By {{Article.AuthorName}} | {{Article.PublicationDate.slice(6, -2) | date:'EEEE, MMMM d, y'}}
{{TotalFavorites}} Favorite{{TotalFavorites>1? 's' : ''}}

Everyone has their own descriptions of the type of year 2020 was. Words like “challenging,” “uncertain,” “reinvention,” “THE election” come to mind, but perhaps the catchall description is “unprecedented.” It is not often that the world experiences something that has never been seen before, but that is exactly the situation the COVID-19 pandemic has created. Unlike any other crisis, it has affected every business of every size in every industry around the world by forcing business owners to rethink how they deliver goods and services. 

Now, more than a year after the pandemic began, the construction industry is still facing unprecedented situations. Contractors must continually refocus their collective vision toward the future—and on what will help them survive.

1. Develop a fluid cash flow model and operating budget covering the next 18 to 24 months. Contractors fail in good times due to cash flow constraints, let alone in times of financial and health crisis. Tried-and-true financial management planning tools, such as project-centric cash flows and budgets, can help a contractor identify where projects will experience cash surpluses/deficits and understand how this will impact the entire company. When a constrained period is identified, management can take the necessary steps to identify other sources of cash flow to carry operations. 

2. Don’t take work to keep the field busy. As backlog is rapidly burning off, replacement work is not as readily available as it used to be. While there are needs for new projects, economic uncertainty has put a freeze on funding. More bidders are pricing aggressively, at slim to no margins, to win work. This is an unsustainable strategy that will have a negative impact on a contractor’s cash flow and could have a waterfall effect. To the fullest extent possible, a contractor should bid work to make money (even if at a lower profit), stay within their own expertise and identify where overhead can be reduced and corporate capital conserved.

3. Evaluate income tax options. While not immediate, there is an expectation that President Biden will look to reform the U.S. tax structure. This throws a twist into certain income tax planning strategies, such as proactive income tax deferrals, which enable the contractor to conserve cash that can be deployed into projects while requisitions are being funded. If rates are expected to go up in a subsequent year, however, the notion of accelerating income becomes a more viable tax strategy. 

4. Treat Paycheck Protection Program loans as “wild cards.” The evolution of PPP loans has been a well-publicized odyssey. Even with many issues resolved, such as the deductibility of PPP-funded expenses, the Small Business Administration’s scrutiny over the need for these funds and the tightened requirements for second-round loans are causing continued uncertainty. Thus, questions arise, such as: 

  • Was the loan truly necessary, or should it be repaid?
  • If forgiveness is sought, when does the loan drop to income for financial reporting purposes?
  • Was I really eligible for a second loan?
  • How will my bank and/or surety treat this income? 

5. There is no better time to start estate planning. Estate planning is an important initiative for all contractors, but it is not always the highest priority. As a result of COVID-19, the construction company (often the most valuable asset in a contractor’s estate) could be valued at an all-time low. Coupled with the current high lifetime gift tax exemption ($11.7 million for 2021 or $23.4 million if married), ownership of the construction company, real estate and other assets can be moved out of the estate for significant tax savings. PPP borrowers should be aware of restrictions if the transfer involves more than 50% of the ownership interests or assets.

6. Refine and scenario-train response plans. Even in 2021, contractors should still look to implement and refine COVID-19 response plans. The plan should focus on proper hygiene training; how to handle positive cases in the office or on a jobsite; measures to understand the owner’s and other contractors’ jobsite protocols; and contact tracing. 

As with any plan, the COVID-19 response plan is only as good as the execution. Start with staff training and awareness, and then engage in scenario training, ensuring people know their health is a priority and understand their functions and protocols if an outbreak occurs.

7. Cybercrime never sleeps. Hackers love the construction industry because they perceive it as a high proliferation of middle-market companies that are either unsophisticated when it comes to technology investments or view these investments as having little to no return. Mix in times of financial and general uncertainty, and cybercriminals have the perfect setup to prey on vulnerable and fearful companies by offering everything from “free” jobsite COVID-19 tests to financial grants in exchange for employees’ personal information. 

It is never too late to promote awareness throughout the organization and foster an environment where it is okay to be skeptical of an email, a request from a new face on the construction site, or a new vendor payment process.

8. Get on board with technology. Most construction companies had to put their technologies to test rather quickly during the initial shutdown. Employees had to “lean into the curve” and learn how to work remotely; IT teams were stretched as they made sure VPNs had bandwidth to accommodate multiple users at once; and mobile meeting platforms became the norm not only for internal meetings, but also for project kickoff meetings and even project walkthroughs. 

While a number of initial issues caused by this shift have resolved themselves, contractors continue to have opportunities to evaluate remote workplace strategies, assess whether technologies are efficient and explore new ways to build. While certain aspects of construction can never be virtual, the opportunity and need to adopt jobsite health and safety technologies has never been greater.

9. Huddle up with advisors. Contractors should be engaged in continuous dialogue with advisors to understand what they are seeing across the industry. For example, a conversation with a bonding agent could reveal other contractors’ challenges, which could be mitigated for your company through proper planning. Contractors should also ask accountants about possible financial reporting and the income tax implications of the pandemic. This conversation should extend to the bank and surety, making sure they are on board with any upcoming requests that would require a credit providers’ backing. 

10. Stay alert for opportunities. Every market condition presents opportunities, and this is no different. These may come in the form of labor or other talent, new customers in a market void or accelerated investments in technology. Whatever arises, contractors should be open to the shift. 
Success can be achieved through continued dialogue with advisors; better access to real-time project data (financial and non-
financial) to help make critical decisions; and an emphasis on conserving corporate capital while being open to new opportunities and the right type of growth. Following a year of many reactive decisions, contractors can proactively script and plan for a very different future. 


 Comments ({{Comments.length}})

  • {{comment.Name}}


    {{comment.DateCreated.slice(6, -2) | date: 'MMM d, y h:mm:ss a'}}

Leave a comment

Required! Not valid email!