By Patrick Hogan on Jun 29, 2020 4:57:51 PM
Four months after the first recorded case in the United States, the COVID-19 problem is still far from being solved. In fact, business owners may have to consider the volatile and constantly changing situation as the new normal. Many businesses around the world are still struggling with the operational difficulties brought by the pandemic. Despite some places easing restrictions on movement and stay-at-home orders, business owners still have to deal with supply chain disruptions and workforce limitations.
The COVID-19 pandemic has had a huge impact on the construction industry, perhaps even bigger than the 2008 global economic recession did. Even before the pandemic actually hit, the construction industry was already experiencing a 1.3% drop in spending, which is decreasing further as the crisis continues. With the global supply chain slowdowns, financial difficulties, and the reduction of the construction workforce, construction businesses will see longer project completion times.
But despite all issues arising from the COVID-19 crisis, our experience with the global recession and past economic downturns shows that the industry will bounce back. So while we are on the road to recovery, here are some of the things construction businesses can learn from the COVID-19 crisis.
1. A pandemic poses different business risks
Construction business owners are used to dealing with risks. Large-scale ventures like construction projects with multiple participants and stakeholders inherently have higher risks. In addition, construction business owners also have to deal with risk of not getting paid on time and in full.
However, the COVID-19 pandemic poses a different type of business risk from what construction businesses are used to. For one, the stay-at-home orders and lockdowns imposed by federal and state governments mean that some construction employees need to work from home or stay on-site to continue operations. In addition, the global supply chain is paralyzed by the pandemic, leading to a potential stoppage of operations. Finally, and most importantly, the health risks brought by the as-yet curable COVID-19 require adjustments in operations to protect employees.
2. Flexible work arrangements ensure business continuity
The construction industry does not have the best reputation when it comes to the adoption of new technology. But as the COVID-19 pandemic disrupts operations, construction business owners need to look into adopting flexible work options such as work-from-home setups.
Working remotely has a lot of benefits for the business. Aside from its positive effect on employee productivity and well-being, it also reduces the health risks associated with commuting. And with social distancing orders, the fewer people on the move, the slower the novel coronavirus can spread.
3. Force majeure provisions are not just boilerplate clauses
The COVID-19 crisis has pushed the construction contract, specifically the force majeure provisions and impossibility of performance clauses, to the forefront of discussions. Before the pandemic struck, these clauses were usually regarded as boilerplate clauses. But with many contractors having difficulties to fulfill their end of the contract, these provisions may provide much-needed relief.
Construction business owners should review current contracts and see if they could relieve them of their contractual responsibilities. In addition, it is best practice to have well-defined force majeure provisions to address issues similar to the COVID-19 crisis.
4. Protecting the right to get paid is crucial
Cash flow is tight during a crisis. Materials, schedules, and labor all have a direct impact on your finances. With COVID-19 amplifying the issues with these factors, any action to deal with them will incur huge expenses.
For this reason, it is crucial that construction business owners not just be proactive in pre-screening clients but also diligent in protecting their rights. Fortunately, the mechanics lien exists to help contractors when they are not paid for the labor and the materials they furnished. The first step in protecting your right to file a mechanics lien is to timely prepare preliminary notices. Not filing these notices early on in a construction project may result in your mechanics lien being invalidated and you losing any legal avenues to seek compensation.
As one of the pillars of the economy, the construction industry is vital to the country’s economic recovery. However, it will take a significant amount of time before going back to “business as usual”. If there’s one good thing the pandemic has brought, it is that everyone has been pushed out of their comfort zones and forced to reexamine many aspects of the business. Hopefully, this can be a learning experience for businesses as they adapt to the new normal.
About the Author:
Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors, subcontractors, and material suppliers with late payments. Handle.com also provides funding for construction businesses in the form of invoice factoring, material supply trade credit, and mechanics lien purchasing.