Is the Construction Industry Experiencing COVID-19 Side Effects?

Contractors are starting to see the real impact of COVID-19, including financial impacts, a potential global recession and the overall impact on workforce.
By Joshua Etemadi
June 8, 2021

At the beginning of the pandemic in early 2020, while the majority of people stayed home, construction contractors (mostly deemed essential businesses at the beginning of the pandemic) benefited from lower traffic, readily available resources and longer project lead times. In-person pre-bids, kick-offs and status meetings took place over video conferencing.

As the rest of the world adjusted and slowly returned to normal, the construction industry started to see the real impact of COVID-19 on business towards the end of 2020 and into 2021, and are now experiencing it even more in 2021. Over the past year, contractors have expressed concerns with the following:

  • safety concerns with the virus spread in workplaces;
  • price escalations on material, additional costs, loss of revenue and payment delays;
  • construction contracts not factoring in material price;
  • material delivery delays and shortage of material;
  • project delays/cancellations;
  • labor shortages in an already tight job market; and
  • delays in inspections and permitting.

The key question now is how long will these COVID-19 “side effects” linger? According to a PricewaterhouseCoopers CFO Pulse Survey taken in April 2020, the top three concerns engineering and construction companies had with COVID-19 included financial impacts, potential global recession and the overall impact on workforce.

Many contractors were able to take advantage of Payment Protection Program loans, which in many cases helped strengthen their financial position. In many cases, however, PPP loans are the sole reason construction companies are in business today or not experiencing a significant loss in 2020. With jobs getting pushed back to 2021 and beyond, the PPP money is what kept employees paid and kept the company running while everyone else was staying at home.

While the second round of PPP financing has been helpful in 2021, construction firms should be prepared for a potential economic downturn. Retention of earnings and refinancing of any current debt to take advantage of historically low interest rates will help stretch out payments and keep money in the company to withstand a challenging year or a bad project.

While contractor balance sheets are still strong and qualifiable, obtaining a bank line of credit or increasing a current BLOC would be wise, especially during the pandemic, and well after while trying to ramp back up. Contractors shouldn’t wait until the company needs a line of credit to get one, as its often too late by the time they apply.

Another side effect of the COVID-19 pandemic has been an increase in material prices. This has caused some projects to move quickly (to lock in pricing and push projects along before they increase) and in some cases, projects getting cancelled/delayed as they wait for the prices to level. Ensuring the construction contract includes price-escalation clauses for any changes in material pricing could help mitigate a spike in material pricing.

While there are historical similarities in economic booms and downturns which contractors can come to expect, there are always new issues that arise which they cannot prepare for. Despite the unknown, preparing the company to withstand a challenging time is controllable and can help the company survive during a troubled time. Taking on profitable work, tracking projects properly, retaining earnings at year-end and maintaining an active and healthy dialogue with trusted advisors will help ensure the company’s success for years to come.

by Joshua Etemadi
Joshua Etemadi has been in the surety industry since 2007. While with a locally owned bond-only agency in Fairfax, VA, he helped grow the company over 300%, which led to the acquisition by a Top 100 P&C agency in 2010. Josh continued to manage operations and grew the bond department to one of the most reputable small to mid-sized contractor bond agencies in the United States, with clients all across the country. Josh has been recognized for his efforts in the industry and has also testified to the U.S. Senate on surety issues. District Bonding, LLC is an independently owned surety bond-only agency in Leesburg, Va. 

Related stories

When OSHA Cites You
By Michael Metz-Topodas
The best defense against an OSHA citation is just that: a good defense. Make sure your safety program has you prepared to respond—and keeps you from getting complacent about your workers’ safety.
Mitigating Struck-By Incidents on the Jobsite
By Rob Dahl
Some workplace injuries are more serious than others, but that doesn't mean mitigating them has to be more complicated.
Cultivating a Company Culture Committed to Safety, Mentorship and Education
By David Frazier
Mentorships, education and employee training programs still work wonders when cultivating a culture of wellbeing at your construction company.

Follow us

Subscribe to Our Newsletter

Stay in the know with the latest industry news, technology and our weekly features. Get early access to any CE events and webinars.