COVID-19 and capital projects

Practical steps for responding to the coronavirus crisis

Many companies planning and delivering capital projects have in-depth experience in handling emergencies — but COVID-19 is unprecedented in the speed and breadth of its impact. Capital project delivery teams often have crisis response and project continuity plans at the ready, but companies will have to adapt these plans to tackle COVID-19’s many and fast-moving challenges. It is critical to mobilize a swift, effective crisis response, while also addressing workforce, operations and supply chain, financial reporting, tax and trade challenges, and strategy and brands.

Capital projects & infrastructure (CP&I) companies are not alone in facing these challenges, which have an impact that affects the economy and almost every nation in the world. In PwC’s latest COVID-19 CFO Pulse Survey, finance leaders in every economic sector in the United States and Mexico shared their top concerns. PwC has also prepared general guidance on several key topics in COVID-19: What US business leaders should know.

In addition to industry-agnostic challenges, CP&I companies also have some sector-specific considerations. Below we address some of their most pressing issues related to COVID-19 and offer steps these firms should consider taking — now.

Issues that companies with capital projects might face:

COVID-19 is threatening the health of capital project workers and the continuity of the projects themselves. In some cases, these now-vulnerable projects are critical to companies’ long-term stability, as well as to the quality of life in the communities they serve. 

Capital project stakeholders therefore face a dual imperative: They must mitigate the immediate disruption without neglecting the groundwork needed for long-term project continuity. 

Steps to consider:

• Set up a “tiger team,” a small group of experts who gather data, analyze it and take action. To enable a swift response, align the team’s governance and reporting with the existing capital project delivery and organizational structure as closely as possible.
  
• Leverage the latest technology and data analytics, so that your tiger team will have the data and insights — continuously updated as the crisis evolves — to enable the organization to make the right decisions.
  
• Conduct scenario analysis to have plans ready for the ways in which COVID-19 could impact your project, depending on how the pandemic evolves. These scenarios can help you consider how alternative delivery methods may support your project, if needed.
  
• Social distancing guidelines should be followed while staying open for business. 
  
• Stay informed throughout the claim recovery process. Prepare to negotiate and reach settlements on claims or contract disputes.
  

Issues that companies with capital projects might face:

Some of your employees could face serious health risks. Others may have to be furloughed for a period of time that is impossible to define. Companies will need to protect active employees and make sure that furloughed ones can be reactivated quickly when needed.

Cybersecurity may also be a concern, as a growing number of employees work and handle sensitive data remotely.

Steps to consider:

• Evaluate which employees need to work on site now — or may need to if there is further disruption. Put risk mitigation programs in place for employees who need to work at a common worksite.
  
• Look to increase automation and use emerging technology to minimize person-to-person contact, while still getting the work done.
  
• Analyze which government programs in the new stimulus package can help keep your workers paid and ready to return to work, if the project is — or may soon be — paused.
  
• Coordinate closely with workforce and community representatives to ensure full stakeholder support for your workforce plans.
  
• Make sure work-at-home doesn’t mean work-without-security for employees who are now telecommuting; strengthen remote access management policies and procedures.
  
• Prioritize cybersafe remote technology capabilities for transition workers to do remote work.
  
• Maintain productivity by providing supporting tools for virtual communication, collaboration and documentation for remote workers. 
  
• Confirm the safety of employees who may need to continue working on-site by continually updating and communicating risk-mitigation guidelines. 
  
• Explore compensation options for employees who are unable to work because of illness or closures. 
  
• Review HR policies to confirm they are appropriate in the current environment.
  

Issues that companies with capital projects might face:

Many capital projects face supply shortages, interruptions and delays due to closed factories, logistics challenges, supplier bankruptcies and delayed processing at borders. The need to mitigate health risks for employees may further impact operations. 

For those projects that are on hold or soon will be, it is critical to take steps now to prepare to get back up to speed later.

Steps to consider:

• Establish visibility over the project’s third-party supply chain, to assess possible supply delays, expose key vulnerabilities and prioritize responses. Start with the most critical materials, equipment, products and tier-one suppliers.
  
• Aggregate data from suppliers and build a dashboard, using advanced data analytics to create rapid and actionable insights — which may require seeking alternate sourcing options for critical supplies.
  
• Analyze legal and financial implications of supply chain disruptions, including whether the disruption will qualify as force majeure; legal implications if a supplier cannot fulfill its contract; and the impact on margins, cash flow, loan repayments and terms.
  
• Review project controls, risk management and governance processes to make sure they are robust enough to provide ongoing updates on the cost, time or contractual issues arising from COVID-19’s evolution.
  
• Take advantage of potential support from the recent federal stimulus package, as well as from existing federal and state programs.

Issues that companies with capital projects might face:

COVID-19’s impact on workforce, supply chains, operations and project continuity — and the resulting impacts on margins, cash flow, and loan repayments and terms — could all have major implications for financial reporting.

Companies experiencing significant disruptions may even struggle to meet required quarterly financial reporting, as well as reporting deadlines for federal, state, and local authorities and related government programs that support many capital projects.

And public companies may face increasing pressure to disclose revised guidance related to COVID-19’s impact.

Steps to consider:

• Gather all the data that the new scenario for financial reporting requires, while ensuring that your systems are robust and agile enough to continue to gather and analyze data as COVID-19’s impacts evolve.
  
• Evaluate the potential need to add or modify risk factor disclosures in light of the virus. 
  
• Analyze the current and potential future impact of COVID-19 on judgments and estimates inherent in financial reporting (e.g., receivables collectibility, debt covenants, impairments of investments).
• Estimate COVID-19’s current and potential future impact on operations, liquidity and capital resources (including consideration of trends and uncertainties).
  
• Revisit key assumptions in financial projections. Model scenarios with both aggressive and conservative timelines to be ready to act when the recovery gets under way. 
  
• Communicate current and potential future impacts to shareholders.
  

Issues that companies with capital projects might face:

COVID-19’s current and potential impact on capital projects may have serious tax implications, which may be even more complex for projects that have suppliers in more than one country. 

Tax implications will stem from sudden changes on a project’s expectations for costs, suppliers, revenue generation and loan repayments, as well as from the impact on previously existing agreements with government programs and the potential for new government support.

Steps to consider:

• Ensure your financial information and forecasts are as accurate as possible, supported by appropriate data analytics and able to continuously improve as new data comes in, so that your tax team can optimize its decisions.
  
• Plan for the tax implications of any supply-chain-related and operational changes due to COVID-19, including changes to the utilization of tax attributes if declining demand and commodity prices persist.
  
• Look at the new tax provisions in the stimulus package (such as NOL carrybacks, delay of effective date of certain TCJA provisions, add-back of depreciation and amortization for Section 163(j) purposes, and deferring amortization of R&D expenditures) that could benefit capital projects.
  
• Pressure-test tech-enabled functionality to confirm timely access to required information. 
  
• Conduct additional modelling to assess how changes may affect forecasts.
  

Issues that companies with capital projects might face:

A prolonged economic downturn will likely lead companies to evaluate their entire portfolio of capital projects, making tough choices and strategizing to emerge with stronger capabilities and a more efficient capital process.

Steps to consider:

• Reevaluate key capabilities: portfolio management, optimization and governance, project analytics and reporting, project and team organizational effectiveness, project governance and controls, project execution strategy and planning, project technology and emerging technologies. 
  
• Bolster enterprise risk management efforts.
  
• Scan for M&A opportunities to help shore up resilience.