Disruptions caused by the COVID-19 pandemic affected nearly every industry, but its impact to the construction sector was particularly abrasive. Players in the real estate industry were forced to quickly adapt to offset the unfamiliar challenges, ranging from supply chain disruptions to labor shortages and fluctuating material prices. Firms merged proven practices with new tactics to effectively manage risks and keep projects on course. Despite the industry’s gradual recovery, lessons learned during the pandemic remain relevant in the face of persistent inflation, looming tariffs, and ongoing uncertainties.
Here’s how the top risk mitigation practices born from the pandemic continue to lead the way in today’s unpredictable construction landscape:
- Confirming Construction Contract Bids and Subcontractor Engagement
A key lesson learned during the pandemic was the need to establish well-substantiated bids early in the process. As inflation and looming tariffs continue to affect material and labor costs, it is more critical than ever to confirm a high percentage (70% – 80%) of the construction contract is bid out upfront and backed by true market pricing. This approach secures most of the project’s cost framework, reducing exposure to unexpected price increases later.
Equally important is the verification of which key subcontracts remain to be bid out. As seen during the pandemic, bidding out all essential trades prior to project closure minimizes risks from last-minute cost adjustments or material procurement issues—challenges likely to be amplified due to ongoing supply chain disruptions and reduced subcontractor availability.
- Anticipating Additional Costs and Early Procurement Strategies
Throughout the pandemic, contractors experienced the volatility of material and equipment costs during uncertain times. Due to persistent inflation and looming tariffs, it is essential that contractors proactively prepare for any known or anticipated cost increases for materials and equipment, especially for large cost items such as steel, lumber, and electrical components (e.g., switchgear, transformers, panels, etc.)
In response, contractors are employing several mitigation strategies, such as early material procurement, utilizing multiple suppliers and vendors to ensure alternative options, and establishing rapport with subcontractors. Implementing such methods assists in reducing price escalations and sudden material availability issues.
- Navigating Supply Chain Disruptions and Material Shortages
The pandemic exposed just how vulnerable global supply chains are to disruption. Materials and equipment that were once readily available became scarce or delayed, wreaking havoc on project timelines and budgets. Today, these risks remain as real as ever, with potential tariffs adding yet another layer of complexity.
To navigate around such disruptions, construction companies began to verify that general contractors have appropriate agreements with suppliers, including alternative sourcing options, to ensure that disruptions would not inhibit a project’s progression.
Advance procurement strategies, such as pre-ordering critical materials or negotiating long-term supply contracts, provide a layer of financial and logistical protection. Such agreements help stabilize costs and ensure timely material availability, minimizing risks caused by market fluctuations or tariff-related price surges.
- Managing Reduced Subcontractor Availability and Labor Shortages
Labor shortages were a significant challenge during the pandemic, with many construction firms still being affected by reduced availability of subcontractors and skilled workers. Planning for such shortages was accomplished through early securement of labor contracts or diversification of the workforce through in-house teams and external subcontractors.
To prevent project delays caused by workforce shortages, contractors must monitor labor availability and ensure that subcontractor agreements are in place well before project initiation. By understanding these risks early, companies can create contingency plans that avoid project slowdowns and mitigate potential schedule delays.
- Standardizing Owner/GC Contracts to Mitigate Risks
One of the key risk management strategies that emerged as a result of the pandemic was to ensure that contracts were standardized and contained provisions to protect both owners and general contractors from unpredictable factors.
Contracts should incorporate key stipulations to enhance clarity and minimize disputes amid unexpected changes. These include price escalation clauses to adjust for rising material costs, force majeure and delay provisions to shield against unforeseen disruptions, liquidated damages clauses to establish penalties for delays, and shared savings provisions to incentivize staying under budget. Such terms ensure mutual clarity for each party and reduce conflict risks when conditions shift.
Conclusion: Adapting COVID-Era Strategies for Current Challenges
The construction industry’s response to the COVID-19 pandemic has left a lasting blueprint for resilience. As firms navigate today’s landscape of inflation, potential tariffs, and lingering uncertainties, the risk mitigation strategies honed during that crisis—early bid confirmation, proactive procurement, robust supply chain management, labor planning, and standardized contracts—remain indispensable. By embedding these practices into their operations, industry players can not only weather current challenges but also build a stronger foundation for the future.