More than ten months since coronavirus disease 2019 (COVID-19) evolved from an isolated disease in Wuhan, China, to a global pandemic that has pushed the global economy into a recession, we continue to see the impact of this virus on commercial construction. In this article, we’ll review five challenges construction professionals are likely to continue to face as a result of COVID-19 leading into 2021. For a legal ally who will be by your side throughout every step of the process, guarding your business against potential liabilities, partner with one of our Central FL contractor lawyers from Cotney Construction Law.
1. Labor Shortages
Prior to the pandemic, in 2018, approximately 80 percent of construction firms reported that they were having a difficult time filling hourly craft positions that comprise the bunk of the construction workforce. 75 percent of respondents at the time also expected the problem to become increasingly worse as time went on. Unfortunately, this prediction came true with the rise of COVID-19 — one of the most infectious viruses of our generation.
This may seem surprising given that a number of firms have been forced to shut down and slow projects. However, between the workers who were laid off in spring and those who have been unable or unwillingly to return to work, this is a reality for many of the construction firms across America. Even with existing work and contracts, project managers are struggling to find workers and being forced to terminate contracts due to a lack of available workforce. It goes without saying that this is leading to a plethora of other problems with project schedules, budgets, and indemnification.
2. Supply Chain Disruptions
In early March of 2020, nearly 75 percent of companies reported that they were seeing capacity disruptions in their supply chains as a result of transportation restrictions due to COVID-19. The vast majority of U.S. businesses were left facing almost double the lead times as the shortage of air and ocean freight options to move products to the United States continued to grow. If that wasn’t a cause for concern on its own, another 40 percent of companies reported not having a plan in place to address supply chain disruptions from China as a result of the virus.
Moving into 2021, production is likely to start nearing where it was prior to the pandemic; however the strain on supply chains is not vanishing. Instead of having only one material supplier, companies will have to look into setting up separate suppliers in multiple geographic locations that they can turn to should there be a serious disruption in the supply chain once more. In addition to diversifying your supplier base, it is also worth working with a Central FL construction lawyer who can ensure your contracts protect you from unforeseen circumstances like widespread disruptions across the supply chain.
3. Increased Material Costs
Many contractors expected material prices to fall as the global economy tipped into a recession; however, the corresponding closure of factories and disruptions across the supply chain during quarantine actually led most prices to skyrocket in price and others to become nearly impossible to get ahold of. In July, 6 out of 11 subcategories of construction materials experienced monthly increases and lumber prices had soared by 50 percent since mid-April. The main cause of these increases was the closure of factories and mills, a significant decrease in demand, trade tensions, and buckles in the global supply chains.
Moreover, with no clear end to the pandemic in sight and international tensions continuing to run high, material costs are likely to continue to rise for the foreseeable future into 2021. Construction professionals should take steps to protect themselves from upward price swings like these by expanding their supplier network, allowing for contingencies or unexpected costs in their budgets, and potentially buying hedges on some materials.
4. Decline in Available Projects
In April of 2020, Associated Builders and Contractors (ABC)’s Construction Backlog Indicator fell to 7.8 months or the series’ lowest reading since Q3 of 2012. More than 55 percent of contractors expected their sales to decline over the next six months, and only 30 percent of nonresidential contractors reported that they had or planned to experience uninterrupted workflow. In addition to the decrease in backlog, the association’s Construction Confidence Index also found that sales and profit margins had decreased.
These trends are not expected to change for the better in the coming months as even when the rest of the economy begins to recover, various sectors of commercial construction will likely continue to experience a decline. With more people staying home, construction of office buildings is likely not something to count on in terms of future growth, and with hospital use for elective surgery dropping off, the construction of new healthcare facilities is likely to plummet as well.
5. Decreased Construction Costs
Finally, you can expect to continue to see a decline in construction costs as trade contractor competitor increases due to the decrease in backlog. The Turner Building Cost Index, which measures costs in the nonresidential building construction market in the United States, experienced a 1.5 percent quarterly reduction from the beginning of 2020 to the second quarter, representing the first time the index has reduced in value in 2002. Many contractors are expected to feel a pinch in profits alongside a decrease in the availability of materials and labor. To protect your business during these difficult times and far into the future, we cannot stress the importance of partnering with a Central FL contractor attorney enough. We can review your contracts to ensure that they provide clear and adequate production from outside threats, help you bid on appropriate projects, and assist you in remaining compliant with federal regulations.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.