Five Ways Pandemic-Related Supply Chain Issues Can Be Handled Successfully
Posted on May 19, 2020
Shortages are just starting to hit various sectors of the economy and it is difficult to know their total impact at this time. At Fund Control we have found a few options that seem to work for most construction projects re: supply chain issues. Keep reading to learn about them and then contact us at 800-625-5972 to find out how we can help with other services.
- Find Alternative Materials Sources
- Consider Alternative Materials
- Recasting Milestones, Delays, and Extensions
- Confirm that Your Interest Reserve is Sufficient
- Do Not Assume Anything about the Market
One of the easiest ways to avoid excess costs is to find another source for the products you are finding it difficult to obtain. Of course, this may seem simple, but remember that the sooner you act, the better. If you are about to experience a shortage of something, you can count on other companies in your business being in the same place. Stay ahead of the curve and find alternatives as quickly as you can so you are ready when you need to make changes.
If there are alternative materials that can be used, then of course it is important to consider using them. That said, you ill need to consider how they will be sourced and what the cost increase will be. You should check your contingency balance to find out how it will be impacted and if the project can handle it. You may need to consider budget reallocations, but remember that there are going to many other additional costs that could come into play due to coronavirus.
If you expect that you will have supply chain issues, telling the lender as soon as possible is the smart thing to do. You need to recast how long it will take to complete, what future delays are likely, and what extensions are realistic. Bring this information to your lender to discuss various extensions and modifications that may be necessary and available.
Most construction loans require an interest reserve balance that pays monthly interest expenses. It is essential to determine how far the current balance of this account can carry the loans. As is true of cost increases, you may need to make a capital call to keep your interest reserve balances sufficient.
Projections that worked a year ago are not working today. Does this mean you should ignore projections altogether? No, but it does mean that you should make your projections based on the facts as you know them at any given time – not what you assume will happen. The truth is that while we can take steps to prepare for likelihoods, this is unchartered territory for everyone.
If you need help with the backend, we have you covered. Contact Fund Control at 800-625-5972 to learn more.