Construction Law

Potential Impact of COVID-19 Related Shutdowns on Construction Projects featured image

Potential Impact of COVID-19 Related Shutdowns on Construction Projects

Industries around the world are feeling the impact of the pandemic now that it has been moving for over a year. For the construction industry, this means several major changes to how construction companies do business. In an effort to slow and stop the progression of the pandemic, government agencies around the world are calling for complete shutdowns of industries and social operations. In short, the work in the construction industry is being interrupted in an attempt to protect people from the virus.

The potential impact on construction companies is severe as it can destabilize the industry to make it difficult for companies to stay in business. In this article, a Chicago contractor attorney discusses the potential impact of COVID-19 related shutdowns on construction projects.

Related: Preparation for the Job Site Mandated Shutdowns due to COVID-19

Project Delays

The most common impact on construction companies will be the delays in finishing projects. For a shutdown to be effective at stopping the virus, it must last for at least two weeks. That means that all nonessential work will be stopped, and no one will be allowed on construction sites without an important reason to be there. These interruptions to work will slow down companies’ ability to finish projects on time and on budget.

Delays become an even bigger problem when you consider the contracts that these companies negotiated. Delays are a common issue on construction projects because property owners want to finish the work in a specific amount of time so that they can use the property to make money. Any delay in the opening of a new facility can cost a property owner a lot of money. Consequently, construction companies often face fines and other stipulations in contracts should they fall behind on the project.

As more shutdowns are organized, there is more likely to be an increase in legal action between property owners and construction companies. From the perspective of the construction company, these delays are out of their control and may fall under exemptions in contracts based on the lack of control. Property owners, on the other hand, can level arguments that play a construction company liable for the costs of delays. Going forward, collaborations between construction companies and Chicago construction attorneys are likely to happen more often as legal cases over delay liability become a more common part of the construction industry.

Related: The Importance of Documenting Project Delays and Damages Caused by the COVID-19 Pandemic

Permit Overruns

Construction permits usually have a set amount of time that they are valid for. The timer starts the day that construction begins and runs for a period of time uninterrupted by outside forces. This means that shutdowns can cause construction projects to run into permit overruns, where the construction exceeds the amount of time that the permit is valid for. When this happens, all construction has to stop immediately until the permit can be renewed. Construction companies may need the help of a Chicago construction law firm to handle the renewal process quickly and get everyone back to work. 

While this may not seem like much of a problem at first, it can cause a major delay in the project. Permits can take a long time to get if it is a large project. On top of that, there is no guarantee that the new permit will be awarded. In the worst-case scenario, the property owner and the contractor can lose the permits to complete the project that they already started.

Supply Chain Issues

The pandemic is already causing supply chain issues that will impact the construction industry. Construction relies on a global supply chain to acquire materials for specific types of work. For example, steel is produced in several countries, while other countries generally outsource raw materials like gravel and stone products. Being able to acquire these resources is critical to a construction project, but many construction companies are facing serious delays due to transportation shutdowns and manufacturer shutdowns.

While it may still be possible to acquire the needed materials at a reduced speed, it’s more likely that those materials will cost more. Since companies are not able to produce and sell at the same rate that they did before the pandemic, many manufacturers and suppliers are increasing their prices to compensate. If your construction company has already purchased the materials, it will likely do so at a more expensive cost going forward. This can significantly impact the cost of completing a project and make it far more expensive than originally thought.

Related: Construction Companies Report Experiencing Supply Chain Disruptions Due to Coronavirus

Government Intervention 

Governments around the world are also taking action to help companies that are impacted by the pandemic. This government intervention can take several forms. A common method of trying to help construction companies is through tax breaks. By reducing their tax liability, construction companies can put more resources into completing projects. Stimulus packages have also included financial payments to help keep construction companies out of debt. 

The impact on construction companies varies based on the company and the amount of debt that they have, as well as other factors that are specific to each company. Overall, the construction industry is still seeing a downward trend in the number of available projects and company earnings, which will likely not recover until a few years after the pandemic is over and life returns to normal.

Construction companies are being hit hard by the impact of the pandemic. However, many firms are finding ways of moving forward and keeping operations running until they can return to normal. If you have questions about how your business can survive the pandemic, contact one of the Chicago construction attorneys from Cotney Attorneys & Consultants.

If you would like to speak with one of our Chicago construction lawyers, please contact us today.

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.