Risk Mitigation in the Covid-19 Era: Best Practices for Documentation and Payment Collection
In a recent webinar, Attorney Kate Strauss, Founder and Partner of Galvanize Law, Tara Anderson, Newforma Director of Customer Success, and EleVia Executive Vice President Ron Noden, discuss the impact of COVID-19 on the risk landscape and risk mitigation.
Here’s a recap of the webinar.
How has the pandemic changed the risk landscape?
The pandemic has forced AEC firms to work differently. Employees are now dispersed and working in new environments. Working remotely and social distancing on the job site have become the norm. This has posed new challenges as the processes for tracking hours and logging project information has also changed. As a result, there are also new challenges for risk mitigation.
New risks have emerged.
Slower supply chains and pauses in manufacturing production have significantly impacted project schedules. Covid-19 outbreaks and compliance with Covid-19 regulations have also caused site disruptions delaying mobilization and increasing remobilization. Additionally, there have been delays by authorities for inspections and approvals due to state and local government office closures.
Many firms have experienced an impact to their bottom line with expenses associated with PPE purchases and longer lead times for payment collection.
Risk has a direct correlation to profitability.
For design and construction firms, there are three key elements of risk that can be influenced throughout the project including operational, financial, and onsite hazards. There are operational risks associated with planning/scope changes, cost escalation, schedule changes, and labor and materials procurement. It’s important to know which aspects of the design or the current contract are subject to potential changes or exposure to plan the proactive steps you can take to avoid potential risks.
Financially, there are warranties and guarantees, delays in payment, project financing, and pay term risks. Lastly, there could be insufficient quality or defects to an aspect of the build, or negligence.
Project teams can be mired in the everyday task of the project and not look at all the risks with a full view, which can be particularly tough if you don’t have a solution in place that can allow a single view or enable team members to be proactive when a situation occurs. Especially in the COVID-era with downsizing and position changes, it’s easy for a critical email or invoice to become siloed, that the greater team doesn’t have access to. It not only puts the project in jeopardy, but the firm’s bottom line can be at risk of not realizing its maximum revenue potential.
Taking action to avoid risk.
“As a lawyer dealing with design and construction firms when we start to look at the impacts of COVID-19, I’m immediately looking at contract requirements” Kate explains. “First, what are your notice requirements? Did you have a certain number of days that you would identify to your client that there was any sort of delay or cost impact? Those notice requirements can be upstream with your client or owner. And notice requirements can also be downstream with contractors, subcontractors, or materials suppliers. By identifying those notice requirements, you can then determine what the cost impacts are.”
These cost impacts can range from schedule impacts (are you entitled to cost and time extensions?), health and safety best practices (this goes back to additional PPE or other resources that maintain social distancing), requirements from labor, supplier, and materials providers. Firms can also explore emergency relief funding.
Internal financial processes such as time to invoice, AR Management, and Payables also have associated risk. The delay and timing of getting invoices out due to internal processes or technology pitfalls can reduce the ability to get paid. This is also true for field teams. If project teams are using outdated communication standards to manage scheduling, it can lead to ineffective cost recovery.
Proactive steps you can take to avoid risk.
Improving risk mitigation processes was a business imperative before COVID. However, the sudden and unforeseen impacts of the pandemic only heightened this requirement. Having the right risk mitigation processes in place can have a positive impact on the ability to deliver projects, and realize revenue.
Here are a few suggestions:
- Identify design changes and substitutions needed to work around known problems.
- Centralize access to project data to create a more transparent, standardized, and trackable project delivery process.
- Develop a system for collaborative real-time identification and tracking on impacts.
- Integrate field team activity (hours) with your ERP Accounts Receivable.
- Configure an ecosystem that automates, integrates, and simplifies your project processes.
Interested in improving invoicing and receivables processes to increase cash flow? Take the Elevia Cash Flow Challenge.
For more information on Galvanize Law please visit: Galvanize Law.
Learn more about Newforma’s Project Information Management.