Alerts and Updates
CARES Act Impacts Engineering and Construction Sector
March 30, 2020
The CARES Act does not provide direct relief for additional costs and delays to individual projects.
COVID-19 precautions continue to impact construction by delaying material shipments and reducing labor availability, as well as governmental orders to halt many construction projects. Some ongoing or planned construction projects are at risk of being suspended or terminated because of reduced demand in various sectors, such as hospitality or oil and gas, because of the COVID-19 pandemic.
Many engineering and construction companies have shifted tasks to remote working arrangements and must invest in IT infrastructure and training to limit efficiency losses. Some companies have been forced to lay off employees because of delayed and canceled construction projects.
Indirect Aid to the Engineering and Construction Sector
The CARES Act does not provide direct relief for additional costs and delays to individual projects. However, owners of healthcare centers have additional funding available to them under the CARES Act. (See Sec.3211.) Additionally, historically black colleges may have relief for capital projects financed through Part D of Subchapter III of the Higher Education Act (20 U.S.C.1066 et seq.) and may be able to defer payments on capital improvement loans. (CARES Act, Sec. 3512.) The CARES Act makes significant changes to the Internal Revenue Code that will allow developers, owners of real estate and others more latitude to use losses from prior years to offset tax liabilities. (Sec. 2303 et seq.) As project-specific impacts affect the overall profitability of a business and the income of employees, the provisions of the CARES Act regarding loans under the Small Business Act (Sec. 1101 et seq.), payroll taxes under Subtitle C – Business Provisions (Sec. 2301 et seq.), loans under the Coronavirus Economic Stabilization Act of 2020 (Title IV, Sec. 400) and refinements to payments to employee in the labor provisions sections ( Sec. 3601 et seq.) provide several avenues for relief.
Similarly, there is no direct relief for participants in projects that are suspended or terminated based on individual projects, but provisions of the CARES Act may offer relief to individuals and companies who are affected by the cumulative impact of project suspensions or terminations.
The CARES Act does not provide direct relief to offset the cost of remote working arrangements or additional precautions taken to protect workers in the field. Relief based on the cumulative of those costs may be available through sections related to assisting businesses in general.
The CARES Act provides incentives to avoid employee layoffs and assistance to companies struggling to make payroll payments in Title II, Business Provisions Payroll Tax Credit and Deferral. CARES Act provisions in Title I – Keeping American Workers Paid and Employed Act (Sec. 1101 et seq.) and Title IV – Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy (Sec. 4001 et seq.) also offer paths to relief for businesses struggling to maintain their workforces and financial viability. Title III, Subtitle C – Labor Provisions (Sec. 3601 et seq.) modifies obligations to employees entitled to benefits under the Emergency Family and Medical Leave Expansion Act, the Emergency Paid Sick Leave Act and similar acts. Those provisions are discussed in detail elsewhere in this Alert.
Seek Options in Contracts
The CARES Act does not provide relief for additional costs or delays experienced by individual projects. Owners and contractors involved in impacted projects will need to turn to their contract terms to protect their rights and allocate the cost of impacts. Relief may be available with respect to financing for some projects and on the business level as project impacts accumulate on the bottom line.
Similarly, the immediate costs of adjusting working conditions through remote work and enhanced safety precautions are not addressed by the CARES Act.
Documenting Causes of Delays
It is more important now than ever for companies to track the root cause of delays and additional costs on projects. Specifically, companies should create discrete cost tracking codes in their project accounting platforms now, on a project-level basis, and begin to segregate possible costs incurred as a result of COVID-19 impacts. That will be important both for the allocation of additional costs on the project level and for seeking relief for businesses that suffer from COVID-19 impacts.
Companies have significant relief available to weather the storm through benefits provided to employees and to businesses through loans, tax credits and assistance with payroll obligations.
Participants in the engineering and construction industry should monitor and track the impacts of COVID-19 on their projects and companies as a whole. While some impacts may be obvious, companies should monitor the impacts of restrictions on manufacturing, transportation, labor availability and working conditions facing their suppliers, subcontractors, consultants and clients, as well as themselves. The ripple effect of restrictions in other regions can prove significant.
The engineering and construction industry is already facing a shortage of skilled employees, and companies may face a long-term strategic loss if employees cannot be retained through this crisis. The CARES Act offers several avenues for relief to keep afloat, retain employees and emerge ready to be competitive.
About Duane Morris
Duane Morris has created a COVID-19 Strategy Team to help organizations plan, respond to and address this fast-moving situation. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.
For More Information
If you have any questions about this Alert, please contact Jeffrey L. Hamera, Benton T. Wheatley, Michelle Ranello, any of the attorneys in our Construction and Engineering Industry Group, any member of the COVID-19 Strategy Team or the attorney in the firm with whom you are in regular contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.