Perhaps the most prevalent topic of discussion these
days is America’s deepening economic crisis. At least
in Florida, the construction industry has already been
hit hard. For example, 90% of all jobs lost in Florida
have come from construction. Funding has dried up –
not only stopping new construction, but also payments on projects already in progress.
Even worse, there aren’t many signs indicating an
upturn in the near future. On the contrary, all indicators are pointing toward a more accelerated downturn (or worse).
Unfortunately, the construction industry is no more
immune to economic pressures than other industries.
In fact, many contractors across the nation are feeling
the effects of reduced capital, coupled with more difficult relationships with owners and lenders, slower
payments and reduced cash flow on projects, and
businesses that are facing bankruptcy or dissolution.
Until the economy rebounds, only those contractors
adept at predicting and preparing themselves for reduced cash flow, credit problems, and distressed projects will survive. Contractors should recognize these
warning signs when:
1) Payments on a project become consistently
delinquent or, even worse, are missed entirely;
2) Progress on a project slows as a result of
or subcontractors who can no longer fund
the appropriate crews needed to meet the
3) Loan funds (either from a project lender or
your company’s lender) dry up, and authorizations for disbursement and/or extensions of
credit become more difficult to obtain; and
4) The number of foreclosures increases.
These are only some of the signs that manifest during
economic hard times, signaling the need for significant foresight, planning, and creativity. Only those
contractors successful in this endeavor will survive a
prolonged or worsened recession.
This article discusses what GCs can do to protect
their businesses until the good times return. (
Subcontractors should consider implementing some of
these suggestions as well – both in their client contracts with GCs and their downstream contracts with
Three phases of economic planning will be reviewed:
1) planning at the time of bid and contract;
2) addressing financial problems once a project has begun; and
3) long-term corporate planning.
Planning at the Time
of Bid & Contract
In order to stay in business, contractors must know
which projects to reject as questionable. Contractors
who indiscriminately accept all business opportunities often accept problematic and underbid projects,
ignoring the warning bells foretelling financial loss.
Trusting one’s instincts and recognizing that a client
or project may be problematic are skills developed
through experience. However, contractors who heed
the warnings and reject questionable projects end up
accepting solid and stable work with fewer complications. For those contractors who have yet to hone
these skills, there are a number of ways to decrease
the chances of financial loss on a project.
First, someone in your company must research each
prospective client’s financial and payment history on
past projects. Court records are public documents
that can easily be searched to determine a client’s litigation history. Has the client been sued multiple times
for non-payment? Even worse, is the client litigious,
as gleaned from a pattern of frequent lawsuits?
Also, be sure to find out if the client has previously
filed for bankruptcy, and talk to people in the industry who may know about the client’s ability to fund
the project. If these searches reveal warning signs
about the client’s financial wherewithal, then the project should be declined.