Below is an excerpt of an article published in Construction Executive on September 9, 2021.

The prices of raw building materials have risen dramatically over the past year, primarily because of the global pandemic and trade policies implemented by the previous administration, thereby jeopardizing construction projects that did not mitigate the risks of material price escalation.

Material price escalation is not new to the construction industry, which has experienced historic periods of price escalation known as commodities supercycles, often referred to as periods of time when commodity prices rise above their long-term trends for at least 10 years followed by a downturn of similar duration until supply meets demand. The industrialization of the United States in the late nineteenth century, the post-war reconstruction of Europe and Japan in the 1950s, the oil embargos of the 1970s and the industrialization of emerging nations such as China in the early 2000s are identified as commodities supercycles.

Over the past few months, commodities traders and economists have debated whether a new commodities supercycle is underway as raw material prices continue to rise. The Producer Price Index for July 2021 published by the U.S. Department of Labor, Bureau of Statistics, reported for the 12 months ended in July on an unadjusted basis, that the final demand index increased 7.8%, the largest advance since such data was first calculated in November 2010 and that the final demand index less foods, energy and trade services rose 6.1%, the largest increase since such data was first calculated in August 2014.1

Over the past 12 months ended in July, the price of natural gas is up 146.7%, steel mill products are up 108.6% and crude petroleum and unprocessed energy materials are up 102.9% and 93.8%, respectively. The price of softwood lumber is now up 45.0% after decreasing significantly over the past two months.

While history and the market dictate that prices will eventually come down, it is unclear when or if they will not continue to rise as did the price of copper when it quintupled from 2000 to early 2011. Accordingly, it is in the best interests of all stakeholders – owners, contractors, subcontractors and suppliers – to mitigate risks associated with material price escalation on construction projects. Read the article.

While its ultimate passage remains unclear, on August 10, 2021, the United States Senate approved passage of the Infrastructure Investment and Jobs Act (H.R.3684) (“the Act”). According to the bill’s sponsors, the Act aims to accomplish the following: Continue Reading Public Works Construction Projects Set to Increase if Infrastructure Investment and Jobs Act of 2021 Becomes Law

Below is an excerpt of the “Legal Column” published in the Summer 2021 issue of PE Magazine, the flagship publication of the National Society of Professional Engineers (NSPE).

Prior to COVID-19, the term “design to budget” was probably not a scary concept. After all, modern designers always consider the client’s budget when putting our Leroy pens to paper. However, given skyrocketing material costs and the postpandemic challenges of the current labor market, the obligation to design to budget can be an unsuspected and sometimes overlooked source of exposure. In this article, we’ll look at some of the provisions in the standard industry contracts and consider how they can affect designers’ exposure for construction cost overruns. Read the article.

Robinson+Cole’s Construction Group hosted its fifth Construction Industry Roundtable on June 15, 2021. The Roundtable was conducted virtually for the second year in a row, which allowed representatives of major design and construction industry organizations and stakeholders throughout the Northeast to participate. The discussion focused on the state of the regional market, nationwide trends, and what to watch for in 2022.

The Roundtable opened with a presentation on modular construction from Tom Hardiman, the Executive Director of the Modular Building Institute.  Modular construction is a delivery process that shifts some construction to off-site locations and fabrication sites. Mr. Hardiman noted that the modular industry market share has doubled in the last five years from about 2 percent of new construction starts in the U.S. to about 4 percent, and he expects that growth to accelerate. He highlighted the benefits and challenges of modular construction. The advantages derive largely from the more controlled setting of offsite work, increasing worker safety and efficiency while limiting waste and on-site congestion. The market conditions that have driven growth in modular construction include a shortage of skilled labor, continued pressure to deliver on time and on schedule, increasing demand for environmentally-friendly construction, a heightened focus on worker safety, and the growing needs in groups amenable to modular construction, such as housing and healthcare infrastructure. Particularly in areas of high housing costs, modular construction may provide a cost-efficient alternative to traditional construction.

The ensuing discussion highlighted industry conditions that operate to maintain the status quo and hinder greater use of modular construction. Labor laws and most construction contracts are designed for site-built construction. Prevailing wage laws and local building codes with inspection and supervision requirements contemplate a delivery model in which labor is local and city officials can easily access in-progress construction. In fact, New York City recently considered, but did not pass, a bill that would have required continuous supervision of modular construction by NYC-licensed inspectors, regardless of the location of modular construction. Such laws threaten the feasibility of cost-efficient modular construction. The modular industry and ANSI (the American National Standards Institute) are working to develop standards for review of off-site construction.  If no uniform standard is adopted, and it were left by default to local building codes, which differ materially across the country, compliance by regional, national and international modular suppliers would only continue to be a challenge.

Other challenges include a lack of quality contract forms for modular construction delivery (although the recently-released ConsensusDocs 753 is a promising start).  Without industry-tested and accepted contracts and usage, some owners, general contractors, and construction managers simply may view significant off-site construction as too risky. Mr. Hardiman also noted that although there are about 125 factories across the U.S. and Canada, each of which can ship within 500 miles with reasonable efficiency and shipping costs, factories suited to specific project types are not always available in the geographic area of the project.

The Roundtable next discussed the topic of price escalation and market impacts. The group noted that price escalation affects the current prices of not only lumber, steel and other materials, but also skilled labor. With limited options for contractors to get relief for increased material costs on projects already under contract, increasing attention is being paid to escalation (and de-escalation) clauses in contracts. Some attendees noted that projects in their markets are being put on hold because of cost escalation, some at the recommendation of construction managers. When the original program becomes too expensive, owners and developers are faced with the difficult decision of whether to buy less building or attempt to extend the life of current buildings through adaptive reuse. There was optimism in the group that costs will drop again this year; there already is evidence that lumber prices are going down as COVID-19 restrictions start to lift.

The Roundtable weighed in on the potential passage of a federal infrastructure package. Most agreed that the infrastructure bill would not pass in the form that originally had been proposed, but all hoped that something could be passed. Most believed that any passed infrastructure bill would likely include green construction. Some already have observed contractors in their regions preparing for infrastructure procurement by teaming up with major players from Europe who have more experience with green construction. For many large design-build projects, whether green or not, contractors will be teaming up. Workforce will likely be the largest concern in implementing projects under any eventual infrastructure bill. With pre-pandemic labor shortages that have not improved, there will need to be a larger workforce to meet the demands of an infrastructure bill.

The other major federal legislation discussed, the Protecting the Right to Organize (PRO) Act, was a significant concern to several in the group. While there has been some discussion as to potential compromises related to the bill, all agreed that it is unlikely to go anywhere this year in its current form. Some senators from non-union states face little public pressure to pass it and the breadth of the PRO Act has led many organizations, both inside and outside of the construction industry, to oppose the bill.

The Roundtable concluded with participants sharing recent programs and initiatives in their sectors to promote diversity and inclusion within the design and construction industry. All participants recognized the need for the construction industry to redouble its efforts to appeal to people of diverse backgrounds. It was emphasized that the industry needs to do a better job of recruiting from diverse neighborhoods and opening access points to the industry at all levels, especially considering the general labor shortage. Many firms and groups have taken concrete steps to support equity, diversity, and inclusion, and even arbitration panels are becoming more diverse.  Steps have been taken to examine the impact of various state set-aside laws, and hiring practices are changing to better promote a diverse workforce. The group agreed that it is important to continue this discussion and for all involved to take affirmative steps to continue and accelerate progress on this front.

Robinson+Cole would like to thank all those who attended for joining us and sharing their valuable insights. We hope to continue to grow these discussions in the future.

Below is an excerpt of an article co-authored by Megan Baroni and Jon Schaefer and published in Construction Executive on May 26, 2021. Megan and Jon are partners in Robinson+Cole’s Environmental, Energy + Telecommunications Group.

There are a number of best practices that an employer may wish to follow when faced with any Occupational Safety and Health Administration inspection, including:

  • determining the reason for the inspection;
  • obtaining a copy of the complaint;
  • designating an employee representative;
  • accompanying the inspector on the visit;
  • documenting the inspector’s findings;
  • providing requested documents; and
  • being prepared for follow-up.

But how are these best practices complicated by a global pandemic? Over the past year, COVID-19 has brought changes to construction workplaces and to OSHA’s inspection and enforcement focus. The construction industry has kept moving in the face of these challenges, but COVID-19 has and will continue to impact workplaces, and workplace procedures, into the future. Read the article.

When a party to a construction contract is faced with nonperformance of another party, often the desire to keep the project moving takes precedence in responding to the performance default. Problems arise, however, when the party who is owed the performance acts without first considering the terms and conditions of the written instruments governing the parties’ relationship on the project. For example, a construction contract may require the posting of payment and performance bonds guaranteeing, among other things, the performance of the bonded contract work by obligating the guarantor – a surety – to arrange for the completion of the work.  Where a party fails to perform as promised, the party promised the performance should first review the language of both the construction agreement and any associated surety bonds before taking action, so as not to lose the benefits of the contract and/or bonds, as was the case in Arch Ins. Co. v. Graphic Builders, LLC, No. CV 19-12445-NMG, 2021 WL 534807 (D. Mass. Feb. 12, 2021).

Continue Reading Obtaining the Benefits of a Performance Bond: Tread Carefully

This post was co-authored by Abby M. WarrenAlisha N. Sullivan and Emily A. Zaklukiewicz who are members of Robinson+Cole’s Labor, Employment, Benefits + Immigration Groups.

Although millions of people in the United States have been vaccinated since COVID-19 vaccine distribution began in December 2020, a large percentage of the population still remains unvaccinated. Many lawmakers and companies are brainstorming ways to remove barriers to individuals obtaining the vaccine, especially frontline workers who remain at a higher risk of COVID-19 exposure and infection. One such barrier is the time away from work that may be required to obtain the vaccination and the risk that the time will be unpaid. Many employers, including contractors, are questioning whether they must, or should, provide employees with paid time off for time spent related to obtaining the COVID-19 vaccine. Continue Reading Are Employers Required to Pay For Employee Time Spent Receiving COVID-19 Vaccine?

Anyone monitoring construction industry trends is aware that the prices of raw construction materials, particularly steel and lumber, have been rapidly increasing since early 2020. Earlier this year, Associated Builders and Contractors reported that iron and steel prices were up 15.6 percent from January of 2020 to January of 2021, and that softwood lumber prices had increased by as much as 73 percent during the same period.

The reasons for these price increases are varied (ranging from supply chain and shipping disruptions to the increased demand for new home construction), and many have their roots in changes introduced to the global economy by the COVID-19 pandemic. Regardless of the explanations for the price increases, the reality is that builders and owners are more frequently facing busted budgets and difficult conversations, sometimes resulting in litigation, about which party is responsible for absorbing the increased costs. As is often the case, the answer to resolving these disputes likely lies in the particular provisions of the contract for construction.

Continue Reading Revisiting Price Escalation Clauses in a Time of Skyrocketing Material Costs

Below is an excerpt of an article published in Construction Executive on April 15, 2021.

Modular construction is literally on the rise. It is rapidly displacing traditional stick-built construction for new commercial, industrial and residential buildings. Over the past decade, an increasing number of health care, education facilities and apartment buildings have been built using modular construction. As the need for housing, and especially affordable housing, has grown as a result of the COVID-19 pandemic, modular construction is becoming increasingly popular.

Recently, the Canadian government, through the Canadian Mortgage Housing Corporation, launched a “Rapid Housing Initiative,” a $1 billion program utilizing only modular construction to rapidly construct affordable housing for its citizens. Similarly, the city of Toronto (which last year approved a plan to build 250 modular homes in response to homelessness) plans to build 1,000 modular homes by 2030. The pandemic also has resulted in an urgent demand for modules for medical facilities and schools. Modular construction allows contractors to build “leaner” and “greener” buildings while increasing quality control and improving site safety and potentially saving valuable time and money.

The modular process involves unique commercial and legal challenges not present in traditional contracting. In order to successfully navigate these challenges and to properly allocate risk, a well-drafted contract is important. Key legal considerations in drafting such contracts include:  Read the article.

In an effort to keep our readers abreast of cybersecurity issues affecting companies in the construction industry, we’re sharing the below post originally published on our Data Privacy + Cybersecurity Insider blog:

The Federal Bureau of Investigations (FBI) recently issued a joint alert with the Department of Homeland Security/Cybersecurity Infrastructure and Security Agency (CISA) that “Mamba ransomware has been deployed against local governments, public transportation agencies, legal services, technology services, industrial, commercial, manufacturing, and construction businesses.”

According to the Alert, the hacking group behind the Mamba ransomware attacks is weaponizing an open source tool used for disc encryption—DiskCryptor—to encrypt entire operating systems of victims. Once the operating system has been encrypted, a ransom note appears and demands payment for the decryption key.

The Alert states, “[T]he ransomware program consists of the open source, off-the-shelf, disk encryption software DiskCryptor wrapped in a program which installs and starts disk encryption in the background using a key of the attacker’s choosing….The ransomware extracts a set of files and installs an encryption service. The ransomware program restarts the system about two minutes after installation of DiskCryptor to complete driver installation.”

The Alert lists the key artifacts, which can be accessed here.

The FBI recommends the following mitigation:

  • Regularly back up data, utilize air gap network security measures, and password protect backup copies offline. Ensure that copies of critical data are not accessible for modification or deletion from the system where the data resides.
  • Implement network segmentation.
  • Require administrator credentials to install software.
  • If DiskCryptor is not used by the organization, add the key artifact files used by DiskCryptor to the organization’s execution blacklist. Any attempts to install or run this encryption program and its associated files should be prevented.
  • Implement a recovery plan to maintain and retain multiple copies of sensitive or proprietary data and servers in a physically separate, segmented, secure location (i.e., hard drive, storage device, the cloud).
  • Install updates/patch operating systems, software, and firmware as soon as they are released.
  • Use multifactor authentication where possible.
  • Regularly change passwords to network systems and accounts and avoid reusing passwords for different accounts. Implement the shortest acceptable timeframe for password changes.
  • Disable unused remote access/RDP ports and monitor remote access/RDP logs.
  • Audit user accounts with administrative privileges and configure access controls with least privilege in mind.
  • Install and regularly update anti-virus and anti-malware software on all hosts.
  • Only use secure networks and avoid using public Wi-Fi networks. Consider installing and using a VPN.

This post was authored by Linn Freedman is also being shared on our Data Privacy + Cybersecurity Insider blog. If you’re interested in getting updates on developments affecting data privacy and security, we invite you to subscribe to the blog.