The effects of the COVID-19 (Coronavirus) pandemic are being felt throughout the economy. No matter what trade you may be in, every small business faces some similarities in this crisis. You may have questions about the Paycheck Protection Program and Small Business Administration loans. And of course, every small business runs on cash flow, and collecting what you are owed can be difficult in these trying times. The construction industry is no different.
Some construction projects are considered “essential” and not subject to the governor’s shutdown order. The Federal Cyber and Infrastructure Security Agency (CISA) regards construction and repair as “essential to continued clinical infrastructure viability” to the extent that the construction industry is supporting the operation, inspection, and maintenance of essential public works such as bridges, streets, water and sewer mains, traffic signals, and other critical or strategic infrastructure, as well as maintaining the safety, sanitation, and essential operation of residences. Similarly, to the extent that engineers and construction personnel are providing necessary communications and information technology, they may be considered essential. While the CISA guidelines are not intended to be authoritative, and each state or county may be issuing its own guidance, they do provide some basis on which to evaluate whether construction can continue during a shutdown order.
Even where a contractor is able to work, they must be aware of potential health hazards, and take appropriate steps to preserve the health of workers by following the latest CDC guidelines. Contractors should also work with employees and subcontractors regarding who is able to work and ensuring social distancing for the safety of their workers.
One subject of great importance to every small business is the ability to collect money. When trouble strikes the entire system, it tends to flow through from business to business. If the general contractor does not get paid, it cannot pay the subcontractor, who then can’t pay the materialman. Practically, there may be only a limited amount that can be done, because, as the saying goes “you can’t get blood from a stone.”
To help stay afloat during this difficult time, construction companies and contractors should look at the various emergency funding options offered by our federal government. The recently passed CARES Act provides provisions for banks to offer some businesses low-interest loans that may be forgiven in an amount equal to payroll, mortgage interest, rent and utilities for the eight weeks following the loan, subject to certain limitations. SBA Economic Injury Disaster Loan (EIDL) loans are also available.
Additionally, in the construction industry there are protective laws that may help.
First, the Contractors and Subcontractors Payment Act provides powerful remedies for both contractors and subcontractors whose work is performed but who do not receive payment. Among other things, it requires owners who are not paying due to a good faith dispute about deficiency or workmanship to give notice of that deficiency within 14 days of receipt of the invoice. Failure to pay can make an Owner or General Contractor liable for interest, penalty and attorney’s fees.
Additionally, those going unpaid may be able to file mechanic’s liens against the real estate improved by their material and labor. However, in order to file a mechanic’s lien, parties must act promptly, as there is a short and very strict six-month statute of limitations. The COVID-19 shutdown may prove difficult for parties who do not currently have the resources to pay, and contractors should watch the deadlines for the potential to file any mechanic’s lien. Note that the time limit for a mechanic’s lien runs from the last day of work on a job site. If your work was interrupted in March but resumes in May or June, the six-month date would move out to six months after the day you finished the project in June.
We will continue to monitor this ever-changing situation and will provide periodic updates. If you would like assistance in assessing your business’ protocols and policies, our attorney team is here to help. If you have any questions, please contact us using the form below, or give us a call at 610-797-9000. We wish you well during these extraordinary times.