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While the industry continues to experience an increase in residential construction, other sectors are not doing as well. Private contractors in sectors that are declining should consider changing how they do business, what they produce or both. 

According to a press release, Investment in Nonresidential Structures Up a Meager 3% in Final Quarter of 2020, issued by Associated Builders and Contractors on Janiary 28, 2021, Anirban Basu, chief economist for ABC, said “The near-term outlook for nonresidential construction is not especially optimistic. Investment in structures was up just 3% on an annualized basis during 2020’s final quarter after declining by 33.6% and 17.4% in the year’s second and third quarters, respectively.”

The U.S. economy expanded at an annualized 4% rate in the fourth quarter of 2020 after expanding 33.4% during the third quarter and contracting -31.4% in the second quarter. Residential construction expanded at an annualized rate of 33.5%, down from 63.0% in the third quarter and 35.6% in the second quarter.

“Other data indicate that the economy may now be shrinking,” added Basu. “As early as October, U.S. retail sales began to shrink. By December, the employment recovery had ended, with the nation losing an estimated 140,000 jobs that month. Key industries will continue to suffer, including airlines, cruise ships, movie theaters, sporting venues, restaurants, traditional retailers and theme parks, among others.”

Managing Uncertainty

Even before the pandemic, there was a lot of uncertainty in the construction industry. There are so many people involved on projects who all want to minimize their exposure. 

Unexpected costs and delays are typically caused by contractors, scheduling and the environment. Private contractors that take a systematic approach to assessing risks are more likely to reduce issues before they become problems.

Risk management is an important component of conducting due diligence during the preconstruction phase of a job. It involves conducting a risk assessment, identifying potential hazards and controlling probable threats to completing the job.

While no one could have predicted the COVID-19 pandemic or its impact on construction, the reality is that contractors must understand the uncertainty around everything that is happening. From surges in the number of new cases; shutdowns and operational restrictions; more federal, state, and local government regulations; requirements to comply with CDC and OSHA guidance on social distancing and personal protective equipment (PPE); disruptions in the supply chain; and increases in material and labor costs, it is difficult to manage the risk of moving forward on jobs. What makes matters even worse is that no one really knows when the pandemic will end so it is hard to plan with any degree of accuracy.

Possibilities for Private Contractors to Consider

COVID-19 could have a greater impact on the construction industry than the Great Recession. Private contractors need to act now to survive and prosper when the pandemic ends. To do this, contractors should carefully consider the moves that they make now so that they a come out of the pandemic ahead of the game. 

Cash management is more important now than ever. Contractors should consider taking advantage of government incentives and financial assistance such as the Payroll Protection Program (PPP). It is better to have the funds available to continue operations. Keep in close contact with professionals—an accountant, lawyer, banker, bonding agent, and insurance agent who can advise contractors on the pros and cons of an action before doing anything.

Contractors must define and prepare for what the construction industry could look like when the crisis is over. This could mean a business model change or entering new markets. For example, construction can be done offsite in a controlled environment to reduce risks. Investments can be made in technology so more work can be done remotely.

Instead of concentrating on new construction, a contractor can get into retrofitting buildings to make it safer and more likely to reduce the spread of COVID-19 or to meet carbon reduction targets. Focusing on sustainability and green building could give a contractor the opportunity to take advantage of government incentives and, possibly, the Research & Development (R&D) and other tax credits.

Private contractors could also repurpose buildings that are no longer in demand like shopping centers and office buildings. The list is endless. But the point is that contractors in high-risk sectors should consider reinventing themselves to stay relevant and remain in business.

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