This article also appeared in the Baltimore Business Journal on May 7, 2020.
When 2020 began, the mid-Atlantic construction industry, including Baltimore, was thriving. Backlogs were healthy, employment was at full utilization and projects were moving in full force.
By all indications, the new decade was set to usher in another very successful period of growth for construction firms across the region. But as we all know, everything changed in the second week of March. In some areas of the country, construction has slowed significantly and even come to a furious halt.
But what about Baltimore’s construction industry? How have our local construction companies and contractors been navigating this crisis? And more importantly, what can these firms do now to ensure they are set up for success when a sense of normalcy returns?
So far, it appears that Covid-19 has been relatively neutral toward the commercial construction industry across Maryland, and despite the pandemic, the second quarter is shaping up to be fairly productive. That said, some company owners have put projects on hold due to financing issues, health anxieties or simply general economic concerns, and are waiting until there is some indication of how things will be resolved. Maryland is fortunate to have a governor who has deemed construction an essential business and understands how important it is to keep projects moving forward. Conversely, some nearby states, including Pennsylvania, require that contractors obtain an official waiver to deem a project “essential” before work can resume
Ultimately, the main issues facing construction firms are safety, continued production on projects, meeting completion deadlines and, once a job is done, collecting payment. And as with any business right now, cash flow is a major issue to closely monitor.
Some relief is coming for mid-size firms (fewer than 500 employees) in the form of Paycheck Protection Program loans, which have been and continue to be critical to retaining employees and keeping workers going without exhausting monetary reserves. But for equipment-intensive firms, such as highway or bridge contractors, buying expensive new equipment has been put on hold, unless it is essential for business.
For field workers and office employees, construction firms are trying hard to limit exposure to Covid-19 on job sites by implementing many health-related protocols. These include daily health screenings, social distancing guidelines, protective clothing and gear, and limits on the number of workers and trade subcontractors allowed on site at one time. And should a worker contract the virus, the site is evaluated for immediate shutdown and “sanitized” before personnel are allowed back. Anyone uncomfortable working in this environment is being allowed to stay home. For any firms looking to hire, the record unemployment levels have created a large pool of eager candidates.
What Should Construction Companies Be Doing Right Now to Navigate This Crisis?
As mentioned earlier, cash flow is king. Construction company owners must be prepared for sudden changes to the market by maintaining cash reserves, having a line of credit available and ensuring cost curtailment lists are ready to go at a moment’s notice. Closely monitor and consider: accounts payable management, possible wage freezes, backing off on non-essential expenses, assessing insurance costs like workman’s comp and, if it has not been done already, looking into the opportunity to secure PPP funding.
Owners and contractors should also be having open and frequent dialogue with their financial partners, including accountants, banks and investment and surety firms about current operations and any potential changes, negative or positive, that could occur. While the first half of 2020 is looking strong and relatively unfazed by Covid-19, firms must properly evaluate the financial impact of this crisis and adjust their financial projections and scenarios.
The biggest mistake construction business owners or contractors can make right now is not being prepared with multiple contingency plans, both for the operational and financial sides of their business. This crisis is fluid and things are changing every day. A plan created on a Monday could be useless by Friday, and while Maryland considers construction essential, circumstances are changing by the minute. The best plan is to be as prepared as possible for change at a moment’s notice.