Trent Cotney, CEO of Cotney Construction Law, joins the CoatingsPro Interview Series to examine the legal implications of COVID-19 for businesses involved with the construction industry.
Topics include feedback he’s heard from the market, as well as strategies and resources available to help contractors navigate the coronavirus crisis in the weeks and months ahead. The complete transcript is available below.
[This podcast was recorded on Friday, April 3, 2020.]
Ben DuBose: Before we jump into questions about COVID-19 and what it means for coatings contractors, I want to give you an oppy to explain your role and what it is that you do. Because to launch this series, we’ve been talking to a lot of industry leaders, experts, guys that are generally executives with a coatings contractor or manufacturer, someone along those lines. Your capacity is a little bit different but certainly you interact a lot with coatings contractors and you have a lot of knowledge on the implications of our current situation. For those who aren’t familiar with Cotney Construction Law, explain what it is you do and how it pertains to contractors.
Trent Cotney: Sure. Thank you, I appreciate the opportunity. I am CEO of Cotney Construction Law. We are a law firm that specializing in representing the industry. We’ve got 14 offices across the United States and we’re licensed in 21 states with another 4 or 5 pending. We are general counsel for the NRCA, we’re also general counsel for the Florida Assn for Roofing and Sheet Metal (FRSA) and Western States, which is all of the states west of Texas. Then we’re general counsel for about 10-15 other roofing orgs across the u.s. So we interact with coatings contractors, manufacturers regularly. I appreciate the opportunity to be able to educate.
BD: We’ll start with of course the COVID-19 storyline because that’s first and foremost on everyone’s minds these days. You’ve got a page already up on your website, COVID-19 Resources, things that coatings contractors potentially need to know. In the first few weeks, now that this is coming into great focus, what are some of the themes that you’re hearing from the people that you represent or talk to, what are the implications for coatings contractors that our audience should be aware of?
TC: If I had to give the top three things that I think coating contractors should pay attention to, one is whether or not the work that they’re doing qualifies as an essential business. No matter where you are in the United States, you’re probably either under a stay-at-home or shelter-in-place type rule. Then you have to determine whether or not you are an essential business that allows you to continue to do work. In order to do that, what you have to do is look at the order, the executive order that was issued in either your state or your county or your city and determine what it says there.
I can tell you the majority of the orders out there kick back to the federal guidelines. The federal guidelines — both the Department of Homeland Security and CISA [Cybersecurity and Infrastructure Security Agency] guidelines — indicate that critical infrastructure, including repairs to residential and commercial, may count as that. [0:04:59] Generally speaking, construction — all aspects of it — are included. There are some gray areas.
For example, if you’re doing new construction that is not an emergency, critical-infrastructure-type building, does that count? Well, there’s some question marks there. There are other states and jurisdictions which have banned it altogether. Pennsylvania is one of the ones that have had a hardline approach. New York City has banned all non-essential construction. We’ve also seen similar restrictions in Washington state as well as Austin, Texas. You have to look at each jurisdiction and figure out what’s what.
The second issue that I would say we’ve been getting the most questions on from coating contractors has been, “What do I do if my job has been suspended?” We’ve had a lot of jobsite suspensions and terminations as a result of the coronavirus. First thing you have to do is you have to look at your contract. Generally, there’s either a suspension term or a termination for convenience provision in there. If you navigate those terms, it will allow you to make a claim — more than likely — and you need to submit your claim as quickly as possible. In the event that your contract is silent as to that, then you need to consider submitting an equitable adjustment type claim to account for it. On the other side of that coin, if you are currently bidding projects, you need to make sure that you have COVID-19 specific contract provisions in your contract to account for things like delays, price acceleration. We’ve heard of some materials, especially materials sourced from China, either increasing in price or being delayed as a result of being stopped at the port or other entry point. Those kinds of things, they really need to pay attention to.
The third thing is just navigating all the new acts that have been out. There’s been a variety of new acts, everything from the Family First Coronavirus Response Act to the CARES Act and what that means for you. Today, I’ve been navigating the small business loans that are available through the CARES Act, the Paycheck Protection Program act and it’s complicated. There’s a lot of confusion. There’s a lot of question marks. My advice to anyone that’s listening to this is, figure out your options now and apply now because there’s only so much money out there available for coatings contractors to take advantage of.
Make sure you understand the terms. I’ve counseled people and said, “Look, this is not free money. There is strings attached. You need to understand what you’re getting into. Choose your remedy. Because once you go down one route, you may not have the capability of benefiting from another section within the CARES Act.” For example, there’s a provision in there that allows you to comp payroll tax. So basically you get to defer payroll tax for a couple years. You can spread it out. You pay a portion in 2021 and a portion in 2022. But you have to pick your poison. You have to figure out, “What’s better for me? Is it this Paycheck Protection Program loan or is it paychecks or is it something else altogether?” Really what you need to do is take a look at your own financial situation, do some planning, talk to your CPA and lawyer and make sure you’re picking the right path.
BD: With regard to the relief legislation that’s out there, I know you’ve written some about that, what’s the expected time table with that? For a contractor that’s looking for relief or looking at their options, I know just from a general person standpoint that’s something that’s been confusing for a lot of Americans in the aftermath of what’s happened in the past month. What sort of time table are these businesses looking at in terms of how long it might take them to get their relief?
TC: That’s a fantastic question. Let me tell you everything I know as of right now. This is literally — I went from publishing 3-4 articles a day to doing videos because it’s been, the stuff that’s been coming out has been coming out so fast that it’s difficult for everyone to keep up with. So here is what I know right now. There are two loans available under the SBA. There’s a 7A Disaster Relief loan, which is a standard loan that you normally would see if there’s an earthquake or hurricane or something like that. That offers an immediate $10,000 and then over the course of three to six weeks, there’s additional evaluation that the SBA does to determine whether or not you’re entitled to larger sums of money. It’s more of a traditional loan. The Paycheck Protection Program loan, which is under the CARES Act, they have indicated that the applications are now — that the banks should be accepting the applications today. That’s what everybody has said.
I have talked to two major banks today, very big, large banks across the United States. They have said, “We’re not taking the apps yet. And we don’t care what’s on the SBA.gov app. We have our own apps. The information is probably similar, but you have to fill out our own apps.” There’s a lot of confusion, there’s a lot of logistical nightmare-type issues that are popping up. I would not expect that money any time soon. It will be weeks before that money starts falling. There’s very little — it sounds like when you hear billions, it sounds like it’s a lot of money — it’s not. Because everybody on the face of this planet — in the United States of America — is applying for that loan right now. They are — it’s going to be an issue.
Keep in mind that, the way the regulations read — and they’re very complex, there’s a lot of confusion — keep in mind this might change but — as it reads right now, if you’re under 500 employees, more than likely you are eligible. If you are over 500 employees, then there’s some calculations and some other things you need to do to figure it out. So it’s not as easy as saying, “I make X a year, therefore I’m eligible” like a normal SBA loan. It is a lot of calculations and a lot of confusion as to what needs to be done. That’s why you need to work closely with your CPA or your lawyer to figure stuff out.
BD: What are you hearing, when you talk to clients, people in the industry? You mentioned that you’re counsel for the National Roofing Contractors Association. When you talk to people that are in industry and trying to navigate this process, what are their big concerns at the moment?
TC: I was actually talking to Reid Ribble earlier today. He’s had an interesting survey, the first survey that NRCA had done. Granted, the results came in about a week ago, so a lot has changed in a week. It seems like every Monday I wake up and it’s like “Oh gosh, what happened? What now?” What was interesting is I think what we’re starting to see is a sign of things to come. If you are a subcontractor — so let’s say you’re a coating contractor that is in the sub position on a jobsite — we have reports across the nation of general contractors slowing payment. Either slowing payment or not paying.
We have seen — like I mentioned before — a lot of jobs suspended. Generally, from the survey results, it was already clear that a lot of contractors out there were seeing what was to come and had been making some adjustments based on that. As this continues, I would expect more of the same. I think it will be a very long time before all the shelter-in-place orders are over, and then I think it will be an equally long time before we see any kind of recovery. There are so many businesses out there that will be decimated as a result of this. What I recommend to coatings contractors is — and I mentioned this in a prior video — you’re no longer a bank. Contractors have a horrible way of saying, “Ok you can pay me in 30 days after I submit this payout.”
Times have changed. You need to front-load your contracts. Have them pay for materials up front. Figure out better ways to do things. Cash is king. You’ve got to figure out a way to maximize what you can because you don’t know what it’s going to look like 30, 60, 90 days from now. My advice to any coating contractor that’s listening to this is: Take a look at your contracts. Make sure that when you’re bidding stuff now or submitting proposals, that you are frontloading whatever you can and putting a shortened time period in order to get paid.
It concerns me about what the future holds as far as owners, developers, customers being able to pay for the production that’s currently being done. What we’ve heard is, in a lot of places, they’re like, “Oh, production is great, we’re up, we’re actually up.” That’s fantastic. But my issue is not production. My issue is who is going to pay for that production. From a legal side of things, that’s what I’m worried about. I would caution any coatings contractor out there, take steps now. Don’t wait till it’s too late. Look at your AR. Make sure that you understand whatever your lien and bond rights are in your area. And look to re-negotiate or restructure payment terms to the extent that you can. At a minimum, get reasonable assurances that there’s money in hand to be able to pay for whatever work you’re performing.
BD: One of the sources of optimism that I’ve heard — and it varies in terms of the timetable — no one knows exactly when this crisis is going to start to mitigate. But at some point there’s going to be pent-up demand. The hopeful scenarios would be perhaps this summer in which some of these construction projects that have been put on hold for the time being are going to be brought back. And of course the developers are going to want to expedite them as much as possible to make up for lost time.
At face value, that seems like a pretty good opportunity for the industry and it probably is because that’s a lot of employment — especially given the dire straits right now for many of us. However, I’m guessing there’s a number of legal hurdles if you have this sudden jump or a lot of people that are trying to do projects at one time. In that scenario — I’m not asking you to try and guess the timetable, I know that’s too hard — but if we are fortunate enough in a few months, weeks, whatever it may be, to have a sudden surge in demand, what are some of the hurdles that coatings contractors may need to deal with logistically?
TC: If I was a betting man, which I’m not, but if I was, I would say I don’t anticipate that any of these orders are going to be — I don’t think we’re going to start seeing them lifted until the end of June at this point if not July. Here’s why I say this. Because so much of this is political. We just heard about China having to re-quarantine a city that was over there. Do you want to be the mayor or the governor that says, “OK, shelter-in-place is over” and then you get a wave of people that get sick again? What we’ve already seen is sort of a domino effect, where California did shelter-in-place, so Washington should do it. If Washington did it, then Utah should. So on and so forth.
I don’t think — given that this has been sort of a piecemeal shutdown, I don’t expect the curtain just to be pulled back and all of a sudden everybody’s back to work. I anticipate that what’s going to happen is that public projects, public infrastructure, anything that relates to publicly funded projects or federal projects, state projects, whatever it might be, that demand will probably still be there. I question the demand on private projects because yes, I think there’s a demand, but I don’t know whether or not the resources will be there to pay it. So if there is a demand, then I think there’s millions and millions of potential people in the workforce that could assist with meeting that demand.
What I would suggest is focus on — have coating contractors really focus on portions of their business that can survive even the worst of times. What do I mean by that? New construction, private, usually dries up first. Then after that it’s usually any kind of coating work that done over an existing. Then it might be repairs or maintenance or things of that nature. Focus on the things that you know have the highest profit margins that will allow you to get through it. If you do have to ramp up, consider your existing workforce. We’ve had reports all over of roofing contractors scaling down. Laying off. Most of them are layoffs and not furloughs. The difference is that normally furloughs you continue to pay their benefits and there’s some promise that they’re going to come on at some point.
I think there will be some workers available. My concern is I’m not sure what resources will be able to pay for the demand. The demand will definitely be there. It’s always going to be there. Coatings contractors are always needed. It’s just what does this look like when it’s over? Because even once the shelter-in-place is over, there’s just going to be a huge — people are going to be focused more on paying utilities and rent, leases, things like that.
BD: You mentioned the public infrastructure. One thing that we’ve heard this week both from Republicans and Democrats on Capitol Hill is the potential of reviving the infrastructure bill. When you’re talking about these public demands in that sector, that’s what comes to mind for me. Potentially it might be a way to jumpstart the economy, because as you mentioned, a lot of the private projects it’s going to take a lot longer to get them going. The public infrastructure is something that the govt can largely control. That’s something that at least in the past at times had bipartisan support. Do you buy that as something that might be a jolt for the industry in a few months?
TC: Yes, I think the infrastructure bill will get passed. I think the bulk of the money will go to horizontal construction. I think it’s going to go to roadways, bridges, utility improvements, things like that. That being said, I think there is a way to include schools and prisons, post offices — both federal and state type projects within that infrastructure bill. One of the things — we have a lobbying group as well. We’ve worked closely to try to speed up timeframes on school projects. Normally you can’t start school projects till the summer. Kids are out of school, so knock it out. Knock it out and get paid. I think there’s a lot of opportunity like that. But this is a critical time for coatings contractors’ voice to be heard. You need to be out in front of your politicians to make sure that they understand that we need to be included in whatever infrastructure bill there is. Otherwise, the roadway, utility guys are going to take it all to the bank. That’s what we’re trying to do, is just make sure it includes vertical improvements, not just horizontal.
TC: Our main website is CotneyCL.com. You can also check out RoofingLawyer.com, OSHALawyer.com, ConstructionLobbying.com, and CotneyConsulting.com. We have a very heavy social media presence. LinkedIn, Facebook — the latest legal stuff that’s happening with COVID-19.
Listen to all of the other interviews in CoatingsPro’s COVID-19 podcast series.
For more information, contact: Cotney Construction Law, (813) 579-3278, www.trentcotney.com.