March 19, 2021 marks one year since Governor Abbott’s first Emergency Order relating to social distancing and business shutdowns related to the COVID-19 pandemic. To say a lot has happened over the last 12 months may be the understatement of the very young decade . Add an historic snow and ice storm that impacted the entire State in mid-February, 2021 and you can get the feeling we are reenacting the story of Exodus, ten plagues and all.

However, for members involved in the design and construction industry, the exodus has largely been to, not from, Texas.  While some Texas-based or Texas-heavy businesses have been hit more severely than others (airlines, entertainment, and restaurants come immediately to mind), the construction industry has fared relatively well.  The health of the construction market is tied to Governor Abbott’s clarification early in the shutdown period that all construction workers were essential workers and the seemingly uninterrupted migration of businesses and residents from other states to Texas.

In January 2021, the Federal Reserve Bank of Dallas confirmed that the Texas economy, as a whole, remains vibrant.  Texas employment grew 7.1% in December 2020 after posting an increase of 5.2% percent in November 2020.  The Texas Leading Index, a gauge of future economic activity, increased for the eighth consecutive month, indicating the expectation of continued positive growth over the next 6 months. New Federal stimulus packages, including recently revised guidelines for eligibility for round two of the Payment Protection Plan, will likely increase liquidity to individuals and businesses alike, but may also stoke inflation.  Finally, lower hospitalizations and positivity rates and the gradual expansion of vaccinations point to further improvement in economic conditions in Texas.

And, of course, California’s biggest frenemy, Elon Musk, made Central Texas the location for his new $1 billion Cybertruck factory. In a recent interview, Musk claimed that Austin is “going to be the biggest boomtown that America has seen in 50 years, at least – megaboom,”  Notwithstanding, of course, Texas vanity license plates available at Austin Bergstrom Airport that proclaim, “NOT CALI”.

For members involved in the design and construction industry, the continued growth of the Texas economy and the ongoing uncertainty about the effectiveness of the current crop of vaccines presents some interesting legal questions.  If, for instance, another stimulus package stokes inflation, does the prime contract and/or subcontract agreements contain price escalation clauses that would allow increases in the contract price?  If vaccinations and ‘natural’ immunity do not prove effective against the South African or Danish mink (yes, there really is such a thing) variant of COVID-19, do the contracts contain a comprehensive enough force majeure clause? Do the contracts contain no-damages-for-delay clauses?  Each of these clauses can have profound effects on whether additional costs are owed or owing.

Cost aside, many of these issues also create impediments to achieving substantial completion within the specified contract time.  Even in the depths of the COVID-19 shutdown, certain trades in the residential construction market experienced labor shortages.  Supply chains continue to be heavily disrupted with lead times of 4 months or longer for many essential components.  As the economic recovery accelerates, the impact of labor shortages and supply chain disruptions will become more pronounced, impacting schedule.  While force majeure clauses may provide some protection against schedule delays, they, alone, may be insufficient.  In those instances, other clauses such ones defining excusable and non-excusable delays may take on newfound importance.

The uncertainties in the current climate—growth? inflation? new wave of COVID-19 variants?—can be addressed in the contract negotiation phase for new work. For executory contracts or work already in progress, a careful review of the contractual obligations and ongoing discussions among the team members involved in the project is essential to keep the projects on-time, on-budget, and most importantly, out of litigation.

The attorneys in our Austin and Dallas offices have significant experience reviewing, negotiating, and litigating development, design, and construction agreements and are available to answer any questions you may have.  You may contact us at info@gstexlaw.com

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