Monday, March 23, 2020

Modular Construction Industry Braces for Post COVID-19

It is just a matter of time before the effects of COVID-19/coronavirus spread through the modular housing industry’s current and future projects.

The coronavirus will have a profound impact on modular construction if modular home factories across the country are forced to close their production lines.

I was told by an industry expert that a problem facing every modular home factory and in fact every factory that has been shut down is mandatory testing of employees before being allowed back to work.

As workers become infected, sick and quarantined, labor shortages could very well arise which will push many projects to be behind schedule, both residential and commercial.

Homeowners, factories, contractors and modular home builders will be involving their lawyers and reviewing their contracts to determine their rights and obligations about time delays, loss of income and business viability.

Construction projects always have a ‘time for completion’ component and many contractual provisions may certainly come into play in any construction project which is affected by labor shortages from the coronavirus. Can these contract clauses be enforced if the delay was caused by the Coronavirus shutdown?

There are many terms all parties need to be concerned about including the various contractual terms relating to the factory’s, builder’s and contractor’s schedules, substantial completion, delays and liquidated damages

The shutdown of modular home factories may cause problems for the builder or the homeowner regarding delays, substantial completion and even force majeure events. Force majeure refers to a clause that is included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations.

A bigger potential problem is whether such labor shortages gives one party a good excuse to invoke the ‘Termination for Convenience’ clause of the contract in order to find and hire another factory, builder or contractor who can provide sufficient labor force to complete the project in a timely manner.

I also learned that China traditionally manufactures extra product for all industries worldwide just before Chinese New Year in order not to disrupt their supply chain to the US and other countries. The Coronavirus prevented that build up of product this year and the last regular shipments of construction material arrived in US docks in mid-February.

China’s factories have still not reopened producing construction material which puts the burden of restocking on US manufacturers which are also closed.

Watch for new contracts to be drafted by both sides in order to protect their financial positions and that might open another whole can of worms.

Gary Fleisher is a housing veteran, editor/writer of Modular Home Builder blog and industry speaker/consultant.

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