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The Construction Advantage, Looking Back, Looking Forward: Construction in 2020/2021, the New Stimulus Bill and the Construction Forecast
Looking Back, Looking Forward: Construction in 2020/2021, the New Stimulus Bill and the Construction Forecast
Happy New Year. As most people know, a new stimulus bill was recently passed by Congress and signed by Former President Donald Trump. As we turn the page to 2021, this article highlights the portions of the stimulus bill that, for the most part, provides funding in different areas, and then looks at the forecast for construction issues in the upcoming year. In summary, the problems wrought by the COVID pandemic, and the construction industry generally, will push forward into 2021.
The new stimulus bill provides $284 million in new PPP funds, the qualifications of which you can read about here if you are thinking of applying again. A significant portion of the funds authorized by the act go directly to different construction sectors including:
- 10 billion for state Departments of Transportation;
- 10 billion of the Water Resources Development Act, dedicated to ports, harbors, and waterways;
- 7 billion for further broadband development;
- 82 billion for education, including monies devoted to post-pandemic education construction;
- 35 billion for solar and other clean energy projects;
- 8 billion contained with the National Defense Authorization Act for military housing;
Although employers didn’t get the liability protection measures that they have been demanding throughout the pandemic, significant monies are being devoted to construction for 2021. From a funding perspective, the construction industry is in a positive place with room for growth.
Nationally, there is clearly pent up demand from projects that got stalled by the pandemic in 2020, and most don’t see a real recovery until the second half of 2021. Many of the businesses hit hard economically in 2020 are small business such as subcontractors. As the pandemic drags on, some of them may simply go out of business, because their reserves simply run out. Additionally, large general contractors may be forced to bring more work in house, clashing with a labor shortage in the industry that has existed for several years. Add to this that some material costs are experiencing major volatility, and an escalation in costs that will lead to busted budgets, and disputes between owners and contractors.
Then there is the continuing pandemic. As the vaccine rolls out, many employers will grapple with the propriety of mandatory vaccine programs to add to their already existing COVID health protocols. This on the heels of OSHA levying $3,930,381 in 300 citations related to COVID violations.. COVID will continue to be a front and center issue for contractors in, at least, the first half of 2021.
Also, with the change in administration, many expect both a renewed focus on environmentally sustainable projects and an increased focus on infrastructure with President Biden’s Build Back Better initiative. I wrote about this back in 2012, and we are no better off now. Much of the PPP funding is related to infrastructure, and industry leaders are hopeful that Congress will tackle a bi-partisan bill aimed specifically at infrastructure in early 2021.
ME’s 2020 experience bucked national trends in some respects. According to the Associated General Contractors (AGC), ME was only 1 of 15 states to see a rise in construction jobs during the time of the COVID pandemic, starting in February of 2020. Construction jobs in ME rose by 1.7 percent while the national decline was 2.4 percent. Experts from AGC predict that 2021 will be seeing major national declines in retail, lodging, private office, K-12, public and higher education construction, but that gains will be made in construction of warehouses, clinics and labs. In ME, the rise in 2020 can be explained by completion of existing projects, and a rise in residential housing as people continue to come to ME in lieu of staying in more congested cities and larger suburban areas. The Work From Home (WFH) movement clearly assisted in this continued migration to ME.
Our Construction Group at Bernstein Shur will keep you apprised of construction developments as the construction market delves into 2021. Please reach out to us with your construction needs and industry and legal questions, and here is to a healthy, fulfilling, and prosperous construction season in 2021.
Read more HERE about what to expect in 2021 from an article published earlier this month by Asha Echeverria.
For What it’s Worth…
A few months ago, I wrote the first installment in what I envisioned as a series of observations drawn from many years practicing construction law and representing contractors in construction disputes. That first article focused on the problems often encountered by contractors who engage unfamiliar and sometimes less qualified subcontractors and suppliers without doing appropriate due diligence.
Today I want to focus on another frequently recurring fact pattern in the cases I have handled. This one involves the inevitable changes in the scope of a contractor’s work on a construction project, and the way contractors and owners manage and respond to such changes.
Scope changes arise in many ways. Most often, they are the result of decisions by owners and architects to modify or enlarge the project reflected in the original contract documents. In other instances, extra work is required by unforeseen conditions encountered by the contractor once construction is under way. And in other cases, work beyond the scope of the contract is required by authorities having jurisdiction over the project.
In my experience, it is the rare construction project, whether residential, commercial or industrial, that does not involve changes in the original scope of the work. When these changes arise, they often lead to disputes that require resolution in one way or another.
Disputes arise, for example, when project participants disagree on whether work required by an owner or architect is in fact outside the scope of the contractor’s responsibilities. In these cases, the failure to resolve the issue before work is performed and costs are incurred leads to questions of entitlement to additional compensation or time to complete the project.
A related issue that often arises is the amount of compensation or time to which the contractor is entitled for work outside of the original scope of the contract. That is, even when there is agreement that the work is in fact extra, there may not be agreement on how the contractor is to be compensated. Many construction contracts provide a mechanism for resolving such issues while the project continues, but others are silent and provide little or no guidance under these circumstances.
Another common source of disputes is the failure of contractors to follow procedures set forth in the contract when extra work is ordered or expected. Most construction contracts contain provisions requiring a written change order to be signed before any work is performed for which the contractor expects additional compensation. In spite of these provisions, it is common for contractors to perform extra work without a change order, at the request of an owner or architect or simply in order to keep the project on schedule. When the contactor then seeks an adjustment to the contract sum or the contract time, or both, the owner may raise the failure to comply with contract terms related to scope changes or notice of claims in denying or resisting the claim.
What can be done to avoid disputes over scope changes? For owners and contractors alike, as well as other project participants, the best way to avoid disputes is to consult the contract and follow it. In my experience, disputes over scope changes are almost always susceptible to resolution when resolution is sought before the extra work is performed. In particular, contractors should resist the temptation to perform extra work, even with the encouragement or assurance of an owner or architect, without reaching an understanding regarding compensation and reducing it to writing in the form of a change order.
Finally, contractors must always take into account the impact of scope changes on the time it will take to complete the project. All too often, contractors are focused on compensation for extra work and neglect to consider and request, when necessary, an adjustment of the contract time. I cannot count the cases that I have handled in which the contractor has failed to complete the project on time and points to the extra work performed to justify the delay. Unfortunately, where the contractor has neglected to reach an agreement on a time extension as well as additional compensation, the absence of a change order adjusting the contract time may make it difficult to defend a claim of delay by the owner.
The bottom line is that all participants in a construction project should pay careful attention to scope changes as they arise and make sure that their interests are protected. Complying with the contract in all respects is the best way to avoid costly disputes.
Biden Administration Increases OSHA’s COVID-19 Regulation and Potentially Greater Enforcement Measures Against Employers
From the onset of the coronavirus pandemic businesses have been subject to an ever-evolving set of safety regulations and recommendations from local, state, and federal agencies. Enforcement has similarly been a moving target.
Over the course of 2020, the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) issued over $3,930,381 in citations arising from 300 inspections for violations related to coronavirus. A January 8, 2021 report by OSHA detailed that employers commonly failed to:
- Implement a written respiratory protection program;
- Provide a medical evaluation, respirator fit test, training on the proper use of a respirator and personal protective equipment;
- Report an injury, illness or fatality;
- Record an injury or illness on OSHA recordkeeping forms; and
- Comply with the General Duty Clause of the Occupational Safety and Health Act of 1970.
Workplace violations are likely much greater than OSHA’s report might indicate. Reuters recent inquiry into the issue concluded that despite the substantial volume of citations, that state and federal regulators had largely disregarded complaints from facilities that failed to comply with applicable COVID-19 protection standards.
On January 21, 2021, during his first day in office, President Biden issued an executive order directing U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) to step up its enforcement efforts and to issue new rules requiring employers to take additional precautions.
OSHA responded on January 29, 2021, issuing guidance entitled “Protecting Workers: Guidance on Mitigating and Preventing the Spread of COVID-19 in the Workplace.” Similar to OSHA’s prior recommendations, this guidance was not mandatory and lacked any regulatory effect. Significant new measures addressed in the guidance include:
- Assignment of a workplace coordinator responsible for COVID-19 issues.
- Proactive hazard assessment of where and how workers might be exposed to COVID-19 at work.
- Provision of “reasonable accommodations” to workers at higher risk for severe illness through supportive policies and practices.
- Implementation of non-punitive policies for workers that need to quarantine or isolate, including implementation of paid-leave policies.
- Making COVID-19 vaccine or vaccination series available at no cost to all eligible employees.
In ME, labor groups including the AFL-CIO have already called to state and federal agencies to implement these new guidelines so that they are legally binding and enforceable. Even if the new OSHA guidance is not approved as regulation, employers are guaranteed to see an increase in inspections and fines in the coming future.