The Importance of Flexible Policy Terms Amid Widespread Construction Delays
Construction projects have historically been prone to delays. Now, after months of labor restrictions, material shortages, and an increase in renovations, delays are more widespread and severe than ever before.
“Economic downturns cause delays and cancellations for new construction,” says a report from Moody Analytics, “uncertainty about the timing and magnitude of cash flows prompts market players to reassess priorities.” While construction disruptions are typical during an economic recession, the current COVID-19 downturn is different from the typical economic slumps. The fact that the slowdown in activity was prompted by a deliberate policy and that the effects were felt globally, are several reasons why this economic contraction is unique.
Top Causes of Construction Delays
- Public Health Policies: Shelter in place and stay at home orders brought construction (and supply chain operations) to a screeching halt in spring of 2020. The Associated General Contractors of America conducted a survey of its members in early May and found that 67% had at least one project canceled or delayed and that 30% had to halt work because of a government shelter-in-place order. Even now with eased restrictions, contractors remain behind, struggling to catch up for months of lost work.
- Supply Chain Disruptions: Lumber mills and wood treatment facilities are among the most notable parts of the supply chain that are under stress. As states sought to slow the spread of the coronavirus, lumber mills shuttered their doors across the globe. The work reduction coupled with the unforeseen home improvement frenzy created the perfect storm for a lumber shortage. Contractors have been forced to explore costly alternatives or halt construction as a result of the ongoing lumber shortage.
- High Demand: Months-long quarantines kept Americans stuck at home causing a surge in home improvement projects and renovations. Bank of America polled 1,054 Americans about their attitudes and shopping habits. The poll found that over 70% decided to tackle home improvement projects, with millennials spending the most to get the job done and more projects planned for the upcoming year. “A shift into larger existing homes (corresponding to a shift out of cities) and older homes requiring renovation (which most young buyers can more easily afford), could be a multi-year tailwind,” analysts add.
The state of construction affairs varies slightly from state to state. Places like Texas, that did not enact stay at home orders experience less disruptions than areas such as New York, which had stringent shutdowns. However, supply chain interruptions are unavoidable. Domestic and international material producers have all curtailed operations, which has affected all locations regardless of local COVID restrictions.
Why Flexible Policy Terms are Essential
When purchasing insurance, construction stakeholders typically estimate the amount of time a project will take to reach completion and find a policy term that meets those needs. As projects are faced with unprecedented disruption, policyholders often find themselves in need of a policy term extension. Insurers typically require twelve-month terms, meaning that if you foresee a two-month delay, you will need to pay for more insurance. Finding flexible policy terms for Builder’s Risk, like those offered by Distinguished, is crucial when it comes to securing the perfect coverage for your clients — especially in today’s age of uncertainty.