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During the coronavirus pandemic, construction entities generally were able to continue their normal operations, as many state and local governments’ classified construction as an essential service exempt from stay-at-home orders. Being an essential service, however, doesn’t mean that contractors and other groups have not felt the impact from the COVID-19 virus.
From managing safety of its workforce to capitalizing on available relief, the construction sector has plenty to work through during the pandemic and the recovery from it. Ramifications might keep coming, too, as companies struggling financially now might delay major construction projects going forward. We are here to help you understand polices and relief measures currently in place to create the appropriate response depending on how your business and operations are impacted. The following are some key considerations for the sector.
Protecting Your Workforce
The Centers for Disease Control and Prevention provided guidance for containment of the coronavirus disease. At minimum, your organization’s policies should require employees to stay home from work if they have signs or symptoms of a communicable disease or if they have traveled to high-risk geographic areas until they can provide medical documentation that they are free of symptoms. Precautions and specific risk mitigation techniques vary in terms of the work your employees perform. Where possible, these safety precautions should be documented and communicated to your staff. Keep in mind that depending on your construction site or place of operations, you may be subject to additional safety measures. For example, some local jurisdictions have also required anyone out of their home to wear facemasks.
In addition to the state or local guidance your construction site may be subject to, your policies should acknowledge certain legal and regulatory compliance matters affecting employers ability to operate safely.
COVID-19 has a broad impact on employees’ ability to work. Not only may employees contract the coronavirus, but they may also be required to care for affected and quarantined family members. Many childcare facilities and educational institutions have closed indefinitely, which creates additional challenges for working families. Some relief is available through the Families First Coronavirus Response Act, which helps fund paid sick and family leave assistance due to the COVID-19 virus, as well as food assistance and medical testing assistance for employees.
Relief Measures for Businesses
Contractors often qualify as small companies under the Small Business Administration (SBA), which means they will be eligible for loans under the CARES Act. SBA loans generally help companies with 500 or fewer employees. The Associated General Contractors of American (AGC) has asked for clarification about whether the existing SBA standard for gross receipts or the employee headcount determines eligibility for the newly enhanced benefits.
The CARES Act expanded the SBA’s existing loan assistance to small businesses by enhancing its 7(a) Loan Program and 504 Loan Program. It also expanded the SBA’s disaster relief loans, known as the Economic Injury Disaster Loan Program (EIDLs) and perhaps most significantly, created the Paycheck Protection Loan (PPP), which offers potentially forgivable loans to offset payroll and certain other expenses. As of the time of this publication, funds for the EIDL and PPP loan programs were depleted, but additional funding is expected. Contractors should closely monitor the latest to try to capture these benefits.
Contractors may want to note that taking advantage of some of the SBA’s relief provisions may make them ineligible for other CARES Act benefits, such as the tax holiday on self-employment or payroll taxes.
Relief Measures for Middle Market and Large Businesses
Contractors and construction entities with more than 500 employees may benefit from funding from the U.S. Treasury’s Economic Stabilization Fund (ESF). The CARES Act allocated $500 billion to the ESF to support its efforts in providing loans, loan guarantees, and other investments designed to give additional liquidity to help eligible businesses, states, and municipalities recover from the pandemic. Funding to the ESF may also support lending through existing Federal Reserve programs and facilities for businesses under certain guidelines and restrictions.
The Federal Reserve also recently unveiled its Main Street Lending Program, which supports organizations in good financial standing that have up to 10,000 employees and revenues of less than $2.5 billion. It offers two types of loan facilities, the Main Street New Loan Facility and a facility that permits expansions of existing loans, the Main Street Expanded Loan Facility. Contractors would apply for either loan through U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holdings companies. More information about the terms of the loans can be found here.
Other information about relief for middle-market and larger businesses may be available through the Treasury’s resource page here.
The CARES Act introduced several advantageous tax changes as well. It suspends the excess business loss limitation created by the tax reform law until 2021. The excess business loss limitation might result in cash infusions for construction entity owners in the form of a 2018 income tax refund, which could be more beneficial to the business than a loan. You might also consider carrying over business interest deductions to 2019 or 2020, provided they have enough basis and their bonding capacity needs.
Changes under the CARES Act also allow businesses to carryback net operating losses (NOLs) to prior years, reversing another change made by the tax reform law commonly known as the Tax Cuts and Jobs Act (TCJA). Under the CARES Act, businesses can carryback NOLS incurred in 2018-2020 for five years and may fully offset income in the carryback years. These rules may mitigate or even eliminate July 15 income tax payments in certain scenarios.
It also contained a retroactive fix for the so-called “retail glitch” that had inadvertently prevented qualified improvement property from bonus depreciation benefits under the tax reform law. A cost segregation study might help your business understand if the retail glitch fix will benefit you.
Keep in mind that the pandemic response and the qualified improvement property fix might increase demand for qualified improvement property projects, such as remodeling of interior layouts to add more hand washing stations or partitions between workspaces. OSHA might also implement new requirements in the future.
Contractors should review force majeure clauses in their contracts to understand the exact language and determine if deadlines are extendable when site management and labor cannot be effectively continued due to impacts of state of emergency or shelter in place ordinances.
Due to uncertainty of operating costs and financial constraints, it is possible that notice may be given to terminate or suspend current projects. It is important to have an open dialogue with construction project owners as well as your workforce.
Developments around the COVID-19 virus are evolving rapidly. Visit our resource center for up-to-date information on how the pandemic may affect your organization.