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Construction and COVID

By the second week of March 2020, while the man who would become the alleged “Patient Zero” for the new coronavirus outbreak appeared to do everything right, the U.S. economy was about to fall into the largest business “deep freeze” in the last 85 years. Around November 15, 2019, it was realized by the healthcare industry, and other health organizations, there was a problem brewing on the Asian mainland which had begun to step across the Sea of Japan and hitch a ride on the Diamond Princess cruise ship.  By the end of March, there was no recognizable vestige of the world’s economies of scale, including the United States’ economy. The WORLD went into “LOCKDOWN.” This was how it all began.

All aspects of the American economy have been negatively impacted by COVID-19. While the healthcare industry struggles to provide palliative care, many individuals have lost their jobs due to their employers’ inability to provide services as well as potential business partners’ fears of seeking out those business services. The U.S. construction industry has been profoundly affected by COVID-19 and the resulting damage to the economy in general. After a grinding halt in mid-March 2020 and the resulting shutdown of all except essential businesses, the construction industry saw a decrease in not only projects to build, but also in the numbers of employees who were able to work on the projects already underway. New projects were scrapped, the government began handing out assistance checks to companies and individuals, and money for projects already begun fell short of reinvestment.

The Association for General Contractors of America (AGCA) is one group which maintains a clearinghouse of information related to construction and the coronavirus pandemic. It provides a packet of information to document various current market conditions and has informed many businesses’ decisions to apply for government assistance to include small business loans as well as something called: Paycheck Protection Program (PPP) loans. The AGCA also maintains links to the U.S. Chamber of Commerce which by May 4, 2020, had issued a state-by-state business reopening guidance documentary collection. As of June 4, 2020, Michigan, California and Illinois had “limited reopening” plans in place. Such state-by-state guidelines attempt to allow business owners to navigate what has become the most incredibly complicated undertaking by the business world since the Great Depression. It could be argued that “ramped up” construction projects and business investments were the only things that brought the U.S. out of the Great Depression, as well as an unfortunate World War. As far as this hypothesis goes, at that time, working conditions in the U.S. were not negatively affected by the fear of contracting a fatal disease - which is vastly different than the troubles we are presently experiencing.

With each state being different as to requirements for its population’s conduct, construction businesses struggle with the ability to adapt to each difference. Not having enough workers to drive the trucks, load the materials, and inspect the buildings – not to mention procurement of projects in general, construction engineers and contractors have frantically searched for answers to the lack of capital with which to operate their businesses, as well as feed their families. It is likely that yet another major shutdown in construction will be caused by the fear of importing Chinese raw materials, increased costs or the inability to ship materials, including additional tariffs placed upon that supply chain by the U.S. government.  With many projects at a standstill, few or no new projects planned, and a world struggling to grapple with the nightmare of supply, construction claims and litigation regarding such claims will likely be more common than in the last 70 years.

In the United Kingdom, Prime Minister Boris Johnson has indicated construction and its supporting trades will provide a way for that country to build its way back to health. Up to 1.1 billion euros has been earmarked for the building of 50 “new” school projects, renewing existing schools and general infrastructure. Likewise, associations of contractors and union officials in the U.S. have determined that one of the ways to extricate themselves from this crippling situation is for the government to turn toward investing in infrastructure renewal and building projects. While World War II had a profound affect upon the recovery of the U.S. economy, the creation of the CCC (Civil Conservation Corps) and the WPA (Works Progress Administration) were remarkable factors in getting America back to work along with the key factor of the government’s investment in infrastructure renewal. This being said, construction could likely be a factor in the U.S. economy’s recovery in the future if an effective and safer mode of personal interaction evolves thereby avoiding risk behaviors associated with the transmission of COVID-19.

For litigation purposes, construction claims will likely continue to run the gamut of causes of action filed by and against contractors affected by the pandemic. It is my estimation that breaches of contract through the failure to complete and/or begin project contracts will likely remain the primary cause of action for plaintiffs who find themselves in this situation. Likewise, standard contract defenses which may have become “merely academic” and boilerplate in the past will no doubt become more meaningful in these situations to include defenses such as “impossibility,” “frustration of purpose” and “acts of God.”

On July 2, 2020, Texas attorney Kristen Lawhorn will join me along with Steve Holden for a webcast wherein we hope to isolate what is currently existing, what has occurred, and what is coming down the pike for the construction world and construction claims with a prognosis for recovery during these troubled times.  Join us for this webcast! We look forward to seeing you.

James Daniel