GGFL COVID19 Commentary Week #10 – Re-Building the Construction Business
By: Natalie Evans
Few, if any, small and medium-sized businesses have escaped the negative fallout from COVID-19 but for the construction industry, these past two months have been particularly uncertain and harrowing.
Construction is a complex business at the best of times, and these are not the best of times.
Construction is a business where deadlines and deliverables are embedded in contracts and is a business dependent on reliable supply chains. Without supplies, contractors and sub-contractors alike can’t deliver to deadline.
It’s also a business of stages. Electricians can’t do their work until framers have finished and drywallers can’t come in until electricians have finished. And on it goes.
The pandemic has amplified all of these issues, and more.
It’s clear from speaking to construction industry clients during the past few weeks that forced contractual delays are especially concerning, especially if there are associated penalties. Hopefully, these situations can be resolved amicably. If not, my advice is to touch base with your lawyer who can examine and assess the contract language and advise accordingly.
The province has gradually allowed a re-opening of construction after an initial lockdown of most sites considered non-essential. Obviously, the restriction of physical distancing is still in place. For smaller projects that can often mean only one sub-contractor at a time working on site. That translates into a slower than usual work rate and likely delays in completion.
Another key issue is supply. COVID-19 caused closures and slow downs at the supply end too. This brings concern that costs will go up as demand for these now limited supplies grows. Pricing in contracts can be signifcantly driven by the expected cost of supply and labour to fulfill the contract. How do businesses deal with the added pressure on margins?
My advice to construction company owners is invariably centred on managing cash flow. Plan for the management of cash now, as well as, preparing projections for cash flow. Is there cash going out, but not enough coming in? Beyond government relief programs available, is borrowing an option, or even desirable? If you’ve received any abatements on costs, that’s great news, but if you have organised payment deferrals, do not forget to factor them into your future cash flow management decisions.
The most frequent questions I hear are about those financial resources available from the government and the application process involved.
For example, the Canada Emergency Business Account (CEBA) can provide a loan of up to $40,000, interest-free, to qualifying small businesses to help cover operating costs. Those who repay before December 31, 2022 will be forgiven 25 percent (up to $10,000).
The process has been frustrating for some and they have been refused without explanation. Relationship managers at the banks aren’t able to help because they don’t seem to have access to the necessary information.
CRA has sometimes rejected qualified applicants because of outdated information on a company’s CRA business profile. It could be something as simple as a wrong phone number and outdated address. It’s critical to keep that file up to date. This information can be accessed through your CRA My Business Account.
Another federal government financial aid program is the Canada Emergency Commercial Rent Assistance (CECRA). Details have been slow coming and the situation and may lead to friction between tenants and landlords. It has been a source of frustration among business owners.
There is a crucial human element to all this.
Most companies have a core group of valued and loyal employees they want back when businesses are able to re-open or ramp back up. It has been painful for business owners who have had to make the decision to lay off employees.
The Canada Emergency Response Benefit (CERB) has helped some of those employees while others have been sustained by EI benefits. Despite the best efforts of employers and the government, many of those employees may be permanently lost to other construction companies who are now in a position to hire.
Everyone wants to get back to a normal productive work day and are not interested sitting at home for extended periods.
Business owners are working hard to get through this. They are now turning their focus from getting through the pandemic to preparing for a comeback. Despite how trying their individual situations may seem, their entrepreneurial spirit will continue to drive them.
There has been so much for us all to learn as we continue to work through the pandemic; some things we have tried have worked and others have not. These lessons will be invaluable in the future, especially if the need should arise to react quickly in case it comes around again as predicted.
The goal is to start planning now and be better prepared for the future should we encounter this again.
Natalie Evans is a GGFL Partner and the firm’s Head of Assurance.