By Joe Bousquin
Construction attorney Eric Singer is a huge Game of Thrones fan, so it’s fitting that he points to the HBO series’ best known mantra when it comes to a potential recession in 2023: Winter is coming.
Like the members of the saga’s House Stark who adhere to that motto, Singer says construction pros today should already be preparing for whatever hardships may come, given predictions of more challenging economic conditions ahead.
Those preparations include reviewing contracts with a potential recession in mind. Critical to the process is knowing what provisions contractors and subs are entitled to, as well as the responsibilities they have to the party on the other side, before a true economic contraction sets in.
“By the time a recession hits, it’s too late,” Singer said.
The wind before the rain
Singer said that in his own practice, he’s seen signs that “winter” may already be here.
“To me, the biggest leading indicator in construction is a change in the nature and frequency of claims, which we’ve been seeing,” said Singer, a partner at Ice Miller in Chicago. “It’s like the wind that blows up before it’s going to rain. You can sort of smell it coming.”
Those claims have come in the form of what Singer calls “late-in-the-game change orders,” which have picked up as projects that kicked off early in the pandemic now approach their final stages.
“What I’m seeing now is contractors getting significantly into a job and realizing they’re losing money, and they try to convert that to a change order,” Singer said. “It’s the contractors that are financially on the margins that are leading those changes. We’ve got a bunch of them.”
Attorney Alex Baghdassarian, a partner at Hanson Bridgett in Los Angeles, has noticed a similar uptick in claims, and a new unwillingness among project owners to accept them as interest rates have increased and capital markets have gotten tighter.
“Previously, when there were changes or delays on the project, oftentimes owners would be sympathetic and try to resolve the dispute,” Baghdassarian told Construction Dive. “If the contractor was asking for $100,000 in change orders, they may have negotiated it down to $80,000 or $70,000. That is not happening as much.”
Instead, as owners and developers encounter a more challenging funding environment themselves, Baghdassarian said, they’re saying no more often.
See article on constructiondive.com.