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New York State Essential vs. Non-Essential Construction Accounting Update – What Should You Be Focused On?

By Marc Valerio, on April 7th, 2020

This article was written in collaboration by Marc Valerio, CPA, Partner, and Josh Frizzell, CPA, Manager.

On Friday March 27, 2020, New York State’s Governor Andrew Cuomo, issued an update to Executive Order 202.6 in which businesses are deemed essential vs. non-essential. Within the March 27 update, Section 9 of the order focused on the construction industry, which had been functioning without restriction until that point.

The following is from the Executive Order regarding the construction industry in Section 9:

  • All non-essential construction must shut down except emergency construction, (e.g. a project necessary to protect the health and safety of the occupants, or to continue a project if it would be unsafe to allow to remain undone until it is safe to shut the site).
  • Essential construction may continue and includes roads, bridges, transit facilities, utilities, hospitals or health care facilities, affordable housing, and homeless shelters. At every site, if essential or emergency non-essential construction, this includes maintaining social distance, including for purposes of elevators/meals/entry and exit. Sites that cannot maintain distance and safety best practices must close and enforcement will be provided by the state in coordination with the city/local governments. This will include fines of up to $10,000 per violation.
  • For purposes of this section construction work does not include a single worker, who is the sole employee/worker on a job site.

Interpreting the Executive Order to determine whether the work a company is performing is essential can be a difficult task. The Executive Order required the immediate shut down of all non-essential construction job sites unless the job site is not safe or cannot be secured properly. Nobody should be working on projects unless they have received approval from the New York State Department of Economic Development (d/b/a Empire State Development) or a local municipality that has deemed the project as essential. As a reminder, Empire State Development is the final decision maker on whether a project is essential. Construction for other essential industries (e.g. health care operations) does not necessarily result in the project being deemed essential by Empire State Development. If your company is not the general contractor on the job, reach out to the general contractor to clarify the status of your project, assuming they have not already communicated such information to you. The fines for continuing work on a non-essential project can accumulate, and no one wants to be unnecessarily penalized during this time.

From an accounting standpoint, what should you be focused on? We have three key things you should be doing during this time:

  • Start by creating a cash flow for the next three months (through the end of June). How strong is your companies’ balance sheet, and when will you need cash on hand? If your work has stopped, can you still make payments on your debt obligations? Can you continue paying payroll? Our most recent Construction Industry Survey indicated that only 45% of respondents were preparing a cash flow analysis. Some steps to assist you while building your cash flow projection:
    • Review payment terms and milestones of your contracts with customers.
    • Restructure subcontractor and vendor payment schedules, if possible.
    • Improve internal billing procedures – get those billings out the door in a timely fashion and start the clock ticking on payment dates!
    • Determine if there are any unapproved change orders that need to be resolved and billed.
  • Look into the CARES Act and other options of obtaining funding (including EIDL), some of which can be forgiven. Reach out to your advisors about questions and to assist in guiding you down the path to determining the best approach for your company based on your current situation.
  • Be open and honest with your bank. Having a good relationship with your relationship manager in times of economic downturn can be the difference between getting some extra line-of-credit borrowing capacity or facing financial difficulties. The banks do not want to see any of their customers fail, but they will have to make decisions based on their lending capacity, you do not want to be last in line.

Please reach out to your advisor on the Bonadio Construction Team for additional clarification or questions on the CARES Act, as you navigate this temperamental financial climate.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.

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Written By

Marc Valerio Aug16

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