BY SHANE BROWN AND LAURA CLAEYS
PLANTE MORAN, A MEMBER OF MULTIPLE AGC CHAPTERS
After a decade of strong economic conditions, many construction executives had started to think seriously about a downturn.
But no one saw the coronavirus coming or its downward thrust on the economy, which could deliver an even sharper short-term blow to the industry than the 2008 recession.
As with many business sectors, the construction industry today feels very different than just a month ago. Projects all over the country have been thrown into doubt, both for financial reasons and over concerns that work sites could help spread the virus.
States have taken differing views as to whether construction projects are “essential” when shelter-in-place regulations are instituted.
Coronavirus (COVID-19) Resources and Guidance
With coverage of the coronavirus (COVID-19) outbreak continuing to dominate the news, AGC of America has put together this resource page to share accurate, reliable and updated information to help members take a proactive approach and plan/prepare accordingly. The association will continue to monitor the situation and update the information accordingly.
Best-in-class contractors have been very active with their local construction associations to influence state “essential” definitions.
In addition, companies are juggling numerous priorities as they wrap their heads around the COVID-19 crisis, including the implications of complex state and federal economic rescue measures, retaining their workforces and managing cash flow for what could be an extended slow down or stoppage.
This is a stressful time, but it’s important not to panic. The best approach is to make a full-spectrum assessment of the business in light of the changed environment and take steps to improve readiness for different outcomes.
For more information on economic impacts from the coronavirus, check out this AGC resource page: https://www.agc.org/coronavirus/economic-impacts.
Here are six areas that construction company leaders should focus on now:
1. Step up best practices. Be as thoughtful as possible on expenses. Herb Kelleher, the late CEO of Southwest Airlines, fueled his company’s success by asking all employees to find $5 in savings a day and they did. Review all of your non-essential expenses, from office supplies to planned conference attendance, to see what can be eliminated or delayed. Have a solid plan in your back pocket for different scenarios, including workforce reassignment or reduction, if a site shuts down tomorrow.
2. Inventory your contracted work. Drill down into every current contract to fully understand your obligations, options and potential costs. “Read the contract” should be a mantra in your organization. You should have an intimate understanding of your notice requirements, liquidated damage clauses and force majeure clauses.
3. Understand what “essential” really means. Get professional advice about what constitutes “essential” work in a lock down. Factors may include risk of illnesses from close contact with residents or other workers or rulings that a rec center is less important than a clinic. You should draw up contingency plans for site closure and document sites with pictures, videos, submittals and project notes. These will be vital if disputes arise in the future.
4. Assess your backlog. It’s just as important to run an analysis on your pipeline as it is on your current jobs. Just a few weeks ago, many contractors had a record backlog and were staffing and investing accordingly. Given the radical change in outlook, you should re-assess the probability of work going ahead and adjust your budget as things become clearer. An important part of this re-assessment is looking at your clients’ vulnerability to an economic slump. Being honest about your backlog will set the company up for success when things do normalize.
See how AGC of America has been working on your behalf: https://www.agc.org/coronavirus/advocacy-efforts.
5. Stay informed. Make it part of your daily routineto stay informed about the evolving government measures to help workers and businesses. For example, there’s the Families First Coronavirus Response Act, which took effect on April 1. It requires sick and family leave for employees of certain small businesses and allows some companies a payroll credit to cover these added benefits. The latest is the CARES Act, which offers forgivable loans for small businesses that maintain their staffing levels until June of 2020. Loan amounts and the associated loan forgiveness could amount to 2.5 times monthly payroll up to a maximum of $10 million. Alternatively, all contractors are eligible for a deferral on payment of payroll taxes until 2021 and 2022, which can provide much needed cash flow in the near term.
6. Re-assess your subcontractors. As labor availability has tightened in recent years there’s been a temptation to loosen pre-qualification standards on subcontractors. Now’s the time to re-visit your pre-qualifications. Could your subcontractor withstand a loss year or significant fall in revenues and still perform on the job?
Check out AGC’s new page which demonstrates how the industry is protecting workers and the public.
Taking these steps can put your business in a position to capitalize on this storm. The savvy construction firms were positioned to jump on opportunities after the 2008 crisis that paid big dividends years later.
Shane Brown leads Plante Moran’s national construction practice. Laura Claeys is group leader for the real estate and construction practice at Plante Moran, a member of multiple AGC chapters.