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Edition 284 – Lockdown Impacts

Greater Sydney, the Blue Mountains, the Central Coast and the Illawarra are into the fifth week of a lockdown as a result of the COVID 19 Delta variant escaping into the community. My guess – we’ve still got another month to go.

The lockdown this year has been substantially different to the period March to May 2020 for three significant reasons:

  1. Firstly, initially, there wasn’t the hard lockdown there was last year – more like a restriction of movement. That has since changed dramatically.
  2. Secondly, there’s not the Federal Government economic support packages such as JobKeeper and Boosting Cash Flow that were initiated in March 2020.
  3. Last year, the Building & Construction Industry was not shut down. This year, it has been.

At the risk of having my crystal ball smashed to smithereens, here’s why I believe the recovery will be more difficult, not just for Sydney and surrounds, but for the whole of Australia coming out of this:

  1. A lockdown of up to 10 weeks without rental deferrals or waivers (that were mandated last year, but aren’t this) will put significant pressure on smaller retailers and the hospitality industry. Expect to see more “For Lease” signs leading up to Christmas.
  2. The building industry was able to generate half a month of work at best prior to lockdown. That won’t generate the cashflow throughout September to continue to pay suppliers in full. Almost every business in the building industry will need to have conversations with their suppliers about extended payment terms – and document those conversations.
  3. Whilst the COVID 19 business support packages announced by the New South Wales State Government are welcome, they’re nowhere near what is needed – and the rollout of timely information to business owners and advisors has been abysmal.
  4. Appallingly, some very large corporates (we’re talking billion dollar revenue companies that are household names) insist on 90 day payment terms for all their suppliers – large and small. None of them are budging at the moment. Nice touch guys!
  5. The inability of the other states to see what is happening in Australia’s largest city as a national disaster, and refuse to offer up assistance in terms of redirecting vaccines to Sydney on a short term basis, has me thinking that right now, Australia is less of a Federation than it has ever been.
  6. There are too many fools making stupid decisions around what is “essential” vs. what is “emergency”. A number of my clients that work in industries that undertake essential works (with workplace health and safety or some other legislative necessity behind them) are receiving push-back from their own clients about being on site, even though right now, with few people on some of those sites, it would be the safest time to undertake the essential works.
  7. A flow on from the fools – one State Government Department has inspectors visiting sites and failing the sites and the contractors for non-compliance with the terms of the contract. So, you can’t get to site because no one will give you access – and as a result, you’re in breach of your contract with the State Government. Go figure!
  8. Too many small and family businesses still have too little cash to call upon to tide them over a down period. 90 days cash is what I’ve been advocating most businesses need to ride out a lockdown. Too few have listened.
  9. When we come out of this, there will be a significant backlog of work. If you take 6 to 10 weeks out of a contractual year, that means a lot of businesses will need to complete 52 weeks worth of work in as little as 42. That inevitably will be more expensive for the small and family business contractor through increased overtime costs, which can’t be recovered through a higher contract cost. The other factor – quality will drop off as the rush to complete works in accordance with binding contracts will arise.

Talk with your suppliers, bankers, key contractors and staff right now around what is happening if you’re based in Sydney.

The earlier you have the conversation, the more likely you’re going to receive a more favourable hearing.