COVID-19 Business & Financial Implications to the Construction Industry

The Construction Industry, among many other industries, will have implications from COVID-19.  It is often considered an industry plagued by shortages, and the introduction of COVID-19 into the ecosphere will exemplify this.  Construction companies are working to act quickly to employees’ needs and safety, job site safety, and to ensure that ongoing projects do not hit a standstill period.  The impact of COVID-19 on the construction industry is still yet to be seen, but we have some predictions on long-term and short-term impacts.

In a survey done through the Associated General Contractors of America companies are already starting to feel the pain from COVID-19:

  • 18% of companies said they are experiencing a shortage of government workers for approvals, inspections, etc.
  • 16% of companies said they are experiencing shortage of materials, equipment, or parts, and
  • 11% of companies said they are experiencing a shortage of craftworkers.

Predicted Short-Term Economic Impact:

There have been reporting of disruptions to current projects due to missing deliveries, workers, and government resources.  Many businesses are facing financial hardship right now, so they are either cancelling or putting projects on hold.  In addition, some job owners are getting to the point where they are unable to pay for ongoing projects due to cash flow issues.

On the bright side, there are new needs emerging from this crisis.  The construction and contractor industry expects to see a rise in the need for healthcare establishments and manufacturing facilities.  They also are experiencing substantial price reductions for fuel and other commodities.

Predicted Long-Term Economic Impact:

The long-term impact for many industries unfortunately still fall in the wait and see category.  Professionals can make predictions, but as we are living in unprecedented times, some of these predictions will come true, and some of them won’t.  Here are a few ways we think the construction / contractor industry may be impacted long-term:

  • Possibly a reduction in the number of construction firms due to reduced work in the near future / cash flow issues for companies in the short-term.
  • Supply chain disruption from China may lead to cost overruns from delays and having to source alternate suppliers.
  • There may be a slower rebound due to anxiety of business owners and lenders
  • Possibility of dwindling demand. We have yet to see if the United States, and frankly the entire worlds’ move to working remotely, will lead to an increase in virtual companies, or an increase in the need for in-person experiences.  If this shift to more remote working turns out to be more permanent in certain cases, we could see decreased need for new office buildings, and possibly other types of facilities.

Necessary Communication on your Construction Company’s Plan Moving Forward:

  • Bank and other lending institutions.
  • Surety broker and underwriter
  • Other insurance providers
  • Owners and developers

Looking Forward and Creating a Plan:

  • Could business interruption insurance help your construction / contractor business weather the storm?
  • Business continuity during this uncertain time is critical. Cash-flow management and planning are key.  Also think of ways your business may be able to pivot, short-term and possibly long-term.  Look into SBA relief or other various programs in order to help cover short-term cash flow needs.
  • If the economy does face a recession, and history repeats itself, it may be possible that the construction / contractor industry does not see the ramifications of this until 12 to 18 months after most other industries. Plan accordingly, and plan for the long-term.  Planning for the short-term right now is to stay afloat.  Planning for the long-term is planning for exponential business success after we turn the corner on this epidemic.
  • Work with your lawyer to understand if force majeure clauses in your contracts are worded favorably, and what sorts of relief you can get through those clauses (i.e. time and/or money). COVID-19 may be considered a “superior force” and an unforeseeable event.
  • Ensure that you have the ability to separately track stoppages, slow-downs, and inefficiencies created by the impact of COVID-19 in order to prove cases under force majeure or other clauses later on.
  • If new contacts are entered into, there is the possibility that COVID-19 could be viewed as a foreseeable event. If it causes disruption to your business, and you cannot meet contractual obligations, there could potentially be negative impacts to your business.  Work with your lawyer to understand if new contracts being entered into should specifically states risks arising from COVID-19.
  • Understand proposed legislation, and aid available to businesses and employees. We are constantly updating our resource center with proposed and final legislation as it becomes available.

In addition to our resource center, please feel free to reach out to me with any questions at cdennis@teamdkb.com or a member of our team at hello@teamdkb.com.  We are here to help, and work with the business community to plan now for long term success.