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The state’s stay-home order shut down most construction projects in an effort to contain the spread of the coronavirus. Only essential projects like health care are allowed to move forward. The state’s stay-home order shut down most construction projects in an effort to contain the spread of the coronavirus. Only essential projects like health care are allowed to move forward. MIBIZ PHOTO: KRISTI KORTMAN

Idled construction firms brace for continued supply chain disruptions

BY Sunday, April 12, 2020 06:17pm

As an executive of a construction and property management company licensed in 45 different states, Jennifer Boezwinkle of Rockford Construction Co. Inc. knows well the disruptions her nationwide counterparts face in the middle of the COVID-19 pandemic.

In fact, the hardships are perhaps the toughest in her company’s home state.

“Michigan has one of the most stringent stay-at-home orders than anyone across the country,” said Boezwinkle, executive vice president of construction for Rockford. “These orders are really tied to the number of COVID-19 cases. Not surprising, Michigan is toward the top so their orders are some of the more stringent.”

Like most other industries, construction slowly ground to a near halt statewide after Gov. Gretchen Whitmer issued an executive order to shut down what were deemed as “non-essential businesses.” Any construction project not deemed essential was forced to stop, while projects like health care, grocery or those that pertain to state infrastructure and safety can continue forward.

“With our work in Michigan, much of it has been deemed non-essential and that has stopped,” Boezwinkle said. “But construction doesn’t just stop on a dime. We need to make sure those projects are safe before we close them. 

“When the stay is lifted, we’ll start moving to get them up and running again. Right now, we have most projects buttoned up and our work is now shifting for when the stay is lifted, and we’re looking at how do we get them moving again.”

The paralyzing conditions for the Michigan construction industry parallel the obstacles that construction firms across the country are facing. Many of those challenges were outlined in a report released by the Associated General Contractors of America (AGC) in late March, which chronicled the slew of project cancellations and delays.

According to an AGC survey, 39 percent of contractors nationwide said that project owners stopped or canceled their construction projects, stifling what had been a thriving industry. To that end, 42 states added construction jobs through the month of February before the COVID-19 pandemic ramped up in the U.S.

In the survey, only 18 percent of respondents reported that elected officials mandated cancellations or delays, which is a reality for all Michigan-based construction firms.

Some of the other reasons for delays included shortages of materials, parts and equipment, including vital personal protective equipment for workers (23 percent); shortage of crafts workers (18 percent); and a shortage of government workers to conduct inspections, issue permits and take other essential actions (16 percent).

Delivery of materials also remains a major issue, and could be a crippling factor even when projects again get the green light. Of respondents to the survey, 35 percent said that suppliers notified them that shipments of certain materials would either be delayed or canceled all together.

This survey highlights the fact that Michigan construction companies would not necessarily enjoy smooth sailing even if they could move forward with their projects.

“There are a number of reasons for delays — materials delays being the first one,” Boezwinkle said. “We live in a global economy and materials coming from places like China were starting to impact us even before COVID hit the United States.

“When the stay-at-home order came, the next challenge was city inspectors and permitting. We saw a delay with some of those things in cities we worked in. I will say this: The city of Grand Rapids has been fantastic in trying to work with us to move essential construction forward. They’ve been a shining spot.”

The first domino to fall

For Patrick Lennon, partner in Kalamazoo at law firm Honigman LLP, a delayed or canceled project is the first in a long line of dominoes to fall. In his role focusing on real estate development, real estate transactions, zoning and land use, Lennon gets the larger picture by working with construction companies, landlords, tenants and others that are tied together through a single project.

“Obviously, it came as a surprise to all of us that this pandemic would have such dramatic impact,” Lennon told MiBiz. “The effects of those impacts are really just now manifesting themselves in these construction projects.

“Those impacts include a lot of uncertainty and anxiety. I would say that derives from the timelines that so many of these projects are on from the onset. A cost is put on (a project) based on conditions. When those conditions change, all the parties to the contract are put in a position where they have to work together to plan the best path forward while minimizing excess cost.”

Lennon also pointed to the stringent orders handed down by the state government as a significant hardship that has stymied Michigan-based companies. Construction companies would ideally deploy supplies, labor and their subcontractors to other projects in unaffected areas.

Still, early into this process, Lennon said that he has been inspired with the level of collaboration among all parties tied into projects.

“I’ve been inspired by how the contractors, owners, architects and lenders have been working together,” he said. “I think they’ll be able to come up with a bridge through the next 90 days. Following that, things could change. 

“It will depend on how quickly things return to normal, which we hope will be sooner rather than later. The longer it goes on, the more stressed those relationships will become because someone is expecting something to be delivered and is paying for it.”

Lennon remains bullish on how quickly the industry will snap back, nodding to a pent-up demand that could lead to what he called an “exciting rebound.”

Not a ‘typical recession’

One theme was common in speaking with area construction professionals: These are uncharted territories and all anyone can do is guess where it will ultimately lead.

“First of all, this is not like a typical recession or typical natural disaster where it hits and moves on and you assess the damage and continue on,” said Rex Bell, president at Kalamazoo-based Miller-Davis Co., a construction management and general contracting firm.

“This is different. For most of us in the construction and design and build industry, the business was very good, the markets were very good,” Bell told MiBiz. “Most of us have a backlog of work, with work in the pipeline. We haven’t had any be canceled or go away; there is a lot of pent-up demand there. We’re already gradually working to get those jobs going.”

Bell said that Miller-Davis has yet to lay off  any workers and does not intend to do so. However, he did highlight the fact that “your cash reserves don’t last forever. It’s not an infinite thing. There is a finite amount of time.”

He also added that if projects could resume in the next two to four weeks, his company would still be in good shape. But Bell still acknowledged the unknowns lurking at large in the industry.

“The wild card right now is the supply chain,” he said. “The work is here; we have work and we have the folks to do that work. Is there some plant that was shut down somewhere in the world that might delay things that we don’t know about right now? Those are the questions."

Read 3002 times Last modified on Sunday, 12 April 2020 12:04
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