The COVID-19 pandemic has evolved into a massive global crisis, developing at an unprecedented speed and scale. Most industries have been dramatically affected, and while unfortunate to note, the construction industry is no exception.
Nowadays, it’s safe to assume most contractors are relying heavily on construction insurance for possible help with the disruptions, delays, and claims as a direct effect of the COVID-19 pandemic on construction projects.
The Impact of the COVID-19 Pandemic on Construction Markets
As the number of COVID-19 global cases continues to rise, its impact on the construction industry has also become unparalleled. Based on events in Europe and China, the U.S. construction industry expects to encounter several challenges: labor shortages, disruption in the supply of materials, and city-wide shutdowns of construction sites.
Impact on material supply
Some low-end estimates indicate that the United States acquired approximately 30 percent of its construction materials from China. Some firms, however, are 80 percent dependent on China for their materials. Unfortunately, China-based suppliers and logistic companies have halted operations to contain the pandemic. This development has no doubt affected the material supply chain globally.
The United States construction relies heavily on the shipments of construction materials like copper, aluminum, steel, and stones and fixtures from China. The Port of Los Angeles experienced a 23 percent year-over-year cut in shipping containers in the early part of the year, following the shutdown of Chinese manufacturing facilities.
This disruption in the supply chain is not unique to California alone as contractors worldwide have been expressing difficulties in terms of acquiring construction materials. While several Chinese suppliers have resumed operations, they are operating with minimal workforces and are still prioritizing backlog orders.
Impact on contractor and labor
Following the rise in COVID-19 cases worldwide, emergency protocols and city-wide and state-wide shutdowns have been implemented. Undeniably, similar measures can significantly affect the construction community and trigger dramatic changes in the construction space.
Even in states and cities where construction activities are deemed essential, several site owners, contractors, and construction companies implement travel bans for employees. Many have also implemented travel restrictions for workers from high-risk states. The progression of most construction projects is impeded as a result of the skilled labor shortage.
Impact on the global economy
In the past months, the United States stock market saw one of its most significant declines since 1987’s ‘Black Monday.’ Investor anxiety has also understandably heightened as people anticipate the impact of the outbreak on the global economy. Some even speculated the pandemic has the potential to trigger another global recession.
Under recession conditions, market activities can be minimized significantly, and projects can be canceled or subjected to indefinite postponements. In similar scenarios, demand for materials can increase while the availability of labor can increase. For new projects that will emerge during the period, competitive contractor bids can become likely as the number of opportunities becomes scarce.
Impact on contracts
Despite the unpredictable nature of the COVID-19 pandemic, contractors can still become contractually responsible for cost overruns or delays. In line with this, owners and contractors should review their contracts carefully to determine where contractual duties and rights exist under the conditions brought about by the spread of the virus.
Ideally, it is recommended that owners review their contracts and take specific note of any force majeure provisions that will allow for work to be terminated or suspended. In some instances, opportunistic claims may be made. However, with the impacts of COVID-19, particularly on supply chains, many claims can be valid.
Managing the Impact of COVID-19: Here’s What You Can Do
With countless construction projects being put on hold indefinitely, it’s very apparent the pandemic will have an even more significant impact on the construction industry in the near future. Fortunately, all is not in vain. There are still various ways you can manage the effects of COVID-19. To mitigate the risks, and effectively manage this global pandemic, keep the following tips in mind:
#1. Get in touch with your insurer
If you are the policyholder, consider it your responsibility to know and understand the triggering events of many contractors’ insurance you are holding. Just like most people in the industry, you probably carry several policies to safeguard your commercial interests. This can include the builder’s risk, professional liability, general liability, business interruption insurance, and workers’ compensation, among others.
Since insurance policies are often complicated, it can be challenging to remember every claim and benefit of each plan. With that said, it is vital to pencil out time to go through all the policies you’re holding and discuss any concerns you may have with your insurer. Your insurer can also provide the guidance you need in terms of the claims and coverages applicable to your situation.
While viruses are considered standard exclusions to insurance policies, there might be losses or aspects of the current pandemic that your contractor’s insurance might cover. One important policy you need to evaluate is business interruption insurance. You might also find some level of coverage under your environmental insurance for disinfection.
#2. Implement social distancing measures at work
Let’s assume you are based in a state that allows construction work to continue despite the pandemic. The good thing about it is unlike enclosed office environments, it’s way easier to implement social distancing measures in construction sites.
If your construction project has been given the green light to continue, it would be good to come up with a plan to enable physical distancing (at least 1.5 meters apart) at the construction site at all times. One way you can also ensure physical distancing is observed is to limit the number of people working at the same time.
Also, consider creating a customized work schedule, so there won’t be as many people working on the site simultaneously. It would also be ideal to provide sanitizers at the job site and ample water and soap to encourage employees to wash their hands frequently.
It is also a smart idea to minimize the sharing of equipment. If the sharing of equipment is required, provide gloves and other protective gear to reduce the risk of contracting the virus.
#3. Assess your current financial position
With most businesses unable to operate at 100% capacity, there’s no denying the pandemic has put ventures in challenging financial situations. If you haven’t yet, now is the ideal time to assess your cash position and note all the additional and existing credit lines you have access to.
The good news is many financial institutions, and banks have expressed their commitment to helping businesses stay afloat, especially during this time of economic uncertainty. The government as well as set relief measures in place to help both small and large companies.
#4. Strictly monitor compliance with safety measures
As mentioned earlier, sanitation and social distancing measures must be implemented to keep everyone safe. However, implementing safety measures alone won’t suffice. It is also recommended that you strictly monitor if everyone complies with the safety measures you’ve set in place.
In addition to social distancing measures and proper sanitation, there should be temperature checks using non-contact thermometers. Members of the safety and monitoring team should also document any health-related or safety issues on site.
#5. Create a response plan
COVID-19 is considered a highly-communicable disease, and the risk of employees contracting the virus on site is always present. In line with this, it would be best to have a response plan in place, so everyone will know what to do in the event an employee exhibits symptoms while at work.
In cases where you need to send a worker home to self-quarantine or to seek medical care, you must approach the situation in a way that’s not discriminatory. It is essential to always remember that your employee has rights, and it is your duty to respect and uphold those rights at all times.
Create a response plan with your safety officers, HR, and the company legal counsel to ensure everything is fair for all parties involved.
#6. Keep everyone informed
There is no denying the COVID-19 pandemic is unchartered territory for almost everyone. It’s safe to also assume much is still not known about the virus. That being said, consider it your duty to provide everyone concerned with the current updates. Also, as the pandemic rages on, it is also vital that you are in constant communication with your suppliers, stakeholders, and employees.
If you still have ongoing construction projects despite the pandemic, you must provide your employees with the safest working environment possible. Also, it would also be a good idea to refer to guidelines issued by government agencies so you can ensure the safety of everyone at all times. With everyone doing their share, the construction industry has a good chance of managing the impact of this global pandemic.
About the Author!
Rachel Porter is the content specialist for Affordable Contractors Insurance, LLC, an Arizona roofing and contractors insurance company. When not writing, she enjoys reading and mountain biking with her friends.