Be aware and prepared. COVID-19 can affect both materials and labor in the construction industry because of its unique position as both a service and a product provider. To finish a project, a construction company must furnish the labor (the service) to assemble component materials into a final structure (the product). This brief post highlights where the virus has an impact.
Materials are among the largest costs of a construction project, and their prices vary depending on the economic climate in the locale, around the country and the world. Take steel, for example. The price of steel can be easily affected by international regulations such as tariffs. Likewise, international events, like the novel coronavirus, may affect both the supply and demand of steel, resulting in unstable or unpredictable pricing. Additionally, material shortages or slowed production could affect lead times—ultimately delaying the project. Without appropriate contractual provisions, constructors may find themselves at risk for cost and time overages related to the price and supply of materials.
Labor is another significant component of project cost. Finding quality labor for the right price is often difficult, and the coronavirus has the potential to infect anyone. If workers fall ill, a shortage of labor could not only increase labor costs, but could also slow work, affect the critical path, and delay a project. Again, without the proper contractual provisions, the constructor could carry the risk of these cost overruns and delay damages.
With this basis for discussion, let’s focus on a contractor’s contractual rights, obligations, and protections. While precise language varies from contract to contract, many contain a “force majeure” clause. This clause can excuse a party from meeting certain obligations, like a substantial completion date, due to forces outside of the party’s control. It is important to note that such a provision could benefit a constructor by protecting it from obligations to an owner but could also harm a constructor when protecting a supplier from certain obligations to the constructor. As for contracts with suppliers, a savvy constructor could increase predictability in pricing by agreeing upon a fixed unit price for material over some time.
While the coronavirus pandemic may create some unknowns, all members of the construction industry can reintroduce some certainty by understanding on-going contractual rights and obligations—and exercising smart contracting practices in future contracts. It is important to note that each project includes its own set of challenges, and contractual provisions should be tailored to fit the specific needs. With today’s economic uncertainties, now is the time to create a plan to navigate potential material shortages, labor shortages, and other issues using legal tools as applicable.
Bryan M. Kelly is an attorney at Decker Jones P.C. in Fort Worth.