that the ultimate interpretations and determinations of compensability is subject to the specific state laws. Any employee related claims relative to COVID-19 should be turned in to the insurance company. While the two insurance coverage questions above seem to be the most common, other incidents could impact other insurance policies that include, General Liability, Environmental, Directors & Officers Liability and Foreign Liability. As previously mentioned, each situation should be evaluated based on the specific terms and conditions included in any policy and ultimately coverage should be affirmed or denied by the insurance company.

As time passes, we will certainly learn more and continue to help you and your company navigate through the current head winds. Let us know if we can help. Thank you for the partnership!