Gordon Rees helps construction clients build for future

Construction projects have slowed while stay-at-home orders keep the nation indoors, and attorneys at Gordon Rees Scully Mansukhani LLP have noted a significant decline in contract review as owners and contractors are choosing to wait on new projects.

"What was once a steady stream of contracts to be reviewed and [to provide] our clients advice on has definitely slowed," said Ernest M. Isola, co-chair of the firm's national construction practice. "There's no question that the uncertainty to how long COVID-19 is going to remain is stopping a number of owners and contractors from entering into new deals or maybe taking the next step in terms of the contract."

The slowdown in contract review at Gordon Rees is indicative of what the rest of the nation is experiencing. According to the U.S. Department of Commerce, breaking ground on homes dropped 22.3% in March compared to February of this year. Construction law partner Brenda K. Radmacher said her homebuilder clients are facing delays in their projects.

"Some of this is a supply-chain issue, some is concern about the lack of qualified workers, and some is limited resources," Radmacher said. "That said, we are anticipating that the new projects will pick back up now that some of the initial few weeks' of the pandemic shutdowns have been clarified."

Isola also mentioned the problem of supply chain consistency, saying some businesses that supply construction companies with the materials they need to work, such as lumber or power tools, have been labeled as non-essential. He said that creates a problem when the essential construction projects can't secure supplies needed to build.

"We have been contacted by a number of our clients who manufacture products and provide infrastructure that are used in the construction process," Isola said. "In some instances the local governmental authority has temporarily shut them down because a decision has been made that they are not an essential business under the governing restrictions. In other instances, they are anticipating that more restrictive guidelines will impact their business, and they seek advice on how to best prepare and respond."

He said the advice he's offering these clients emphasizes public health but is also "geared toward economic survival." Though it's possible to have the non-essential label removed, he said that likely won't happen until the coronavirus curve flattens further.

One upside for home construction is Radmacher and Isola have found governments are typically designating housing as an essential construction service, in addition to projects such as building medical facilities and places that provide essential services to vulnerable populations.

Isola said the Bay Area, where he's based, has been more restrictive than other parts of California in terms of what kind of construction they're allowing to continue.

"What our clients need to do is, first of all, look at the state restrictions, in terms of what is being deemed essential and not, and ... have a good understanding of what that work is," Isola said.

Brenda K. Radmacher

Then, it comes down to determining which local municipalities may have different restrictions. For example, Radmacher mentioned a client with a project in Manhattan Beach had to stop work because the city completely shut down all construction.

Essential projects elsewhere are moving forward, meanwhile, with an increased need for safety measures, but construction companies are better equipped to handle those changes because of safety plans already in place, Radmacher said. It's just a matter of adding elements to comply with COVID-19 specifications.

"That's one of the things about construction," Radmacher explained, "a lot of the clients have looked at it and are saying, 'We can do our jobs in a manner that is going to comply with some of the social distancing guidelines and do it safely without spreading.'"

Radmacher said she's advising clients to implement social distancing measures, take workers' temperatures, use technology to reduce in-person contact and appoint a COVID-19 point person to oversee the on-site logistics of compliance.

For those projects deemed non-essential, Radmacher and Isola said clients have questions about everything from breach of contract claims to furloughs to contesting the non-essential designation. Isola said it would be tough to argue to a judge right now why a construction project deemed non-essential should actually be essential, and it's not just because the courts are closed.

"A judge will likely not make a decision that would put the health of the public at risk. We're saying you need to be fairly measured in terms of what you do right now," Isola said of advice he's giving clients. "Once the curve is starting to flatten and there's an easing of restrictions, that might present a better opportunity for challenging certain restrictions."

Some clients are facing the reality of furloughs and layoffs as construction projects halt. Radmacher said one client with projects in California, Florida, Kansas and Georgia told her she's doing everything she can to keep people working.

"For a lot of these companies, people have worked together for years, and it's heartbreaking for them to try to furlough people if they don't have to, so they are really trying to figure out how to utilize their staff," Radmacher said.

Sometimes keeping people at work means repurposing their skills, she said. For workers on a canceled project, she said she advises clients move people to essential builds or to find other ways to use them. Radmacher noted one client retrained an employee to act as the COVID-19 point person on an essential project.

Another major concern for clients is possible backlash for projects that are canceled or delayed, according to Isola, who said he's telling clients to look closely at their contracts for language about delays and acts of God.

"We're advising them to make sure that you're providing the proper contractual notice under your contract," Isola explained. "Later, when everything gets sorted out and the shelter-in-place is done and everyone's back to work, we can determine what your best defenses might be to a claim that you caused ... delay damage to a project."