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Managing the COVID-19 Pandemic in America

We are in unprecedented times.  Much of the U.S. population are being urged to stay at home, states have issued shelter in place orders and all “nonessential” businesses in many states closed their physical workplaces.  Many banks are still getting up to speed on the application process for the Small Business Administration Paycheck Protection Program and nearly 10 million Americans filed for unemployment in the last two weeks of March.  The initial economic impacts of COVID-19 surpassed the Great Recession, although many hope that the economic downturn is short-lived, since the cause was a “Black Swan” or unpredictable event.

Companies are seeking advice on how to best document and assess the actual, ongoing, and potential damage impacts of the COVID-19 pandemic.  While the economic consequences are still unfolding, the team at HKA is continuously working to evaluate the information related to the pandemic to create plans and analyses to assist our clients.  Although the full scale of economic ramifications is unknown, there are factors that will impact our clients that can be anticipated.  Timely strategic action may be a deciding factor in how businesses fare.

Some near-term factors to prepare for include:

  • Supply chain disruption – Materials may be unavailable, delayed or subject to price escalation for various reasons including, for example, manufacturers making labor and production changes, ports imposing import and export restrictions, and retail outlets remaining closed.
  • Labor shortages – Workforces are affected by illness or the need to care for loved ones, causing shortages in vital skilled labor.
  • Spending decreases – Even for those businesses considered essential and allowed to remain open, consumers’ disposable income and confidence will be impacted.  Businesses may struggle to collect on accounts receivable, as cash preservation efforts are enacted.

In the longer term, consumers’, businesses’ and governments’ elective spending may decline as the focus turns to saving and repaying debt.  As the value of any business interest is based on forward-looking expectations of cash flow to investors, many businesses will suffer from decreased asset and equity valuation.

While some clients may not be able to immediately identify specific impacts, they can work to protect their financial and contractual positions.  Clients are advised to work with their accounting, procurement, and risk management teams to assess impacts and determine anticipated cash flow.  Some firms are instituting furloughs, layoffs, capital expenditure deferrals, and other cost-cutting measures to stay afloat.  Businesses that historically never had to borrow money may need to consider adding leverage to their balance sheet.  Unlike the Great Recession, the current economic downturn is not expected to be accompanied by a credit freeze, and access to loans at historically low rates are currently available.  

Firms or parties to contracts that are highly leveraged may not be able to withstand the impacts, and ultimately face liquidation.  Companies need to prepare for business interruptions, government mandated shutdowns, pre- and post- COVID-19 delays, and cost overruns in the near term and reduced capital spending in the longer term.

Despite being considered an essential business in many states, many construction projects are experiencing significant impacts from the COVID-19 pandemic.  The impacts include project delays or complete shutdowns, reduced labor productivity, deferred construction starts, procurement issues, and labor shortages, among others.  As contractors and owners implement safety measures and other best practices to address COVID-19, the impacts are widespread.  For example, on some project sites, workers are filling out daily health questionnaires upon arrival at the job site, having their temperatures taken twice daily, and being required to perform social distancing on the job.  These measures can have an impact on labor productivity by reducing the number of available working hours per day.  Further, managing and prioritizing critical path work can be challenging due to social distancing.  Social distancing could result in fewer critical path craft laborers allowed to perform work in the jobsite confines, thus resulting in delays to project completion.  Social distancing may also lead to out-of-sequence or inefficient work.  Labor shortages due to illness, childcare or caring for an ill family member could also result in project delays or productivity impacts.  

Although the full scale of economic ramifications is unknown, there are factors that will impact our clients that can be anticipated. Timely strategic action may be a deciding factor in how businesses fare.”
Commercial Damages Task Force Team, Americas HKA

This publication presents the views, thoughts or opinions of the author and not necessarily those of HKA. Whilst we take every care to ensure the accuracy of this information at the time of publication, the content is not intended to deal with all aspects of the subject referred to, should not be relied upon and does not constitute advice of any kind. This publication is protected by copyright © 2020 HKA Global Ltd.

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