Over the past 18 months, construction costs have escalated dramatically, with the pandemic triggering tumult in the labor market, upending the supply chain, and sending materials prices to historic highs.
Now, while some owners try to keep their projects on track and their jobsites safe by requiring vaccines for contractors, suppliers, and trade subcontractors, they may be inadvertently exacerbating their already worrisome financial risk. A closer look at the situation reveals how these elements are interrelated, and what can be done to offset the negative effects.
The tight labor market shows little sign of loosening up anytime soon. A 2021 survey by the Associated General Contractors of America (AGC) and Autodesk found that nearly nine out of ten contractors are having difficulty in finding skilled craftworkers; this is nearly double the figure from 2020. The Bureau of Labor Statistics takes a longer view, confirming the monthly job openings in construction reached the highest level recorded in more than two decades.
Compounding the worker shortage is the general antipathy towards the vaccine that pervades the field. In conjunction with the Delphi Group at Carnegie Mellon University, the Center for Construction Research and Training (CCTR), an organization dedicated to reducing occupational injuries, illnesses, and fatalities in the construction industry, has tracked the trends and patterns of COVID-19 vaccination and hesitancy among construction workers in detail. The most recent data shows that 38% of construction workers are vaccine-hesitant, compared to 15.6% of people in other occupations. A similarly sized gap, 24.3%, separates the vaccination rate among construction workers (57%) and those in other fields (81.3%).
Taken together, these two factors result in some serious unintended consequences for owners who choose to implement a vaccine mandate that all trade labor be vaccinated (unless there is a medical or religious exemption). We are not talking about a policy that those who are not vaccinated need to be tested every week or even twice a week to work on a project site. What we are experiencing are owners who want a totally vaccinated work force only (but for the allowable exemptions).
Considering the shortage of trade labor, coupled with a work force resistant to vaccination, contractors will undoubtedly incur extra costs, whether it’s to recruit qualified vaccinated labor (and possibly foot the bill for workers’ vaccines), to pay a premium to attract vaccinated labor, or to import vaccinated labor to a project site. The result will be that general contractors will file claims for additional money. And if, as is likely, a smaller work crew is ultimately assembled, it will take longer for them to complete the project. GCs can then make delay claims as the job schedule slows, further depleting the project budget. Even if the workforce was not resistant to vaccination, the time it will take to get the workforce fully vaccinated will cause disruption to progress on site, which in turn is an additional burden on the cost and time to complete the project.
While contractors typically have limited recourse to filing claims for additional fees or delays, this case may be different. When a vaccine mandate is an owner-driven policy, rather than a CDC or NIH guideline, it can be viewed as what’s called a “constructive change” to the construction contract. Under these circumstances, general contractors and their subcontractors are entitled to ask for additional funds and/or delay costs in order to comply with the owner’s changed requirements to the contract. In different circumstances, when workers are not given access to federal or state sites due to policies that were driven by the executive order from our President, GCs can also look into the change of law clauses in their contract for relief to costs and delays.
This is unlike a standard force majeure clause event—when unforeseen, extraordinary events prevent a party from fulfilling the agreement, and contractors can be awarded additional time (but no money) to complete the project. Owner direction to implement a vaccinated work force can lead to claims for changes to the contract and interference with a contractor’s means and methods, giving rise to the constructive change claim. There’s little incentive for the construction industry as a whole to mitigate this situation; it will fall to owners to do so. It’s critical for owners to understand the potential cost and delay consequences if they embark on a 100% workforce vaccination policy, and make the difficult decision if it will be too detrimental to the project to implement. Owners need to weigh the potential costs associated with a mandated vaccination policy to the approach of protecting the physical health of workers and the fiscal health of the project by requiring weekly COVID testing for unvaccinated people. If the labor force regularly tests negative, and can keep coming to work, it will ease the pressure on general contractors and trade contractors under a workforce shortage and an under-vaccinated industry population to keep construction moving forward.
As seen in Engineer News Record, October 2021
Executive Vice President, North America | General Counsel