By April 10, 2020, the Associated General Contractors of America revealed more than half of the construction firms in the United States had stopped work and 40 percent had laid-off employees, due to the coronavirus pandemic. 74 percent are seeking loans using the new Paycheck Protection Program.
In one week’s time, the number of canceled projects more than doubled. Shortages, including personal protection (masks) and construction materials, were reported; a small percentage of contractors reported equipment shortages.
“The construction industry is ready to rebuild our economy,” said AGC CEO Stephen Sandherr, “But that can’t happen without strong federal support and investments.”
EPC Contracts Will – or Won’t – Protect Construction Firms
Projects that aren’t being abandoned will need to return to the table for renegotiations, but not quite yet. No one is able to predict when our country will return to nearly normal.
All bets are off regarding future market shifts. No one can recall dealing with anything like this. Ever. Every industry in the world has felt the impact of COVID-19.
Most project developers feel as if we’ve gone far beyond standard “force majeure” language in construction contract terms. “Contractors will likely re-think whether traditional exclusions for relief are acceptable,” said law firm White & Case.
EPC (engineering, procurement, construction) projects have been scuttled due to government-imposed regulations. Cities, state, and federal shelter-in-place requirements may impact force majeure unless there are changes in law; specifically, changes in the language of some laws. Contracts between construction firms and developers and stakeholders/investors will come under close scrutiny.
Recovery is Guaranteed
We’re Americans. We always come together in times like this and we will come back better for it. Try to avoid hard-and-fast business decisions based on economic advisories. However…
After examining the numbers – coronavirus and economic trends – here are what equity analyst Preston Caldwell and CFA Karen Andersen suggest:
- Restrictions will begin lifting in June 2020.
- Social distancing measures will return as the virus resurfaces throughout the year.
- The dire predictions regarding long-term economic disruption are incorrect.
- Fiscal stimulus should prevent a collapse in demand.
“Overall, we still expect a modest long-run economic impact, with GDP down 0.9%,” said the researchers. “In our view, a COVID-19 recession doesn’t fit the mold of a 2008-style recession with longer-lasting economic impact.”
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Looks like you were right David! Construction spending seems to be recovering quite nicely.