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.
Will the workers arrive?
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
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. .
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