Federal Sequester Likely to Affect Construction Industry

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Summary

Continued budget cuts likely will trigger construction issues and disputes in the coming months and years. As a result, contractors should take precautions on federally funded construction projects.

If you have read or watched the news recently, you already know about the federal government's "Sequester," which involves massive budget cuts. Both the Associated General Contractors of America and the publication, Engineering News Record, estimate more than $4 billion in construction budget cuts. Despite the budget cuts, a few funding programs will not be affected, including the Highway Trust Fund and the Airport Improvement Program.

How is the Sequester Likely to Affect the Construction Business?

Although it is too early to determine the full impact of the Sequester, the following areas likely will be affected.

  • Contract Termination or Modification. The federal government likely will attempt to terminate or modify contracts. To achieve this goal, the government may attempt to use termination for convenience and availability of funds clauses. Contractors should be aware of their rights and remedies if the government attempts to terminate or modify their contracts.
  • Fewer Contracts, More Bid Protests. With fewer contracts, contractors will be more aggressive with their pricing. An increase in bid protests likely will result.
  • Fixed-Price Contracts. The federal government likely will seek to enter into more fixed-price contracts. Contractors should ensure that these contracts provide adequate protection for unforeseen and unanticipated circumstances.
  • Claims and Change Orders. As the budget shrinks, there likely will be a rise in the government's challenges to claims and change orders. Contractors need to ensure their rights are protected and the government does not use its bargaining power to force them to drop claims and change orders to which they are entitled.

Members of Saul Ewing's Construction Practice have extensive experience in the construction industry and can assist contractors with the affects of the Sequester. With its leadership spread across the East Coast, with co-chairs Garry Boehlert (Washington D.C.) and George "Ned" Rahn (Philadelphia), and vice-chairs Doreen M. Zankowski (Boston) and Don Rea (Baltimore), Saul Ewing has the ability to meet your construction needs throughout the East Coast and across the United States.