Impact of the Coronavirus on the Roofing Industry
COVID-19 is a global threat. It is affecting health, living, and the economy. It is also affecting the roofing industry, so contractors need to be ready.
As with the medical field, prevention is the key. As the virus spreads, employers need to take preventative measures. The number of cases is rising which means you need to be prepared. Employers must have procedures in place for their workers to maintain health and well-being. The trouble is there is not much case law to go by for guidance, as dealing with pandemics is not a common issue.
OSHA has taken initiative to remind employers of their existing standards, focusing on OSHA’s Personal Protective Equipment standards. The Bloodborne Pathogens standard does not apply to coronavirus but it can serve as a helpful framework to put standards into place. There is also an OSHA webpage that provides employers with all current information on the virus. This is to help them establish guidelines and procedures for their workplace.
The Equal Employment Opportunity Commission’s advisory is also a great resource. This features a “Pandemic Preparedness” guide for employers. One key feature is that employers have a broader scope for questioning their employees on health issues. This is normally prohibited. They can request information about travel or when employees are showing flu-like symptoms. They can request for employees to have their temperature taken and can send them home at their discretion.
These measures can only be taken however when an employer feels the employee is a direct threat. There has to be a risk of substantial harm to the health of the individual or the other employees. Employers have to be careful not to violate employee rights and these guidelines are provided. Any information gained cannot be shared and adverse actions such as termination cannot be done.
The Impact on the Supply Chain
The impact of the virus in China is impacting the world in terms of production. Global markets and supply chains are feeling the strain. Mass quarantines, curfews, and travel restrictions are crippling Chinese shipping. This is affecting the roofing industry too. Specifically, the most drastic effects can be seen in the supply of solar roofing. Production has almost come to a stop as China is where 70% of these panels are produced.
Other materials are also seeing a decline in production. Aluminum, plastic, timber, and rubber have all declined. The lack of workforce has been the driving reason. Currently, manufacturing plants in China are believed to only be operating at 30%. This will continue to hit the roofing industry until the situation improves. U.S. roofing companies can expect to begin feeling higher costs and price fluctuations, material shortages, logistics breakdowns, order cancellations, and extended delays in product fulfillment and shipping.
Ultimately, project completion will slow which affects suppliers and project managers. Roofers are advised to begin preparing for these effects now by evaluating their own supply chains from end to end to pinpoint vulnerabilities. You need to identify potential alternative supply sources, preparing for costs to soar, and making sure you have adequate provisions to protect against increased costs, supply chain delays and interruptions.
Include Force Majeure Clauses
This needs to be in your contracts. This allocates the risk of performance if performance is delayed indefinitely or stopped as a result of circumstances outside of a party’s control. It also provides notice to the parties of the types of events that would cause a project to be suspended or that would excuse performance such as coronavirus and supply issues.
The party impacted by the force majeure is protected by temporarily suspending or terminating the contract due to unexpected and unavoidable events. The event must be beyond the control of the contracting parties, it cannot be anticipated, foreseeable, or expected, and the event must be unavoidable. At this time, the coronavirus pandemic and its global economic impact are covered under this.
The following elements should be addressed in a force majeure clause:
- What events are considered force majeure?
- Who is responsible for suspending performance?
- Who is allowed to invoke the clause?
- Which contractual obligations are covered by the clause?
- How is the inability to perform determined?
What happens if the event continues for an extended time period?
If your company already has this clause in place, it would still be wise to review those provisions to make sure they are clear. Make sure terms such as “widespread epidemic,” “pandemic,” and/or “public health emergency” are added. Since courts will interpret the clause based on the wording, these key phrases need to be included.
Price Acceleration Provisions
Contractors need to consider adding terms to their contracts to protect themselves from labor and material price increase. A price acceleration provision allows the roofing contractor to adjust the contract price to reflect the revised actual cost of the labor and materials. The price acceleration clause is usually limited to increases in materials over the course of a single project.
The contractor also needs to provide the prime contractor or owner with evidence supporting the claim for additional compensation. Price acceleration clauses also sometimes contain a termination for convenience provision. This will enable the contractor to escape a contract if the cost of materials has increased too much.
A roofing contractor may find it difficult to include a price acceleration clause in its contract with a prime contractor because both the owner and the prime contractor are looking for fixed prices initially. In this situation, the roofing contractor should consider buying and storing materials prior to construction to avoid any potential increases later on.
Requesting a deposit to purchase the requested materials is also a good idea. The subcontractor should consider requesting that the prime contractor also add a similar provision in its contract. This way the prime contractor can seek additional funds from the owner for any labor or price acceleration that occurs throughout the project.
Roofing contractors should also be cautious when providing firm bids for projects. Especially, if they will not begin construction for a few months. In these cases, the contractor faces additional exposure for any increases in the costs of labor and materials caused by the coronavirus pandemic. Estimating these jobs thoughtfully, and conservatively can potentially make or break a roofing contractor. Especially since the extent of the repercussions of the coronavirus on the market is not yet known.
Since there is no current vaccine for the coronavirus and the number of infected individuals continues to rise, there is no way to know when the economy will normalize. Roofing contractors need to take steps to mitigate their risks and protect themselves. As the virus remains at large, there will be impacts to the U.S. construction industry, after the shock wave from China’s supply lines spreads.