In a world turned upside-down by a global pandemic, contractors are likely working extra hard to make sure their business is braving the storm. They may be experiencing a variety of struggles, including a shortage of labor and supplies, cash flowing payroll and liabilities, as well as completing contracts on schedule.

During a time like this, it’s important for contractors to turn to trusted advisors who can provide reliable information and guidance. Here are five measures from a bonding perspective to ensure a business can continue to run smoothly, while staying out of trouble with the surety company.

1. Have a construction attorney review current contracts to avoid performance bond issues. Contractors should understand what rights they may have in this situation, especially related to force majeure. Force majeure is a contract provision that allows the contractor to call a stoppage on work during a crisis like the novel coronavirus pandemic, without incurring performance bond claims. If the contract was signed after the president declared a State of Emergency on March 13, however, the owner could state that COVID-19 was a known risk, and any delays could be the responsibility of the construction company and result in liquidated damages. (This is not legal advice, so consult with a construction attorney on this matter.)
2. Keep an open line of communication with subcontractors and suppliers to avoid payment bond issues. This is a challenging time for all parties to meet payment obligations. Communicate with subcontractors and suppliers on existing payment terms. They may be more understanding of extending payment terms by an additional 30-60 days. At the end of the day, it is to everyone’s benefit that existing company infrastructure stays in place, and thus there may be some added flexibility for those who communicate and have a good relationship with their vendors.
3. Ensure liquidity and keep cash in the company. This may be essential if collecting receivables or receiving payment from owners becomes slow. Now is an important time to consider increasing the business line of credit, applying for an SBA loan for added liquidity and having strong cash reserves to ensure payroll liabilities are met.
4. Take a close look at current bonding and insurance coverage to ensure the company is well protected. This includes reviewing bonding limits, receiving excellent service and having in place the necessary business interruption insurance. These measures will help mitigate the financial impact of COVID-19.
5. Approach this situation calmly and rationally. Understand that everyone is going through a challenging time—keep an open line of communication and take a constructive approach in working with owners, general contractors, subcontractors and suppliers. There will be significant adversity during this time, so treat workers well and work as a team. If the crew is still working, make sure that every measure is taken to protect their health and well-being.

Lastly, it is important to work with key personnel and trusted advisors to make thoughtful, prudent decisions during this challenging time. By following these suggestions, contractors should be able to minimize the impact of this pandemic and keep their businesses running smoothly.