10 Contractor Questions About COVID-19

May 6, 2020Construction & Real Estate, Covid-19

What are we hearing from our construction industry clients?

As this crisis continues to bring uncertainty to the economic landscape, the construction industry is feeling the impact. To assist contractors during uncertain times, the Smith Schafer Construction Experts are providing a list of the Top 10 Questions we hear in the industry.

1. What are the top three concerns we hear from our construction industry clients?

  • Canceled contracts – even with a substantial backlog heading into 2020, our clients have seen contracts get canceled or delayed since March.
  • Reduced bidding opportunities – the combination of shrinking backlog and decreasing opportunities to bid on new work has significantly impacted the 2020 and 2021 outlook.
  • Restrictions on job sites – the safety of the workforce currently on job sites is most important. However, delays and lower headcounts are hurting existing job margins, reaching milestones, and extending the overall timeline of jobs.

2. How has the pandemic affected our construction clients?

We have seen a complete 180 as far as worker and job availability. Prior to the pandemic, there was a tight labor market and now there are not enough active projects to keep the workforce utilized.

3. What have we advised clients to do to lessen the impact on their businesses?

We have advised our clients to think long-term. This is a drastically different situation from 2008 or other economic downturns. We can still weather the storm with proper planning and tough decisions. We recommend preparing a 14-week cash flow forecast.

The Payroll Protection Program and other assistance have helped ease the pain or delay the tough choices, but we need to plan for additional shelter in place orders, shutdowns, and shortages. It is crucial to be aware of alternate funding sources, such as SBA loans or other federal or state programs.

4. Are other construction clients taking advantage of the CARES Act, and its accompanying Payroll Protection Program to keep their workforce employed?

Many clients have taken advantage of the Payroll Protection Program (PPP). The immediate goal of the PPP is to help employees. However, if job sites cannot be operational to keep employees on payroll and the loan is not forgiven, it is still a low-interest loan.

5. What options are available to construction businesses who may not survive an economic downturn?

These difficult times have taken a toll on businesses. Some owners are considering selling their business or consolidating. While negotiating a merger or business sale, it is helpful to conduct a valuation. There is more to business value than simply your balance sheet today. Your goal should be to make sure you are getting the best purchase price, even during the current crisis. We also recommend consulting with an attorney and contacting lenders and vendors.

6. Will there be an impact from COVID-19 on construction business retirement plans?

After several years of improving funding statuses of defined benefit plans (pensions), we may see a steep decrease in value, which could possibly result in financial improvement plans and surcharges costing participating employers more in the future.

7. How have the Financial Accounting Standards Board (FASB) changes to revenue recognition impacted our construction clients?

Change orders have come under more scrutiny under the new revenue recognition standard. After a bumpy year of implementation, the hope is that revenue recognition will once again ‘normalize.’

8. How are construction businesses adjusting to workforce changes and increase demand?

One of the most significant issues continues to be an extremely tight supply of skilled workers. Before COVID-19, work was being bid at higher margins to account for the required overtime or weekend pay. Many construction companies were trying to work with industry associations and local technical schools to help get more people into the workforce.

9. What trends have you seen construction firms using to achieve prompt payment?

In the current environment, filing and maintaining construction lien rights will become even more critical—plan to expedite billings and collections on all jobs. Identify contracts you expect might delay payment and include this information in your cash flow forecast.

10. What advice do you have for construction firms to protect their businesses and financial systems from phishing, data breaches, and cyber intrusions?

Training, training, and more training. Many services will send phishing emails to your employees and track how many open the links or attachments. Most claim they would never fall for such an attack, but those are often the same people who open a link, which is better to be done on a test email than an actual phishing email.

The long-term impacts of the COVID-19 pandemic are unknown, but will likely include additional job site safety measures, including health screening and limiting headcounts on sites. We recognize your construction business may be facing decisions you have never had to face, and we are here to help.


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