Cities halt construction while country faces economic downturn

As the coronavirus disease advances across the United States, various industries and nearly all aspects of the supply chain continue to be impacted, including the construction industry – and by default, skilled workers, electricians, engineers, and more.

According to a Boston Globe report from March 16, Boston Mayor Martin J. Walsh ordered a stop to all construction projects within the city in an attempt to slow the spread of the virus, the first move of its kind in the nation. Chief Executive Officer of the Associated General Contractors of America (AGC) Stephen E. Sandherr responded in a press release, arguing the city's actions will undermine the construction industry's efforts to add hospital capacity.

Additionally, Sandherr said construction workers already take many precautions to protect themselves and others from the spread of infection, including the use of personal protective equipment (PPE), gloves, and increased hygiene. "Given the precautions already in place, halting construction will do little to protect the health and safety of construction workers," he said in the release. "But it will go a long way in undermining economic vitality by depriving millions of workers of the wages they will need over the coming days. At the same time, these measures have the potential to bankrupt many construction firms who have contractual obligations to stay on schedule or risk incurring significant financial penalties."

Other states and cities are bound to see significant construction decline, as well. According to a March 19 report from Engineering News Record (ENR), all construction operations in the state of Pennsylvania were ordered to stop, which includes heavy/civil, building, institutional, residential, and specialty trade work. Likewise, New York City officials are calling for a pause to non-essential construction within all five boroughs, a Curbed New York article from March 20 says. A Chicago Tribune story also predicts a slowdown to Chicago's 10-year construction boom due to added safety precautions being implemented on job sites in an attempt to avoid a complete construction shutdown. Meanwhile, in California, a March 20 article from Politico says plans are underway to deploy thousands of construction workers in order to retrofit hospitals, hotels, and buildings in response to the outbreak.

Robert Dietz, chief economist for the National Association of Home Builders (NAHB), is predicting coronavirus will cause a sharp economic downturn that may also be short. 2Q 2020 GDP growth will be markedly negative and probably the country's worst performance since 3Q 2008, during the great recession. A weak 3Q will likely be followed by a rebound at the end of 2020.

Even if cities or states do not call for direct halts to construction, the effects of coronavirus as a pandemic are far-reaching. According to a report from Construction Dive, Chief Economist for Dodge Data & Analytics Richard Branch estimated that 30% of building products in the U.S. are imported from China, making it the nation's largest single supplier. While China seems to be slightly rebounding from the disease, its decreased manufacturing output is still expected to impact construction in the United States.

On March 20, AGC held a webinar called "The Latest Developments on the Coronavirus and What That Means for the Construction Industry." Hosted by Sandherr, several national staff members addressed various aspects of the industry, including safety measures, contracts/legal information, economic impacts, and more. Following is a summary of some of the webinar's key points.

Member survey results. AGC's Chief Economist Ken Simonson delivered coronavirus survey results from the organization's members, with a total of 909 responses as of March 19. Notable results include 28% of respondents being asked by an owner or government agency to stop current work; 11% were asked by an owner or government agency to stop future work; and 22% received a notice from suppliers that deliveries will be late or cancelled. Regarding project delays or disruptions, 16% experienced a shortage of materials, equipment, or parts; 11% saw a shortage of craftworkers, including subcontractors; 18% saw shortage of government workers; and 8% received information that an infected worker has potentially infected a worksite.

Positive and negative economic impacts. The COVID-19 outbreak is expected to bring several long-lasting and short-term negative consequences. Simonson said these may include disruptions to work or cancelled projects; potentially less demand for "non-essential" projects like offices, entertainment, and sports facilities; reduced/missed payments by owners; and a slow economic rebound across many industries. On the positive side, Simonson cited selected new projects to respond to the crisis, like healthcare and lodging; substantial price reductions for commodities like fuel; and a slow rebound for commodity prices.

Safety standards. Kevin Cannon, AGC's senior director, safety & health services, said the Department of Labor (DOL) and OSHA issued new guidelines on preparing workplaces for COVID-19 and recording workplace exposures to the disease. Since information and news on the disease keep evolving, OSHA has already updated this information once and may likely do it again.

Coronavirus and contracts. Brian Perlberg, senior counsel, construction law and contracts, discussed this outbreak as a "force majeure," as it is an unforeseeable event that no party controls or is at fault. He advises contractors to read back through the contract to see if it makes an adjustment for time or money. Each contract is different, and its verbiage will show what is allowed. For example, the ConsensusDocs 6.2.1(j) specifically listing epidemics as an excused delay, while AIA A201 General Conditions has a catch-all for acts beyond the contractor's control as determined by the architect.