Now that covid has reared its ugly head in the community again, the already volatile and cyclical nature of the property and construction industry is further exacerbated. However, it’s an ideal time for these businesses to focus on the factors within their control rather than being burdened by the macro challenges for which there is no quick fix.
Supply chain, access to labour and consent process delays are having huge impacts on businesses in this sector, but if owners and leaders can channel their energy into smaller areas of focus, they can gain some peace of mind by reducing some short-term risk exposure. Our top tips for the here and now are outlined below.
Pipeline, pricing and contracts
The feedback from many in the industry is their project pipelines have never been stronger. So, what better time to review the associated risks with the size, type and complexity of these contracts? How has the inevitable, yet unknown rise in the cost of materials been factored into these agreements? Is this a chance to turn down or renegotiate the riskier jobs further, or the more difficult clients with less understanding and willingness to pay? Now is also a great time to be open with clients about the uncertainty in the industry to create some consensus about the risk being carried and to justify the type of contract being entered into, additional clauses included and reduced willingness for fixed price contracts.
Lockdowns potentially provide some business owners with more time to sit back and reflect on operations. So why not take the time to get yourself up to speed with the latest retentions policies? Do you know your obligations when holding retentions? How can you be sure the retentions payable to you even exist? New rules are coming into play obligating the contractor to hold funds on trust to provide more certainty they are not mixed in with working capital funds. While the administration time involved is set to increase, it should provide more assurance and structure to the retentions regime.
When was the last time you proactively talked to your bank? Given the unpredictable nature of the construction industry, the value of this key relationship shouldn’t be underestimated. It’s also not a bragging right to say you have no rainy-day funds available, like a flexi or overdraft facility to call on if required, particularly in the current climate. These ‘top of the cliff rather than ambulance at the bottom’ conversations are easier to have and inevitably have more favourable outcomes if entered in to in advance. Delaying payments to suppliers and using them as a line of credit also isn’t a proactive approach.
With adequate and targeted planning this latest covid outbreak can just be another speedbump for the property and construction industry. There isn’t a silver bullet that can fix many of the long or short term challenges within the sector, but there are some quick wins that can achieve some resilience and reassurance for the road ahead.
For further information, contact:
Dan LowePartner, Business Advisory Services
M: +64 27 475 9556
Tom VerdonkManager, Business Advisory Services
M: +64 27 202 9080