Getting stabilized during a black swan By: jack callahan, cohnreznick growth, and now I can honestly say I have never seen anything with an impact like COVID-19. This is uncharted ground for us all. Is this a several-week or a few-month pause in work? Will it spark a new burst of positive trendlines? Or will it cause issues and slowdowns?
Sadly, that swan has taken the form of COVID-19. The effects of this are certainly undetermined now, but it already is disrupting some construction sites with shutdowns, and other states are either enacting or considering issuing other stoppages for largescale sites. We all hope that the downturn is temporary and that the events of early March will help to advance a federal infrastructure bill.
For our construction contractor clients, we want to provide the following thoughts and potential action items for immediate consideration due to the crisis:
Once COVID-19 became a business disruption reality, we mobilized as a construction practice and generated ideas and initial thoughts on what contractors need to be thinking about. We also have pushed out numerous communications about the latest from the government as well as developed resources to help you strategize through the COVID-19 emergency. These are all found on our firm’s resource center. It is critical to monitor relief bills and tax updates from the government. In recent days, the Small Business Administration committed to issuing Economic Injury Disaster Loans for up to $2 million in assistance (www.sba.gov/disaster). We all are hearing of other governmental assistance programs. Before this all began, I was going to write that I am certain that in my 40 years in this industry, I have not seen an expansion that hasn’t contracted within 10 years. Well, we went 11 years with
1) Cash is and always will be king. You will need to assess your current cash position and keep a very close eye on accounts receivable collections, timing of accounts payable payments, and effective utilization of your line of credit. You need to model out your cash flows weekly, monthly, and quarterly to identify and understand your liquidity situation. There will be opportunities here if you effectively manage your cash. 2) You will need to develop and/or review your wind-down strategy to determine how quickly and in what areas you can cut overhead in the event of work stoppages. Labor shortages have been a critical concern in this strong economy. You need to assess how best to reduce overhead and communicate these reductions in such a way that you won’t lose your key players who will be needed upon resumption of full operations. What other obligations can be extended or adjusted?
Accounting Corner
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hen I set out to write this, all was well with the economy and New Jersey utility contracting. For those of you who have heard me talk about strong backlogs and great stimulus at recent events, I did hedge about the potential for a black swan.
3) Labor management will be critical. You need to know from your labor counsel how to manage furloughs effectively. A recently passed coronavirus relief act includes paid sick leave and family leave that could substantially impact all of you. See the attached AGC discussion. Timely and honest communication will be necessary to minimize the impact. 4) Review critical external commitments. Talk to your banker, talk to your surety agent, talk with your insurance agent, and talk with your legal representation. Nearly every state, New Jersey included, has pending legislation that would force business interruption insurance to cover COVID-19 disruption. Know all your requirements and deadlines and be sure to miss no commitments without effective communication.
Utility & Transportation Contractor | april| 2020 19
