The Corona Pandemic and the Construction Industry - Hibiti Insurance
Mar 17, 2020
Article by: Itzik Simon
The COVID-19 pandemic has hit the Israeli economy hard, and no sector has been left untouched. Hundreds of Israelis have been infected with the virus, tens of thousands more are required to remain in isolation out of fear of exposure, and the situation continues to evolve.
One of the sectors at particularly high risk from the pandemic is, of course, the construction industry. Not without reason, the government has declared the sector as one of the “essential” industries in the economy. Among other measures, it was determined that construction would not be subject to work restrictions and is expected to operate at full capacity.
However, it is clear that despite the government’s recognition of the sector’s importance—described as the “engine of the economy”—COVID-19 can still impact it.
Article by: Itzik Simon
The coronavirus pandemic has hit the Israeli economy hard, and no sector has been left untouched. Hundreds of Israelis have been infected with the virus, tens of thousands more are forced to remain in isolation for fear of infection, and the hand is still outstretched.
One of the industries that is at high risk of being damaged by the coronavirus is, of course, the construction industry. Indeed, it is not without reason that the state has declared the industry one of the "essential" in the economy. Among other things, it was determined that the construction industry will not be subject to work restrictions and that it is supposed to operate in full capacity. However, it is clear to everyone that despite the state's recognition of the importance of the industry, which has been defined as the "engine of the economy," the coronavirus can still hit it.
Will the workers arrive?
The first and central problem is embodied in the issue of manpower. The construction industry employs about 50,000 Palestinian workers living in Judea and Samaria, as well as about 15,000 foreign workers (half of whom are Chinese workers). Recently, when a lockdown was imposed on Bethlehem following the detection of coronavirus in seven of the city's residents, the construction industry went on the defensive for fear of a complete lockdown of Judea and Samaria and the lack of possibility of workers crossing to Israel.
The president of the Israel Builders Contractors Association, Raul Srogo, addressed this in an open letter published on the association's website: "Taking preventive health measures places contracting companies and contractors in all fields - housing, infrastructure, contract construction and renovations - in grave existential danger ," Srogo writes (emphasis not in the original). "The activity of the Israeli construction and infrastructure industry is based on the manual labor of over 300,000 workers, about 65,000 of whom come from Judea and Samaria. A complete closure of the territories would cause activity in the industry to almost completely stop."
Srogo continued by warning that "the completion of the construction of about 100,000 apartments will be postponed indefinitely, major infrastructure projects will be delayed, the work of about 200,000 additional Israeli workers will be halted, wages of 95 million shekels will go down the drain every day, banks will lose billions and the economy will lose a huge sum of 4.56 billion shekels every month."
The state, for its part, is trying to help the manpower in the industry. Whether by extending licenses for Chinese and foreign workers in the country, or by expanding permits for Palestinians to stay in Israel (about 55,000 permits instead of only about 15,000 normally). But either way, it is clear that these are steps that can only sweeten the pill but not completely remove it.
Needless to say, like every other sector in the economy, there is concern in the construction industry about exposure to the coronavirus among one of the workers or visitors to the site. If suspicion of coronavirus arises among one of the workers on the construction site, there is an immediate danger of the site being closed immediately for at least 14 days.
The primary and most pressing issue lies in workforce management. The construction industry employs approximately 50,000 Palestinian workers residing in Judea and Samaria, as well as about 15,000 foreign workers (half of whom are Chinese). Recently, when Bethlehem was placed under lockdown following the discovery of COVID-19 among seven residents, the construction industry went on high alert due to fears of a full lockdown in Judea and Samaria and the potential inability of workers to enter Israel.
Raoul Surugo, President of the Contractors Association of Israel, addressed this issue in an open letter published on the association’s website:
"Taking preventive health measures severely endangers the very existence of contracting companies and contractors across all sectors—residential, infrastructure, contractual construction, and renovations. The activity of the Israeli construction and infrastructure sector relies on the manual labor of over 300,000 workers, approximately 65,000 of whom come from Judea and Samaria. A complete lockdown of the territories would almost entirely halt industry activity."
Surugo further warned:
"The completion of approximately 100,000 housing units will be postponed indefinitely, major infrastructure projects will be delayed, the work of an additional 200,000 Israeli workers will stop, 95 million shekels in wages will be lost every day, banks will lose billions, and the economy will lose a staggering 4.56 billion shekels each month."
The government, for its part, is attempting to support the workforce in the sector—either by extending permits for Chinese and other foreign workers already in the country, or by expanding residential permits for Palestinians in Israel (around 55,000 permits instead of the usual 15,000). However, it is clear that these measures can only mitigate the impact rather than fully resolve it.
It goes without saying that, as in any sector, there is also the risk of COVID-19 exposure among construction workers or visitors to the site. If there is any suspicion of COVID-19 among a site worker, there is an immediate risk of the site being shut down for at least 14 days.
Another problem concerns the expected and concrete shortage of construction inputs. This is due to the great difficulty in importing materials and products such as paving and cladding stones (about 30% of these materials come from quarries in China), tiles, cladding, sanitary ware, aluminum, steel, copper, iron, ceramic products, granite, bluestone, glass, and more. The supply problems stem both from a shortage of workers and a halt in production in quarries in the countries of origin, and from delays in shipments.
Traffic closure and isolation
Added to all of this in recent days is the substantial and real fear of various restrictions on the labor market in Israel. The grim forecast is that in order to avoid the spread of the pandemic, there will likely be no escape from implementing a traffic lockdown and complete isolation . A general shutdown of the economy for an extended period, and as a result – presumably – delays in schedules.
The above point is further emphasized in a letter recently sent by the Ministry of Construction and Housing to contractors in Israel, which contains clear instructions to view the end of each workday as a date when the site may be shut down for 14 days .
The rationale here is simple – the contractor/developer should treat each working day as the last day before the two-week shutdown. This is because there is no telling when – if ever – the directive for a general shutdown of the economy for 14 days will be lifted (to view the letter, click here).
Shortage of construction inputs
Government quarantine due to viral illness
Legally, the issue is doubly complex. Ostensibly, it may be possible to define the coronavirus as a "force majeure" and fend off lawsuits filed against contractors/developers due to delays. However, here too, it should be emphasized that this is not a black and white matter. Quite the opposite. Things depend a lot on the wording of the contractual system. It is likely that the issue will be fertile ground for disputes, which when brought before the courts, there is no telling how they will be interpreted and clarified.
Is it important to know? Here are some highlights
Overnight stay for workers on site – The state made an important decision to assist contractors by extending the residency permits for Palestinian workers in Israel, from a volume of approximately 15,000 permits in the routine period, to a level of approximately 60,000 permits in the current period. This means tens of thousands of additional workers who will be required to stay overnight in Israel, in regulated accommodations and sometimes near or within the construction site. Overnight stay for workers on site entails many implications for the contractor and the developer. Both in terms of insurance, safety, and the combination of both. We recommend reading an important article on the subject that we wrote on our website about overnight stay for workers on a construction site .
Special aspects of labor law – The effects of the coronavirus on the Israeli labor market affect not only the construction industry but all sectors of the economy. Dealing with employees during the coronavirus pandemic – including isolation and sick days, unpaid leave, dismissal/resignation, etc., as well as limiting gatherings in closed spaces – requires familiarity with various aspects related to labor law. For more information on this topic, you can read a dedicated article on our website written by the John Geva & Co. Law Firm .
Cessation of activity as a result of instructions from the authorities – If the Israeli authorities make a sweeping decision to cease activity in the economy, with the exception of essential industries, it is likely that many construction sites will be forced to close their doors for an extended period. In this situation, it is necessary to be familiar with the nuances in terms of insurance regarding security at the construction site. Read about this topic on our website . Furthermore, in urban renewal projects according to TAMA 38/1, which are carried out simultaneously with the continued residence of the tenants in the building, it is important to ensure that when construction is stopped, the area remains orderly, fenced and safe. Care must be taken to remove obstacles, provide appropriate signage and security.
From a legal perspective, the issue is even more complex. On the surface, it may be possible to define COVID-19 as “force majeure” and use this to defend against claims filed against contractors or developers due to project delays. However, it must be emphasized that this is not a black-and-white matter. On the contrary, much depends on the wording of the contractual framework. It is likely that the topic will become a fertile ground for disputes, and once such cases reach the courts, it is impossible to predict how they will be interpreted and resolved.
So, what should be kept in mind? Here are some key points:
Worker accommodation on-site – The government has made an important decision to assist contractors by extending the residency permits of Palestinian workers in Israel, from the usual 15,000 permits to approximately 60,000 during the current period. This involves tens of thousands of additional workers who will need to stay in organized accommodations in Israel, sometimes near or within construction sites. On-site worker accommodation carries multiple implications for contractors and developers, including insurance, safety, and the interplay between the two. We recommend reading an important article on our website about on-site worker accommodation in construction.
Special aspects under labor law – The impact of COVID-19 on Israel’s labor market extends beyond the construction sector to all industries. Managing workers during COVID-19—including quarantine and sick leave, unpaid leave, terminations/resignations, and restrictions on gatherings in enclosed spaces—requires familiarity with various aspects of labor law. For more details, you can read a dedicated article on our website written by the law firm John Gabbay & Co.
Suspension of activity due to government directives – If the authorities in Israel issue a general decision to suspend activity in the economy, except for essential sectors, many construction sites will likely have to close for an extended period. In such a situation, it is important to understand the insurance nuances regarding site security. For more information, see our website on this topic.
Additionally, in urban renewal projects conducted under TAMA 38/1, where residents continue living in the building during construction, it is crucial to ensure that if construction is suspended, the area remains organized, fenced, and safe. This includes the removal of obstacles, appropriate signage, and ongoing site supervision. .