In the surreal economic experience that COVID-19 has forced upon the economy, we’re thinking of you, our fellow construction industry professionals. Companies are struggling to keep their employees, keep up health benefits, pay the rent and so much more. For sure, this is one of the most trying times for our great country, but our mandate remains to do whatever we can to help our industry.
At this writing, construction is considered an essential service in most states and you are allowed to keep your doors open. But as states and cities move to redefine essential construction projects, that can change quickly. You should of course take all precautions to protect the health and safety of your people working in close quarters. Construction is facing many challenges, including laborers afraid to come to work, slowing supply chain, project shutdowns and liquidity issues. Let us offer a few strategies to help your business survive to build another day.
Manage your Supply Chain
In construction, we build things and that takes supplies. If you are using several suppliers, this might be the time to consolidate your purchasing power: the more you purchase the better the pricing and the more leverage you have to get supplies to your job sites on time. However, be certain to assess your vendors’ financial health before consolidating. If things are slowing, you likely have senior members of your staff with time on their hands. Consider putting them to work looking for every efficiency in your business.
Mind your Bids
Most of construction is competitively bid and with many procurements, low price wins. You likely bid your current work weeks if not months ago and may not be starting some work for weeks if not months. Now is the time to revisit every bid. Is your pricing still good? Are your material costs going up given supply and demand or are they going down? If they are going up, manage and leverage your supply chain to lower cost. If they are going down and you need backlog, consider reaching out to the client and offering them a price break to build your book. Right now many of you are thinking “I just need the work and will do it at cost or at a loss.” But doing work at a loss is simply kicking the proverbial can down the road. Look at your bids now and look for ways to improve your situation. Rethink your upcoming bids and build in a strategy for these different times.
Manage your Lien Rights
Most construction company owners know the value and power of the Mechanics Lien. But too many construction companies are concerned that filing the preliminary lien notice to the GC and owner is risky, fearing that they might fall out of favor with the client or worse, lose the work. That is not true and if it is, you need new clients. The roots of Mechanics Liens were laid in the late 1700s to encourage construction entities to go to work building this country without the fear of not getting paid. Reputable GCs and owners know this is part of the business and are used to getting the lien notices and getting their projects liened when they do not pay. Using the Mechanics Lien process is even more important in these uncertain times. Audit every project. Do you know what the lien laws are in each state where you are working? If not, get to work and shore up your rights if they still exist. Secondly, get your notices out and make sure your senior staff are monitoring the lien windows as they are often different in each state. If you do not know the laws in your state, contact CapitalPlus and we can guide you or get you the support you need. Now is the time to do everything possible to make sure you get paid!
Look Ahead for Liquidity
These are possibly the most uncertain economic times since the Great Depression. In times of uncertainty, traditional and some non-traditional lenders will pull back and liquidity will get tight, perhaps even non-existent. Risk managers in lending institutions will force banks to cap or worse, eliminate lines of credit. Be prepared for this event and be looking for other forms of capital. At CapitalPlus, we have specialized in providing receivables financing to the construction industry for 20 years and we understand the risk. Contact us or learn more our products here.
As your construction industry working capital partner, we’ll continue offering strategies and advice in the weeks and months ahead – as long as it takes. We urge you to stay connected and wish you well in navigating the difficult waters ahead.