Reopening & Recovery – Preparing for What’s Next

The impact of the COVID-19 forced business closure and stay at home orders have created difficult conditions. Almost overnight businesses were forced to endure significant changes to their business model which came with difficult decisions about expenses, employees, and the future. While much of the attention has focused on the retail, restaurant, and hospitality industries the construction industry was also sharply impacted. Despite being included on Georgia’s critical infrastructure list, the combination of prohibitive local regulations and shut down of suppliers delayed many projects. The resulting impact is the highest industry unemployment rate since 2012. As the reopening process continues it is important for Atlanta construction contractors to determine how to safely reopen job sites and protect worker health while increasing the bottom line. To help clients, prospects, and others, Wilson Lewis has provided a summary of key considerations below.

Safety Guidelines

The immediate issue to consider is how to safely reopen job sites in accordance with state and local regulations. In following state guidelines new protocols will need to be implemented to comply with social distancing, health, hygiene, and monitoring/reporting sick workers. In addition to standard requirements companies should also be doing the following to enhance health safety and protection:

• Provide PPE for all employees
• Install handwashing stations and/or use hand sanitizer with at least 60 percent alcohol
• Carry out more frequent site cleanings, especially for high-touch surfaces
• Consider new safety protocols for high-touch surfaces like ladders, handrails, etc
• Implement staggered shifts when possible
• Encourage worker breaks outside
• Discourage shared tools, equipment, phones, desks, and workspaces
• Provide disinfectant for workers to sanitize their tools and workstations
• Screen workers and anyone entering a job site for temperatures above 100.4⁰F, and require workers experiencing any COVID-19 symptoms to stay home
• Hold virtual meetings when possible
• Prohibit shaking hands and other unnecessary personal contact
• Frequently clean and sanitize any PIN or touch devices
• Post appropriate signage at job sites on social distancing, health, and hygiene protocols

Compliance with these guidelines will likely create additional costs. For example, contractors should be prepared for increased expenses to purchase PPE, more work shifts to stagger on-site employees, and/or remote meeting technology. Businesses should continually evaluate any safety hazards specific to each site and update plans accordingly.

Financial Considerations for Contractors

In the short-term, contractors will need to deal with project delays or cancellations. While jobs that were underway pre-COVID-19 stand a better chance of completion, jobs that had not yet begun are in unstable territory. An AGC survey found that about 25 percent of all contractors reported jobs scheduled to begin in June or later have been canceled. Further, of the responses where construction projects were delayed or canceled, about 60 percent of respondents could point to a lack of funding, loss of revenue, or decreased demand as the reason for the stoppage.

There are five main options to recoup financial losses in the short-term:

• Funding from the Paycheck Protection Program and other federal sources
• Properly manage retainage
• Speed up collections
• Enforce lien rights
• Section 3610 of the CARES Act, for federal contractors
• Force majeure

It will be easier for contractors that previously had PPP funding to use the money and get the full amount forgiven since the timeframe was extended and the threshold for approved payroll expenses was recently dropped to 60 percent.

Strategically managing retainage is another important area that can help. Since agreements are set by the parties, now is a perfect time to revisit retainage rules, negotiate, and include sufficient legal rights to claim the money if a problem arises.

Easy ways to shore up finances are to enforce collections and lien rights. Contractors have been historically lenient with payment deadlines but processing timely collections and enforcing due dates are entirely within their purview. Pay attention to any delays and accounts that are more than 30 days past due.

Another measure that contractors can take to protect themselves is to look at contract language. Most have a force majeure provision permitting work stoppage or cancelation without liability. If the contract does not specifically mention government mandates and/or disease as a triggering event for force majeure, it is time to negotiate.

Federal contractors have another valuable tool to recoup losses: Section 3610 of the CARES Act authorizes federal agencies to reimburse contractors for employees’ paid leave and workers’ lost time between January 31, 2020, and September 30, 2020. There are rules against double-dipping, and contracts must request reimbursement.  

Finally, strategic cash flow management is critical in a recession environment. Everything from implementing digital payment processes to conducting cash flow forecasts, opening up lines of credit, and avoiding large capital purchases can help make every dollar count.

Thinking Ahead

Long-term, contractors may need to rethink their supply chains to diversify suppliers and reconsider how certain elements of the build environment could come prefabricated. Implementing staggered work shifts may lead to a 24-hour construction schedule for projects where the timetable is strict. This may require approval by state and local government agencies, so advance planning is key.

Contact Us

Many Atlanta construction contractors are assessing how to manage in the new normal. In order to be prepared, it is important to review new operating costs, opportunities to recover lost revenue, and engage in strategic cash flow planning. If you have questions about the information outlined above or need assistance with another issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.