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COVID and Its Impact on Construction

AFSA Contractor Members Cautiously Optimistic in Face of Pandemic

During this time when the COVID-19 pandemic is crippling various industries, construction has been one of the few industries that has been maintained to some extent. More stringent quarantine orders have been implemented and new U.S. weekly unemployment claims have smashed records as the economic impact of the pandemic sweeps around the world. A sense of urgency to reopen the economy is building and the U.S. government approved an unprecedented stimulus package to try to rescue a wide range of industries and businesses.

A survey to AFSA members shows that majority of companies are concerned about both short- and long-term impacts of the coronavirus pandemic. Although construction activity will likely continue in the short-term, the work is expected to slow over the coming months given various factors, including supply chains disruption, shortage of workers and materials, and the termination of contracts to control expenses, according to a poll of 254 AFSA members in June 2020.

The survey, which closed June 12, points to brightening expectations owning to many states considering construction essential, which helped ease pressure. However, this survey reflects the deepening worldwide crisis and presents renewed concerns for the impact on the economy, the construction sector, and supply chains.

Thankfully, most of the respondents (62 percent) reported that their operations were considered essential, and as such, 79 percent reported that they did not experience even as much of day of business disruption due to government-mandated shutdowns. 

“We are an essential business but the clients we serve aren’t, which makes it difficult for us to keep busy at times,” said a Nevada-based contractor. 

Two-thirds—or 66 percent—of respondents to AFSA’s survey are expecting negative revenue impacts as a result of the COVID-19 pandemic, with half of those expecting losses in excess of 20 percent. Twenty-five percent of the respondents are expecting no impact to current revenue projections, since March 1.

“Uncertainty is the biggest concern,” wrote a contractor operating primarily in New York State. “Projects were shut down and we’re not sure when they are going to resume, and if so, what the new schedule is going to look like. Projects that have been awarded, but not started, have been canceled or put on indefinite holds. Lastly, future project funding is the number one most concerning effect to our business, given the uncertainty of the economy, and length of the business shut down in our state and how that may affect the construction markets down the road.”

The results indicate that AFSA members are concerned about the overall negative impacts of coronavirus to their business. The top concern of members is revenue and cashflow (69 percent), followed closely by 63 percent of respondents who report they are experiencing workforce challenges, such as absenteeism and the ongoing labor shortage. 

Yet, many are seeing an opportunity in this global black swan event. “Moving forward, we believe that labor availability will increase,” noted an Arizona-based contractor. “The construction sector in our region was least affected. Graduating high school students are starting to see the positive aspects of not going to college. Also, given the tentative steps taken by universities as to open (or go online) and the exorbitant cost of a college degree, high school students we believe will opt more and more for trades.”

Forty percent of respondents noted a growing concern with making payroll. Thirty-five percent of members said they were concerned about vendor or supply chain issues, and 31 percent voiced unease in regard to the personal protective equipment (PPE) shortage. 

“The regulations for safety are hard to implement when we cannot find such things as Clorox wipes, safety goggles, and thermometers,” lamented one California contractor.

In addition to the revenue concerns already discussed, 55 percent of respondents are worried the situation will require reduction in spending, and 35 percent of respondents report they are in a hiring freeze. Additionally, 25 percent have experienced layoffs, and 22 percent report that they have furloughed staff in response to the pandemic.

Despite the challenges, many respondents were cautiously optimistic. “Although we had to contract our workforce at the beginning, we were able to bounce back and are currently at least 100 percent engaged/billable,” reported an East Coast contractor employing over 100. “The Payroll Protection Program (PPP) helped bring the few people back that we had to let go, but we were already looking at bringing them back based on increased workload. PPP just helped us do it a little faster. We pray that the market maintains and grows, so we can get back to the new normal.”

As far as duration, the largest percentage of respondents (21 percent) expect that the coronavirus will impact their operations for four to six months. An additional 17 percent expect the effects to last seven to 12 months, while nearly 20 percent expect the impacts to last more than 12 months.

As one Midwestern contractor said, “For us, it is too soon to tell. I think we will experience any effects six to 12 months from now. In the short term, it has been much more of a personal disruption than a professional one so far. Saying that I do realize we are very fortunate, and I do not take that for granted. We are fortunate for many things: good health, industry, and business to work for.”

The survey indicates that most members expect the effects of COVID-19 to be significant on their business, says AFSA Chair of the Board Ted Wills, president of Anchor Fire Protection Co., Perkiomenville, Pennsylvania. “We implore Congress and the Trump administration to provide stimulus opportunities swiftly to help our members. Additionally, AFSA continues to work hard to advocate for and ensure that construction and specifically fire sprinkler contractors are deemed essential business functions that need to continue operating. Our membership and industry are resilient, and we will weather this storm.”

Possible Issues Moving Forward

Uncertainty surrounding the duration and severity of this crisis makes it hard to anticipate how a recovery could unfold for the industry. Keeping workers safe and organizations’ balance sheets healthy is critical for the overall recovery of the industry. This will also help prevent a possible buying spree of distressed organizations by investors.

Many organizations will be compelled to make cuts during this volatile period. Some will be austere. So, organizations will need to be surgical with cuts while balancing short- and long-term needs. However, keep in mind that austerity measures should be tempered to preserve long-term objectives. Although moving quickly can certainly create an advantage, knowing where you’re headed will help ensure the changes you make are more impactful.

SIDEBAR:

Contractors should put in place immediate and contingent safety measures for their employees and decide which functions can be carried out remotely should an outbreak occur within their ranks.  In the event of widening outbreaks of COVID-19 that may affect workers, companies should consider the need to outsource some corporate functions, such as moving IT to the cloud. Such changes can help lower operating costs and eliminate maintenance capital expenses. Steps to consider:

  • Confirm that your employees are safe and know how to protect themselves.
  • Consider instituting sanitation rules in the workplace and assess mobility policies to encourage remote working, when necessary and possible.
  • Ask employees who are sick to stay at home until they are better.
  • Stagger shifts, increase the distance between workers and ban visitors to construction sites.
  • Eliminate non-essential travel.
  • Consider potential workforce scenarios to help reduce immediate labor costs.
  • Gather necessary data on employees and track movements during the crisis.
  • Consider which functions may be outsourced to help trim operating costs.
  • Establish risk-mitigation programs for employees who still need to work on-site.
  • Invest in education campaigns for front-line employees who have to be onsite so they know what to do to minimize the spread of the disease and what to do if they experience symptoms. See samples on www.firesprinkler.org/COVID19.

ABOUT THE AUTHOR: Nicole Duvall is Director of Communications & Social Media for the American Fire Sprinkler Association.

EDITOR’S NOTE: AFSA is committed to supporting you, your staff, and your business—whether it’s COVID-19 resources, web-based training, informal interpretations and technical support for your design team, or correspondence education for your field staff. AFSA offers many online learning opportunities that you can take advantage of, ranging from live webinars to online seminars across all topics of fire sprinklers and management via our Fire Sprinkler eCampus at sprinklerecampus.com. Information relevant to your business and COVID-19 can be found at www.firesprinkler.org/covid19


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