How General Contractors Can Survive the COVID-19 Crisis

Despite all the economic turmoil and challenges generated by the ongoing COVID-19 pandemic, general contractors can still experience success as long as they avoid costly mistakes. Contractors Reporting Services, a Tampa, FL, company that specializes in Florida contractor license requirements, is providing a  survival checklist designed to help contractors avoid pitfalls and thrive throughout the difficult months ahead.

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Tip #1. Identify and Attend to Pressing Legal Matters.

In the current economic climate, a business may have legal issues and challenges that need immediate attention. The conscientious contractor feels the pressure to address each one as soon as possible. At the moment, contractors have live jobs and live construction contract obligations. It is important to identify the contractual obligations to make sure there is protection against negative impacts during these turbulent times. Possibly, some of these negative impacts are already at the company’s doorstep.

File notice provisions.

Many contracts require notice be given within a very short timeframe for any delays, change orders, etc. Often, courts strictly enforce these notice provisions. Complete the notice provisions as required and avoid unnecessary and unwanted headaches.

Identify voided contracts.

Is it possible to void any contracts amid the pandemic? Many contracts have provisions in them that take into consideration “acts of God” or force majeure provisions. Carefully read these provisions to clearly understand how delay provisions may affect a contractor’s rights and obligations during a pandemic.

Create new agreements.

All involved parties benefit by anticipating and bringing early remedy or avoidance to potential conflicts or disagreements. If one is not already in place, compose a compliance policy and procedure document with appropriate provisions for the exercise of reasonable precautions to prevent the spread of COVID-19.

Consult with a construction attorney on these matters.

The COVID-19 pandemic, the response to the pandemic, and the economic fallout from the pandemic are uncharted territory with unknown hazards and an unforeseeable future.

Tip #2. Be Unyielding in the Protection of Lien Rights.

Exercise strict protection of lien rights. If and when payment is made now hinges on many factors out of a contractor’s control. Pay attention to two simple items.

Send a preliminary notice on all jobs.

Preliminary notices are essential to protect against payment problems on a job, especially issues that are not the contractor’s fault. In 2020, job and payment delays are very probable. Contractors who have significant cash stress or who file bankruptcy may very well be the source of these payment delays. Contractors who failed to send preliminary notices will have little recourse. The courts uphold the rights of those construction companies or contractors that followed the appropriate procedure, which includes filing the appropriate preliminary notices.

When payment begins to lag, act quickly.

If payment begins to lag on a job, the contractor should immediately escalate the matter to protect his or her rights. This escalation means sending a notice of intent to lien or filing a mechanics lien. Under normal circumstances, many contractors are willing to give customers and other participants more time to pay. More caution is required of construction contractors in the current environment with coronavirus. Tight cash circumstances can have a cascading effect. Promptly dealing with early warning signs is the most effective way to keep the cash pipeline open and flowing.

Pay close attention to lien deadlines and take prompt action.

With COVID-19, county recorder offices are closing and limiting availability to important information. The mail system is stretched. Knowing how to file remotely can save a contractor’s business.

Tip #3. Monitor Changes in the Payment Behavior of General Contractors.

General contractors on most jobs are experiencing a significant disruption with coronavirus. They will struggle with the project schedule, legal disputes, worker shortages, and cash flow issues. Consider the following questions:

  • Are there any increases in payment problems?
  • Are payments to contractors flowing more slowly?
  • Are retainage practices changing?

The best contractors perform well in difficult times, such as the period that the nation is currently facing. Accountability and consequences can be effective tools to keep everyone on their toes.

Tip #4. Expand Cash Reserves.

Cash is king in times of crisis. Accessing cash and managing cash flow form a critical pathway to success. The following options are available and helpful.

Seek out working capital loans.

Take immediate action to apply for working capital loans, even if the need is not pressing. The future may hold unforeseen and unanticipated challenges.

Secure material procurements with longer payment terms.

By taking advantage of programs that allow for the purchase of materials with longer payment terms, cash flow needs on jobs throughout 2020 can be more easily managed.

Get cash from slow-paying accounts.

Most contractors tolerate some slow-paying jobs on the books. Convert these delinquent receivables into cash. Less cash is better than no cash.

Tap SBA loans.

The Small Business Administration is preparing loan offerings for contractors impacted by the coronavirus. Use these loans for cash for the business.

Conclusion

Take strategic action now to avoid future pain resulting from restricted cash flow. The impact of COVID-19 on the construction industry and the general contractor is unpredictable and somewhat speculative, but there are some certainties.

  • The virus is having and will continue to have at least some negative effect on the global economy. Grasping this reality can inform and enhance planning for the future.
  • Construction companies and general contractors will experience extreme cash flow challenges.
  • General contractors have a number of pre-emptive strategies in their toolbox to keep the cash flowing and the business above water.

For more information, visit the Contractors Reporting Services website at activatemylicense.com. Contact the office by phone at (813) 932-5244.