V.I.R.U.S. – A Practical Approach to How Contractors Can Respond To COVID-19


By Douglas R. Allen

Wow, what a year. It is inconceivable that a virus shut down the U.S. economy and quarantined people, in some places, for over two months. Well, it happened! That’s right: here we are restarting the economy and figuring out how to get things back to the new normal. My Dad always told me, “What happens is not nearly as important as how you react to it.” Great advice, especially considering recent times. With that in mind, I think it is important to consider practically what needs to be done to get through this ordeal. And I like practical. Yes, there is lots of detailed information out there; but this article is a roadmap for those of us in the surety industry who are asking, “What happens next?”

Speaking of practical, I decided to develop an acronym to make the roadmap a little easier to remember. I want to discuss the V.I.R.U.S. and give you some thoughts on how to prepare for what is coming.


With any crisis, there are always victims and villains. Living in Florida and enduring several hurricanes, I know it always happens. There are always those who take advantage of programs and people during times of crisis. Make sure you identify which one you are dealing with as you filter through the facts. Primarily, let’s focus on the victims.

There have over 20 million jobs lost during April and the first half of May; that is over 400,000 thousand jobs a day. The unemployment rate is at 14.7%, and some projections have it exceeding the Depression Era rates. Bottom line is that these staggering statistics mean people are hurting and there is going to be more pain coming. Among those people is the industry we serve—construction: principals, owners/obligees, subcontractors, and suppliers/vendors. Victims need HELP:

H–Health Assessment Albert Einstein once said, “If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and five minutes thinking about solutions.” Do what is necessary to understand the position of your principals. Put together an action list of assessments you can perform quickly to understand how this has impacted their ability to perform. It is the old $1, $10, $100 rule. If you perform a good health assessment, it may only cost you $1 per hour; if you wait, it will cost you $10 an hour; and if you do nothing, then you pay the $100 per hour. An ounce of prevention is worth a pound of cure.

E–Early Involvement Do not wait. Be proactive and prepare a plan today. Decide how you want to address the potential risks, assemble your team, and put the plan in place. Go ahead and engage the consultants and attorneys you would like to work with and get involved now with understanding how to mitigate the risk associated with the virus and the economy. If you get ahead of the issues, there is a high probability your efforts will reduce some potential big losses.

L–Learn Do you understand the CARES Act signed into law? How about the Paycheck Protection Program? What about the eligibility and audit requirements? Take the time to get familiar with these programs or retain someone who can assist. There are going to be a lot of challenges in the coming months as the government begins reviewing individual applications. If a principal obtained a loan fraudulently and/or did not use the money correctly, or if he deferred payroll taxes but did not account for it, he may have issues a year from now. You need to understand how all of this may impact the principal in the future. Your understanding of these programs may help a principal understand his/her responsibilities.

P–Publicize Communicate! Get with your entire team of underwriters, brokers, adjusters, attorneys, and consultants and share everything you have learned. Put together a list of items to obtain and review when evaluating projects for new bonds; brokers should contact the surety if a principal appears to be in trouble. If you want to help others, get this information out there as quickly as possible.

Typically, we do not get involved until there is a trigger. Based on everything going on with the economy, if you wait for triggers, the damage may be irreversible. Take the time, now, to figure out how your team can HELP!


There is nothing worse than being interrupted when you are right in the middle of trying to accomplish a task. Frustrations mount, we forget where we were, and sometimes it is really difficult to get back on track or get the FLOW back. There are people all over the country who have suffered severe interruptions to their health, livelihood, and a host of other equally frustrating challenges. Think about how difficult it is for principals to get back on the job, rally their troops, get subcontractors back and deal with an owner/obligee demanding an acceleration of work. I encourage you to assist your principals by helping them get the FLOW back.

F–Focus on the facts, not symptoms For twenty-four hours a day, the media does nothing but talk about the current, and potential, impacts of the virus. The commentators explain the impact on the economy and people and bring in guests to explain what everyone is doing wrong. Strangely, it is rare ever see anyone presenting solutions. Of course, that is not as entertaining. If the objective is to help principals get back in the FLOW, then focus on the facts or the specifics of the case and leave the symptom discussions to the media. Do no waste valuable time and energy arguing about the impacts of the virus. Deal with the facts, focus on the project status, understand what the contract says, and do what you can to help the principal get back into the FLOW of construction.

L–Understand the Law, specific to each State I am not an attorney, but I do know each state is responding to the virus differently. Some states are open for business; others are not ready. There are principals that live in one state and work in another. I would recommend contacting your favorite construction/surety attorney right now and asking him/her to assist with understanding the complexities of not only the applicable state law, but also contract law interpretation in that State. When the owner/obligees start sending letters complaining about your principals, it will be a great help with the FLOW if you already have the answers ready for everyone with respect to the project and the law.

O–Think outside the box These are abnormal times, so solving issues by doing what you did just a couple of months ago might not work. I know a lot of sureties that will not, under any circumstance, finance the principal and, most of the time, I agree with that position. During these times, you may need to reevaluate that position and get creative with solving the issues related to the virus’ economic impact. Perhaps you consider engaging a consultant to assist principals with managing the complexities of cash flow or advise them on how to apply for the government’s assistance programs.

W–Get back to work This might sound foolish, but, when you are interrupted, the only way to get your FLOW back is to get back to work. Unfortunately, when the surety gets involved, it ends up bringing the work to a screeching halt. In this scenario, do what you are able to in order to get the principal to return to the job and do what he/she does best. Remember that the sooner principals get back to work, the quicker they get their FLOW back.


Construction is about managing resources. It is difficult to manage resources when the entire country shuts down for over a month. Even when the economy is rocking, think about how difficult it is to manage all of the resources necessary to provide a timely deliverable. It is hard to foresee how this may ultimately impact the economy or the construction industry, but we need to give our principals the MEANS to keep projects going.

M–Measure If you cannot measure it, then you cannot manage it. When it comes to resources, it is imperative that you understand not only short-term challenges, but also the long-term deficiencies resulting from insufficient resources. For example, the principal might be capable of finishing the project at hand now but may be unable to start a bonded project scheduled to start in the fall. Get ahead of the game on a principal’s resources and take a long-term approach.

E–Extend After you read this article, call your principals and get the documentation flowing. Paper the file, communicate with owner/obligees, ask for extensions, and engage attorneys and consultants to discuss your options. Protect the projects. Do not push existing project losses into the next project. Smaller contractors are in survival mode, and they are only thinking about what is happening right now, today. Protect your interest; protect all of the jobs.

A–Asset allocation Pay close attention to your principal’s management of assets. Most likely, principals have employed whatever resources were available to survive the last two-three months. When projects start to back up, they will pull a Robin Hood, take from the rich, give to the poor (take from good jobs to give to the not so good jobs). In the game of managing resources, this is a dead-end; and once again it will probably catch up with the principal within a year. If the surety completes a good health assessment, then this outcome could potentially be mitigated with tools such as funds control.

N–Non-payment Just because construction is considered essential does not mean that those owner/obligee’s businesses remained operational during the shut-down. Principals working for the last month and a half may not receive payment for probably another thirty to forty-five days. Principals are bleeding cash; do not ignore how this will impact their ability to remain on the job. When owner/obligees return and want the principal to continue, the principal may not have the financial wherewithal or capacity. Again, make sure you recognize this potential challenge.

S–Support principals Again, it is time to get creative in helping principals get across the finish line. Typically, principals will underbid projects and take shortcuts; and then the surety comes along and discovers these issues. Remember that this rule may not hold true with incoming matters. In the current environment, there may be real opportunities to assist otherwise solid principals with completing their projects. Contrary to the norm, a principal’s completion of a project may end up protecting the surety from realizing major losses.

The sooner you identify the challenges, the better. One last time, get your team together now! Meet, talk about resources, and prepare your investigation and action plan.


Unfortunately, construction is a cash business. I, along with just about every other professional, could tell story after story about companies that look great on paper but run out of cash. Cash is King! When it comes to funding, watch out for the following:

C–Cash flow statement Balance sheets and income statements are great, but for this crisis go straight to the cash flow statement. Review the inflows/outflows of cash. This statement will give you the best overview of your principal’s cash position. If you use this statement and ask the right questions, you can identify the cash position of your principal.

A–Ask questions In many cases, just asking the principals what they intend to do with their cash will get the wheels turning. This is so important because many principals will only think about the current projects with little or no consideration given to how they plan on getting their next job off the ground. If you can get them thinking about cash immediately, then they just might figure out how to resolve cash challenges without involving the surety.

S–SBRA (Small Business Recovery Act) Bankruptcy might be an option. I’m still not an attorney, but my understanding is that this landscape has recently changed. As I’ve stated many times, get your knowledgeable attorney involved ASAP.

H–High risk Underfunded is going to be an issue for most businesses, especially construction. Every single principal, big and small, is at high risk for cash flow challenges. Take a good look at the finance section of the cash flow statement and determine what sources of funding are available. Also, start asking questions to make sure the principal is aware of the various government assistance programs.


C–Critical Path Delay is a word we all will probably get tired of hearing. I encourage you to advise your principals to request a current schedule ASAP. Analyze the schedule immediately and determine the impact(s) on the project. Remember, the critical path is not something the obligee created; it is an actual mathematical (network) calculation. Just because the principal has a bond does not automatically mean the principal is on the critical path. As I keep saying, make sure you have the right consultants in place to perform a quick analysis. Schedules will become critical in the next year.

P–P.E.R.T. Analysis The Program Evaluation and Review Technique is an age-old statistical method used for determining the actual time an activity requires (the duration). It is imperative to establish realistic expectations when it comes to deliverables. Principals typically remain positive even when things appear negative. Do not accept standard, beat around the bush answers without supporting documentation. Remember that we are not perfect judges of character, but we should be good judges of evidence. Review the schedule, evaluate the resources, note the relationships between activities, and then communicate realistic expectations to the owner/obligee.

M–Management Everything rises and falls on management. Everything I discussed in this article hinges on the principal’s managerial abilities. If there are appropriate project and business controls in place, then the surety is dealing with a mature contractor that will most likely survive. On the other hand, no controls represent principals that will need some assistance, at minimum, to help protect them from future challenges.

I will close with the three action items that I recommend you do right now. First, develop a game plan right now. Coordinate internally, get your team of attorneys and consultants in place, and develop a working plan to deal with the impact of the virus. Second, make sure you do not forget about the long-term challenges. The impact of the virus will not vanish quickly. The economic impacts may be felt for years to come. A claim two years from now might very well be the result of what is occurring now. Third, prepare an action list. Develop a list of documents you need to receive from your principal(s) and also a list of questions. Then, communicate this list to everyone on your team. Most importantly, remember that this situation is fluid, meaning things are rapidly evolving each and every day. Stay flexible. I hope we can all reconnect, in person, in the very near future!

Find Out More For more information, access these NASBP Virtual Seminars: Contractor’s Guide: What You Should Know As You Manage Through the COVID-19 Environment; On the Legal Front Lines of the COVID-19 Pandemic: The Construction Industry Preparing for the Post-Pandemic Future. Access more NASBP Virtual Seminars here: https://learn.nasbp.org. Access free NASBP Podcasts on this topic here: https://letsgetsurety.org/episodes.    

Douglas R. Allen is a certified managerial accountant with Forcon International, Inc. in Brandon, FL. Allen presents books and record reviews, financial audits, payment bond claim processing and analysis, schedule and delay claim analysis. He monitors support of contractors and provides performance bond claim reviews, including reviews of bonds, contract provisions, and analysis of claims. He can be reached at [email protected] or 813.684.7686.