Navigating a major disruption
This guide will help construction contractors navigate through six key areas of business during a major disruption (like the current global health pandemic) to mitigate risks and strengthen finances and operations.
Overall business and communication:
- Communicate a clear plan for disseminating information to all areas inside the company (office and field). Have regular and consistent communication with your staff, set specific output expectations, and monitor deliverables and work productivity daily.
- Pinpoint interested third parties and prepare a communication plan for them.
- Maintain regular contact with industry associations for notifications of and assistance with changes in circumstances.
- Appoint a cross-functional response committee that is risk-management focused. Basic daily risk-related issues can become exacerbated and require reassessment and retooling. Identify the right people; develop progress reports; identify, qualify, quantify, and prioritize your risks; evaluate impact; control the risk (physical and financial control); and document policies and procedures for new controls.
- Assure necessary equipment and business records are securely accessible to all those who need them.
- Ensure you have a comprehensive understanding of your insurance coverage – understand what is and is not covered by your policy.
- Speak with owners and other contractors regarding their plans, mutual assistance, and shared approaches to changing circumstances.
- Speak with insurance and other industry professionals for assistance.
- Assign a point person or team to monitor all legislative changes.
- Keep an open mind for the possible opportunity in a bad situation.
Team members:
- Develop a prevention and response plan (office and field) to protect yourself and your employees.
- Assign roles with respective responsibilities and accountability to each of your team members.
- Assess office and job site disease control and maintenance; educate and train staff; modify and develop work practices, including enhanced health safety modifications, work from home arrangements, hour modifications, company policy, and procedural changes.
- Communicate plans to your employees and train where necessary.
- Identify a plan to replace/substitute staff that may become ill and unable to work.
- Understand remote capabilities and abilities to modify policy and procedures.
- Understand labor options, deadlines, new statutory or regulatory requirements, and how to execute appropriately.
- Be alert to employment-related issues such as OSHA requirements, FMLA, paid leave, sick leave, and possible travel restrictions.
- Consider the impact of disruption on employees – look for signs of depression, financial stress, and effects on families, and provide tips and resources.
- Speak with labor specialists to properly determine the best options.
On the job site:
- Assess the immediate and long-term impact on a per-job site basis.
- Review your contract terms and know your options and limitations.
- Follow all projects closely day-to-day for any changes that need your attention; change plans accordingly and communicate changes to all appropriate.
- Consult with legal counsel about reviewing various relevant contract terms, insurance policies, and claim issues that could arise from the disruption.
- Review and understand collective bargaining agreements, if applicable.
- Communication with company surety.
- Understand how customers may have been impacted and how it will affect your company.
- Develop alternate plans to replace business revenue and address interruption.
- Consider specific shutdowns of certain labor forces – furloughs, terminations, etc. Consider possible costs associated with such actions. Consider alternatives to permanent and temporary workforce reductions such as pay reductions, schedule reductions, and use of vacation and other PTO.
- Job sites can close in a moment’s notice. Be prepared with plans to close sites including locking down and securing all assets (computers, equipment, small tools, materials, etc).
- Understand your subcontractor and supplier limitations – try to identify possible delivery delays and consider alternatives.
- Identify projects that have stringent completion deadlines and consider contractual requirements and how you will be impacted. Set up a process to prepare for the potential delay and disruption claims. Consult with professionals in determining the effect or enforceability of No Damages for Delay Clauses.
Financial:
- Assess cash position.
- Prepare a rolling 13-week cash flow forecast.
- Endorse an operational budget for all to live by and update it regularly.
- Consider additional cash outlay for unusual expenses necessary to fight disruption.
- Determine availability to borrow under corporate credit facility(s); an increased amount of permanent or temporary availability; consider immediate draw down for available cash.
- Identify other sources of cash in-flow (personal, liquidation of investments, etc.).
- Be aware of and consider alternate available funding sources, such as SBA loans or other federal or state programs.
- Identify operating expenses, accounts payable items that are non-essential to current operations, and where payment can be deferred.
- Speak with vendors to negotiate extended payment terms.
- Immediately plan to expedite billings and collections on all jobs. Identify customers you expect may delay payment.
- Identify excess materials, inventory, idle equipment, etc. that could be converted to cash.
- Communication with the company’s bank to identify their position during this disruption.
- Seek payment relief on existing debt or payment obligations of any type.
- Consider putting all capital projects or investments on hold to preserve cash and resources.
- Know all of your available tax-driven alternatives/credits/loans/grants, their deadlines, and how to take advantage of them (federal, state, and local).
- Disruption will result in an economic downturn – consider possible adverse effects on customers and suppliers.
- Speak with financial professionals for assistance.
- Re-assess project financing to make sure funding that existed for a project is still in place post-disruption.
Insurance:
- Call your broker.
- Request copies of available coverages for general liability and builders’ risk policies to assess if the impacts could be covered.
- Look at owner-supplied policies for their projects to determine if you have additional coverage.
- Review payment and performance bonds and subcontractor default insurance policies to address possible financial defaults.
- Understand your rights under any force majeure clauses; while these generally limit relief to an extension of the contract time, there could be an opportunity to be entitled to additional compensation.
- Review your cyber policy to ensure the remote workforce is covered (or add cyber coverage for this purpose).
Technology:
- Assure technology systems are secure and operating effectively for high-volume remote access.
- Make sure the backup plan exists for system failure.
- Utilize all company-wide technology to create a high-touch remote customer and employee experience.
- Don’t forget basic preventive measures for fraud. Fraudsters are at their peak during major events such as this, and you are most vulnerable in a crisis.
- Make sure you have an IT team in place to support all areas and at all times of operation.
Thank you to CICPAC for their contributions to this guide.
Contact Us
Calvetti Ferguson works with middle-market companies, private equity firms, and high-net-worth individuals nationwide. Regardless of the complexity of the compliance, assurance, advisory, or accounting need, our team is ready to help you. Please complete the form below, and we will follow up with you shortly.