Long Island Contractors Waiting on Hochul for Relief – A Long Island Business News Article

Long Island Construction Law does not own this content. This content was created by Martin Cantor, and was published to the Long Island Business News on July 15th, 2022.

Since January 2021, the construction industry has been operating in an inflationary economy fueled by federal debt and loose Federal Reserve monetary policy.

The $30 trillion national debt has grown by 32% since 2019 and now exceeds by $7 trillion the gross domestic product of $23 trillion which has grown by only 16%, half the growth rate of the national debt. The outlook for the construction industry doesn’t appear brighter, considering the 8.6% inflation rate and nearly 11% increase in the producer price index, trends that will continue with the possibility of a recession if the Federal Reserve policy of higher interest rates and tightened monetary policy fails to curb inflation.

However, there is relief for the construction industry in legislation that is awaiting the signature of Gov. Hochul. It rests in legislation that would allow contractors who submitted bids to the state or a public benefit corporation prior to April 1, 2020 to receive an adjusted contract on materials costs where the price unanticipatedly escalated in excess of 5% upon invoice or purchase of materials from the original bid.

This would allow contractors to recoup these increased material costs. The legislation passed both houses of the Legislature unanimously, a rare occurrence.

To be sure, this legislation is needed. Consider an analysis that I prepared for the Long Island Contractors Association in support of the legislation which illustrated that, prior to March 2020, inflation was in a relatively stable low range of between 1.4% – 1.6%. Subsequent to March 2021, the inflation rate, which increased dramatically between January 2019 and April 2022, resulted in unanticipated, adverse, and protracted price increases that Long Island contractors had to pay for critical construction materials after a period of relative price stability.

The analysis illustrated that inflation caused an aggregate Producer Price Index increase for construction materials between January 2019 and April 2022 of 51.1%, and similar to the construction material Producer Price Index increases, the supply and demand imbalance of domestic and international oil production resulted in inflationary price increases between January 2019 and April 2022 of 71.8% for Brent crude and 76.1%. for gasoline. Oil and gasoline are critical components in construction materials, especially road paving, plant operation fuel, operation of machinery, and lighting for night construction as well as the increased cost of delivering construction materials.

There is little doubt that the increases in inflation and the producer price index have fueled the significant surges in construction material costs in excess of the threshold for remedies that the legislation provides, allowing for an adjusted contract on materials costs where the price unanticipatedly escalated in excess of 5% for purchase of materials from the original bid. As the Federal Reserve battles inflation and tries to avoid a recession, the financial impact of these increased costs on Long Islands’ construction industry will sadly continue as the economic challenges linger well into 2023.

Thus, is the critical need for the enactment of the bills before the Legislature, to maintain the financial viability of the contractors vital to the state and Long Island’s economy. It is time for Gov. Hochul to make the legislation law.

John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608-1346.

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Martin Cantor is director of the Long Island Center for Socio-Economic Policy and a former Suffolk County economic development commissioner. He can be reached at EcoDev1@aol.com.