Posted: 30 Jul. 2021 5 min. read

How can construction leaders survive (even a partial) industry shutdown?

The NSW Transport and Roads Minister has pledged to pay contractors $500 million to help them survive the industry shutdown. But even with a partial recommencement of activity, there is more construction industry leaders can do to ensure they come through the period solvent, and geared-up for a return to work.

The biggest escalation in NSW’s war on the COVID-19 Delta variant outbreak was to recently halt all commercial, residential and government construction activity.

The immediate economic impact has been estimated at $900 million a week. But the damage won’t stop there – the longer the lockdown, and even with work on many projects recommencing, the harder it will be to remobilise businesses, contractors and 350,000 workers that make up the complex supply chain of major construction projects.

These cannot be stopped and started with a flick of a switch, and a return to ‘business as usual’ is more complicated than for a business in, for example, retail or hospitality.

Even a relatively short shutdown could mean delays to major projects, and knock-on consequences for contractor cash flows, and ultimately, solvency for businesses.

Many projects won't restart as they are in ‘black spot’ local government areas, and tens of thousands of tradespeople, sub-contractors and other workers residing in these areas will not be able to leave for work on in the other parts of the city.

These restrictions along, with physical distancing on worksites is likely to lead to disruptions in the delivery of projects, worksite inefficiencies and labour/skills shortages, leading to delays and increased project costs.

So, what can businesses do to survive?

These six things should help:

  1. Communicate clearly with stakeholders. Look to reset expectations with clients for project timing and delivery and keep in contact with subcontractors to support faster remobilisation.
  2. Stand down staff where able and communicate a revised work program to support a smooth return to activity.
  3. Engage with suppliers to renegotiate payment terms and reschedule work, to minimise costs and disruptions.
  4. Secure cash flows by bringing forward receipts for existing invoices, or billing out of cycle. If you are eligible, take advantage of Minister Constance’s offer to pay in advance.
  5. Contact project financiers or working capital lenders to access additional finance, interest relief, or deferrals of amortisation.
  6. Access Government support in the form of COVID-19 Fighting Fund, SME Recovery Loan Scheme and support negotiating new rental agreements with landlords.

Directors should also be aware that the temporary measures providing for relief from actions relating to insolvent trading provided during the 2020 COVID lockdown ended on 31 December 2020.  Directors should make sure that they aren’t incurring liabilities that may not be able to be paid. In the event of a corporate failure, a liquidator investigation could see those liabilities fall back to the director if it is proven that they were incurred while the company was insolvent.

The Safe Harbour regime introduced in 2017 could provide directors with time to develop and implement a restructuring plan to manage the corporate back to financial health, while limiting personal liability risk associated with potential future insolvent trading actions. Certain threshold requirements need to be satisfied to utilise the regime, and if available, can provide directors with the time required to restructure. To take advantage of Safe Harbour, directors should seek professional advice.

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Jason Tracy

Jason Tracy

Partner, Financial advisory

Jason has more than 18 years of financial advisory, restructuring and insolvency experience. He works in situations where performance and capital is at risk. Sometimes capital is merely underperforming, other times it will be facing serious crisis. Jason works collaboratively with c-suite execs, boards, debt providers, governments, sponsors, and investors to stabilise performance, manage stakeholders, identify and address root causes of underperformance and to design and implement tactical, executable and bankable plans for the future (e.g. solvent turnarounds, M&A, refinancing and other capital restructures). Where this is not possible, he delivers alternate solutions through the use of insolvency processes. Additionally, he provides Safe Harbour advice and has delivered expert evidence in regulatory and other court proceedings.