An open letter to the industry:

We are living in unprecedented times.  While planning ahead and anticipating every move are such crucial ingredients to the success of a construction project, such planning and such anticipating is virtually impossible with the uncertainty presented to all with this mysterious virus.  We seem to be minutes away from completely shutting down construction sites and no question, the slowing of daily progress is taking place a bit more aggressively every day.  Walk-through’s are being separated; pre-bid meetings are cancelled; job site meetings for any reason are carefully organized, if organized at all.  And the projects that are on the starting blocks are being re-thought, moved back a week or two, maybe even shelved until the virus smoke clears.

When there is uncertainty and an unknown picture in front of us, the natural tendency is for the party in possession of the money to retain possession of the money until such time as the picture is a bit clearer.  I understand that; I have worked in management capacity as a general contractor all of my career.  I was the CFO of a $800M a year GC; I understand the power of cash flow as well as anyone in this industry.  But, as stated, these are unprecedented times–not sure there is a road map for us to follow, past, present or future.  It seems with the way we are approaching this virus, everyone will be hurt; not only the design and construction industry but all sectors of business and society.  How can any of us not be afraid of the picture we see when looking out six months from now.  

So, what can and should we do differently?  First and foremost, cash should flow.  Retaining or slowing of cash by owners and general contractors and sticking to “pay when paid” contract provisions and outdated retention clauses will severely harm the many good subcontracting firms providing the daily labor on our construction projects.  The firms providing labor must be paid and they must be paid now.  Not in thirty days, not in sixty days, not when this happens or that happens, they need to be paid now.  Cash needs to flow if we are going to get through this virus caused obstruction to normal construction practices.  Owners need to look for reasons to pay, not for reasons not to pay, this is our only hope of saving our industry as we know it to be today.

My interest is in protecting the many minority and woman owned business enterprises actively working on construction sites today.  They cannot afford a slow down in payments.  Their labor costs, as well as all costs associated with weekly labor costs, continue to flow and any delay to payments flowing down the stream will cause serious financial harm and many closures of long-standing successful firms.  This cannot happen.  Regardless of what some may think, the MBE/WBE firms in this marketplace do not have access to the type of capital necessary to weather Coronavirus slowdowns.  They are tapped out as it is; any bump in the road will cause business failures of great numbers.  And the road ahead is bumpy.

All owners of active projects should sit down and work out renegotiated payment terms with their general contractor or construction manager.  These payment terms should include weekly payments for work performed; prompt processing and payment of lingering change orders; and immediate reduction of retention monies held.  The general contractors and construction managers in return should do the same with their subcontractors and on down the line with second and third tier firms.  Cash should flow—weekly, not monthly.

Yea, I know, this sounds pretty drastic and totally unthinkable to many; certainly unheard of.  I imagine just reading the above has many top managers squirming and many lawyers shaking their heads in disagreement.  Yes, there are risks to be managed and I am not promoting throwing all caution to the wind, I am merely suggesting that outdated, archaic payment procedures must change and change now if we are going to get through these times together.  And all involved in the process must come to the table.  Unions need to bend a bit; employees need to understand there are some tough times ahead of us; insurance firms need to back off a notch; all those profiting from our industry need to create a new set of rules.  These new rules must consider the flow of cash.

Maybe this letter is a week or two early, but tough times are coming for all in our industry, I think we all know that.   These unprecedented times are already here for the MBE/WBE firms that do not have established lines of credit and have yet to receive payment for their January or February billings, let alone payment for work performed the first three weeks of March.  Now is not the time to slow the process; now is not the time to hold additional retention; now is the time to open up the checkbook and let the cash flow.  Not in a crazy, mismanaged way but a well thought out and well managed way.  It can happen and all reading this know that this can and should happen.

This will not happen though unless many owners take the unprecedented steps necessary to deal with these unprecedented times.  Action needs to be taken today, not six weeks from now–that will be too late.  Next week may well be too late at the speed these new-found world and industry problems are coming at us.  Do we make a positive move, or do we continue business as usual?  There was a question raised on the news the other night relative to the Coronavirus…”If we could look out two weeks from now, what would we be wishing we would have done different today?”  That is a good question for the leaders in this industry to ask ourselves today.

We are slow to change in this industry but change we must if we are to recognize the players in this industry six months from now.  The bailouts being tossed around by the government will never reach the companies I try to help.  And while my interests lay with the MBE/WBE contracting community, this cash flow matter impacts the entirety of the subcontracting community.  I am speaking for all. 

I am working with several good firms right now, many good people but I am out of answers.  This business simply does not work when the cash flow machine gets clogged.  Let’s all take some bold steps; let’s make this industry work for all.

Thanks for listening.

PEOPLE of Construction

Ron Unterreiner