In the ongoing pandemic, we have seen many businesses at best struggle, and at worst, succumb to unavoidable increased costs of compliance with new mandates. Pairing this with a significant loss of revenue due to restrictions in operations could directly result in a decreased customer base. While many businesses have been seeking aid through the downturn via utilization of the various government provided incentives, those businesses that are considered essential continue to struggle to provide their goods and services to both private owners and government agencies. The construction industry is one such sector deemed essential, and as such, has been faced with the ongoing challenge to adjust to the unintended consequence  of employing a workforce that must operate under new mandates.

Contract Prices and the Pandemic

Most construction companies work on fixed price contracts, so the added costs and inefficiencies of adapting and adhering to continuously updated changing recommendations from health, state, and federal government officials are taken directly from corporate profits.  

As an industry that thrives on team work, as well as the precision required of people working together in tight spaces, the industry is faced with special challenges in complying with social distancing and health/safety mandates. In time, contract prices will have to be adjusted to compensate for the additional cost of compliance but, by then, the industry may very well see a number of companies succumb to the increased financial burden.

Action for Construction Companies 

Construction companies should take various steps and actions to mitigate risk of surrendering to the additional cost of compliance as the coronavirus pandemic continues, and beyond:

  1. Issue notice of cost and schedule impacts for all projects.
  2. Document loss/damage due to work slowdowns, shutdowns, weather damage, etc. for insurance purposes, as well as to communicate with owners, general contractors, and subcontractors.
  3. Update contracts to include pandemic language.
  4. Establish new cost codes where appropriate to track cost of compliance.
  5. Evaluate business interruption insurance for applicable coverage, if any.  
  6. Determine exposure to the business in the event any employees fall ill and/or spread the virus at the job site.
  7. Establish on-site protocols for anyone showing virus symptoms or indicating exposure.
  8. Address cash flow concerns and take all available measures to align overhead to volume.
  9. Monitor key metrics and realign acceptable high/low thresholds so you can quickly identify impending issues.
  10. Revise cash flow projections on existing contracts.
  11. Utilize change orders on existing and not yet started projects to help cover increased cost of compliance with safety/health ordinances.
  12. Assess cost of compliance on bid rates and revise as required to cover items such as additional equipment/materials cost due to increased lead times.
  13. Assess utilization of incentives such as the Families First Coronavirus Response Act (FFCRA) paid sick leave, Paycheck Protection Program (PPP ) loan forgiveness, and any other applicable assistance as they become available.

During these uncertain times, it becomes even more imperative to plan. One certain aspect of that plan should be to reevaluate existing operational protocols to assess the impact of increased cost of compliance with health/safety mandates. By addressing the steps above, construction companies will help to mitigate their risk of surrendering to that unavoidable cost.

More Information

For more information on the above, and its tax implications for you and your business, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.