Mitigating Risk During Uncertain Times

In light of the COVID-19 pandemic, construction firms grapple with increased risk both on the jobsite and in the office.

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In an already high-risk, low-margin industry, what should contractors consider moving forward to help mitigate risk?

Maintain a safe jobsite

Risk has always been a part of the jobsite, but the current situation provides new challenges. Employees are adjusting to different ways of working that involve less people on the jobsite at the same time, physical distancing on the jobsite whenever possible, and wearing personal protective equipment (PPE). While business owners should always maintain a safe work environment, business owners now also need to consider the potential presence of COVID-19 on their jobsites. Some states have even shifted the burden of proof from employees to employers when it comes to workers’ compensation benefits, making employees eligible for benefits unless an employer can prove that they did not contract the coronavirus at work.

It is imperative for firms to do everything they can to keep their employees healthy. To help lessen the risk of contracting COVID-19 on the jobsite, business owners can turn to resources such as the CDC and OSHA to ensure they are following the latest guidelines. Safety measures include limiting the number of people on a jobsite, social distancing, temperature checks, frequent hand washing, and using PPE more frequently and in areas where firms may not have in the past.

Business owners can also look to their teams for suggestions and have an honest dialogue: What parts of the workflow need to be adjusted? How many people need to be on the jobsite at a time? What is keeping them up at night? Sure, most projects will take longer to complete but it will be hard for a company to survive another recession without their best workers, especially as the industry is already facing a qualified worker shortage.

Building increased risk into bids and contracts

As new safety practices are enacted on jobsites to mitigate health risks, many are seeing a decrease in productivity. They are not able to do things as efficiently or as effectively as they had in the past, putting increased risk back into the project.

Of course, construction firms always incur some risk when bidding on a project. Bids are made based on estimated cost and labor projections that do not always account for unforeseen circumstances such as a sudden increase in the cost of materials, a shortage of supplies, or project delays. In the current landscape, these circumstances are not an exception but the norm. Firms anticipate delays, supply chain issues, and price volatility to affect most of their projects for the foreseeable future.

Additionally, while areas such as healthcare, manufacturing, and infrastructure may be in higher demand, most agree that there will be a limited number of new projects to bid on, especially in sectors such as hospitality and retail. As we saw previously during the economic downturn in late 2000s, this environment of increased competition often puts firms in a situation where they are taking on exceedingly risky work at almost zero profit just to keep their workforce hired and business moving forward.

It’s difficult to navigate such a challenging environment but there are ways businesses can try to soften the impact. Contractors should factor in delays and other unknown variables to the best of their ability when creating bids. Regularly conducting detailed cash flow forecasts will give firms a better handle on their finances and help inform their bidding process.

Business owners should also focus extra attention on their contracts during this time. It is common for contracts to have penalties in them for project delays, but many will not be enforced during this time. There has been a lot of recent discussion around force majeure, a clause that is in almost every contract, which essentially frees both parties from liability when an extraordinary event or circumstances beyond the control of the parties occur. Many are contending with how this applies right now as it depends on a number of factors including the specific contract language and state law.

Moving forward, business owners will probably structure their contracts differently as they try to directly address some of the unknown variables in an effort to alleviate risk and provide more flexibility. They will want to ensure a broad force majeure clause is included in all contracts as well. Many businesses are also adding specific clauses related to COVID-19 safety measures in an effort to limit their liability. For example, an owner will want to ensure that their contractors are following all new safety protocols while a contractor will want to ensure that all subcontractors are compliant as well.

Embracing technology

Technology has played an integral role in keeping people connected and businesses up and running during this time. Contractors have also increasingly been adopting cloud-based solutions and mobile apps to help streamline projects, increase efficiency, improve collaboration, and keep their teams in sync, which is more crucial now than ever.

Technology also plays a role in helping contractors reduce risk. Estimating software helps businesses produce faster, more accurate estimates, enabling them to pursue the right work at the right price. Accounting and project management solutions automate many processes, reducing errors and providing firms with the visibility they need to make the best decisions for their business. As variables such as material costs or labor hours are affected, they can make updates and automatically project out the impact the changes will have on their budget.

Planning for the future

It is unknown whether some of the current restrictions that have been put into place will soften in the coming months or whether this will be the new way of doing business for the foreseeable future. Projects can be delayed or shut down again at any time as the situation develops. There are a number of other circumstances that could impact operations such as the illness of an employee or lack of childcare. It is important for construction firms to consider some of these scenarios and what they could do to cope with potential setbacks.

As many business owners are feeling overwhelmed, it can be easy to put off long term planning to focus on getting through day-to-day tasks. However, it is essential for businesses to have a business continuity plan in place for emergencies. Having a solid plan in place can help firms survive unexpected circumstances and tough economic times. While business owners will not be able to plan ahead for every situation, laying out some options now could help them to think clearly and act quickly when a problem arises, or if another shutdown occurs. 

About the Author:

Dustin Anderson is Vice President and General Manager of Sage’s Construction and Real Estate practice in Beaverton, OR. Dustin is an active member of Sage North America’s executive leadership team. He is a dynamic construction software executive with more than 20 years of success serving the industry. He is keen about driving healthy change in construction and real estate through technology.