CRE Development Is Hampered by COVID-19 Protocols. Here’s How Much.

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Commercial real estate developers and managers can expect to pay higher prices for work on projects as contractors grapple with COVID-19 mitigation requirements and the time needed to deal with them on the job, according to a report from New Horizons Foundation, the research arm of the Sheet Metal & Air Conditioning Contractors’ National Association. The SMACNA study found an average worker lost 85 minutes per shift dealing with mitigation efforts, resulting in an 18 percent drop in productivity and an average 7 percent financial loss for the contractor.

The 24-page report—Pandemics and Productivity: Quantifying the Impact—includes a roadmap to help members adapt to the changes and a change order calculator tool to help determine the impact amounts. Commissioned by both the New Horizons Foundation and ELECTRI International, the National Electrical Contractors Association’s foundation, the new study builds on and correlates to findings in a recent ELECTRI report. Data collected for the SMACNA report was collected between April 30 and July 3 and examined productivity information for more than 113,000 labor hours from January through May at a variety of commercial construction sites, including multifamily, hospital, government facilities and school projects.

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Prior to the release of the study, there were no specific resources available to help contractors quantify the cost impacts of lost productivity while working under pandemic protocols. The researchers—Michael McLin, Dan Doyon and Brian Lightner of the Maxim Consulting Group— suggest contractors should use the study as a supporting document when requesting price adjustments on jobs. Guy Gast, chair of the New Horizon Foundation & president – Iowa Division at The Waldinger Corp., told Commercial Property Executive his firm is already “using the values and the change order calculator to develop presentations to several large customers who are implementing aggressive COVID-19 mitigation protocols.”

Gast noted that for work under contract before March, when the pandemic hit the U.S., debates are likely to arise between contractors and developers and property owners over who bears the cost of the mitigation protocols.

“In the end, we expect shared pain. Some of the larger owners with a deep understanding of construction and a sincere concern about workforce safety have embraced the discussion of cost impacts, or risk-sharing,” he told CPE.

Higher Bids

With that in mind, future project bids are most likely to better reflect the losses the study documented and the COVID-19 protocols to be included in the bid documents. For example, Gast noted his company’s cost for personal protective equipment (PPE) for COVID-19 protection had increased by more than 20 cents per man hour and that will be reflected in future bids.

“Estimators will likely evaluate the impact on the type of work their firms perform and the severity of the protocol, which will result in higher bids. That, coupled with any negative experiences, will raise prices,” Gast stated.

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Asked if there were significant geographical variations for the impact found in the study, Gast said there weren’t. “The study participants were highly distributed across the U.S. and at least as respects to the MEP (mechanical, electrical and plumbing) contractor business, the results were fairly consistent, both in terms of mitigation impacts and direct losses in productive labor,” he added.

Gast also noted that the researchers did see some improvements in mitigation losses in the last month of the study, “suggesting that the contractors and workforce had improved processes for site access, fit-for-duty forms and related costs.”