The COVID-19 pandemic has created business conditions that few could have reasonably forecasted at the beginning of the year. The combination of stay at home orders forced business closures, and overall anxiety about COVID has left many dealing with radically new business conditions. The impact of these changes has altered consumer behavior creating a ripple effect across the economy.
For some, there are only minimal disruptions while others are unable to generate a profit due to the changing health and safety regulations. The construction industry has fared better than most as essential construction has been allowed to continue, but demand is down. According to the Association of General Contractors COVID-19 Survey 8th Edition (Midwest), 60% of respondents reported having contracts canceled for work scheduled to begin between June and August of this year. In addition, the prevailing reason for the cancellation was concern about COVID-19 danger surrounding projects. These insights are important as they reflect the state of the construction industry in the Midwest. To help clients, prospects, and others, Selden Fox has provided a summary of key survey findings here.
About the Survey
A total of 106 responses were received from industry companies across the Midwest. The survey was conducted online between June 9 and June 17, 2020, and respondents represent building, highway, utility infrastructure, and federal construction companies.
Key Survey Findings
- Project Delays/Cancellations – The survey responses found that 51% of respondents indicated a project was halted which was underway in May or earlier. At the same time, 31% reported cancellations for projects scheduled to start in June, 15% cancellations for projects scheduled to start in July, and 14% cancellations for projects scheduled to start in August. The good news is that 28% reported no project delays or cancellations.
- Reason for Cancellation/Delays – Beyond the sheer number of delays and cancellations its also important to understand why project statuses are being impacted. Survey responses indicated that owner concern about COVID-19 dangers surrounding the project was the leading reason (38% reported). Other reasons include the owner’s expectation of reduced project demand (34%), loss of current or expected tax, fee or toll revenue (21%), loss of private funding (19%), and to comply with state/local work stoppage requirements (17%).
- Headcount Changes Due to Cancellations – Given the increasing number of project cancellations the AGC wanted to understand the corollary impact on headcount. It was found that 23% of respondents furloughed or terminated employees in May or earlier, 9% furloughed or terminated employees in June, and 20% anticipated needing to furlough or terminate employees over the following month. This stands in contrast to the 23% that added employees in May or earlier, 17% that added employees in June, and the 10% who expect to add employees in the coming month. These findings suggest some businesses were impacted harder than others and the time to recovery may be faster for them.
- New “Pandemic Work” – Given the need to develop more capacity for certain health, medical, and other services, the survey asked about any new or expanded work. The results found that 78% of respondents have not received any new work, while 13% were awarded new medical projects in May or earlier, 6% medical projects in June, 6% other (non-medical) building projects in May or earlier, and 3% for other (non-medical) projects in June.
- Return to “Normal” – The survey also wanted to understand how long respondents believe it will take before business returns to normal. The responses found that 38% believe six months or longer, 7% four to six months, 5% two to three months, 6% one month or less, and 18% simply do not know when things will return. What is interesting is 27% indicated their business is at, or exceeds, the levels from one year ago.
The insights provided by the survey responses reveal just how much construction contractors have been impacted by COVID-19. Given the reported level of project delays and cancellations, it is over course imperative to review your cash flow planning strategies to ensure your business is well-positioned to weather unexpected surprises. If you have questions about the information outlined above or need assistance with a construction tax or audit issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.