Construction Law Professionals Weigh in on Coronavirus Impact

The coronavirus is wreaking havoc on industries worldwide, where closures began with factories and are spreading to businesses of all sizes. With confirmed cases increasing in the U.S. every day, construction experts are relying on economists' predictions in their assessment of the long-term ramifications to the industry.

If there's one thing economists are beginning to agree upon, it is that a recession is possible. Earlier this month, Anirban Basu, chairman and CEO of Sage Policy Group and chief economist of the Associated Builders and Contractors, said "the risk of recession over the next three to six months is arguably more elevated than at any period since 2007." Although the outcome is unknown, construction professionals look to economists for guidance, which, from Basu's perspective, involves "raising cash, determining if their lines of credit are large enough, considering staffing models and ensuring the good graces of bankers and insurers."

Construction Attorney Steve Lesser, who spoke with Construction Dive, said the industry, particularly contractors, are taking a wait-and-see approach. Lesser highlighted six potential effects the virus could have on construction, some of which also involve material suppliers. At the height of such concerns are delays that inevitably lead to hikes in material prices.

"My gut tells me we're going to see higher prices and projects canceled although I can't point to the extent of it," noted Joe Natarelli, national construction industry leader at Marcum LLP, in a Construction Dive interview. "To be frank, I haven't seen a huge impact yet on material price increases, but the expectation of it and the uncertainty around the virus is really scaring folks."

Natarelli added that some U.S. construction companies get up to 80% of their materials from China—a troublesome statistic considering the JLL 2020 Construction Outlook anticipates labor costs could rise by 2% to 4% and material costs could increase between 1% to 4%.

"Since this is a rapidly developing global situation, I suspect there are going to be some shortages with materials in the short term," said Attorney David J. Merbaum, of Merbaum & Becker, P.C., in an interview with NACM. "How much financial scars remain is yet to be seen."

Several lawyers recommend materials suppliers remain in contact with subcontractors (subs) and contractors, especially during a time when change is imminent. Michael C. Decker, of Butzel Long's Construction Law Practice Group, wrote in an article that material suppliers must be prepared for questions from subs and/or contractors involving their current condition as well as plans and procedures moving forward.

"Obviously, the question becomes—would the coronavirus fall within the category of a force majeure or excusable delay event?" Decker wrote. He referred to the following:

"It is not entirely clear given the novel nature of the coronavirus," Decker wrote. "Therefore, it is not recommended that construction companies count on relying upon such force majeure or excusable delay provisions to shield them from liability for delays and disruption in their work or their failure to complete their work within the time specified in their contracts."

—Andrew Michaels, editorial associate