Client Alerts, News Articles & Blog Posts

Everything you need to know about BMD and the industry.

2020 Marcum National Construction Survey Marks a New, Post-Pandemic Construction Environment

Where Have We Been? Where Are We Going? An Outlook on the Post-Pandemic Construction Environment

The results of the 2020 Marcum National Construction Survey are in, and the construction industry’s outlook for the remainder of 2020 and beginning of 2021 remains cautiously optimistic despite the COVID-19 global pandemic. Ability to find skilled labor, healthcare expenses, and material costs remain the top concerns for the industry, while “lack of future work” joins the list.

 The survey conducted by the national accounting firm Marcum LLP was conducted in the first quarter of 2020 and polled over 400 construction companies and service providers in various sectors of the industry. To account for the effects of the pandemic, the survey separated responses into “pre-pandemic” (responses received before March 15th) and “post-pandemic” (responses received after March 15th).

 Some of the key findings of the survey include:

  • 90% of respondents reported their ability to receive project financing has increased or stayed the same as compared to last year
  • 47% of respondents reported banks required bonding on less than 20% of their jobs
  • 82% of pre-pandemic respondents projected either the same or higher backlogs for 2020
  • 67% of post-pandemic respondents projected either the same or higher backlogs
  • Just over a third of respondents (36%) predicted they will increase expenditures in the next year
  • 41% of pre-pandemic respondents chose “securing skilled labor” as the No. 1 threat to their businesses
  • 29% of post-pandemic respondents chose “lack of work” as the No.1 threat to their business
  • 51% of respondents are increasing compensation to address the shortage of skilled labor
  • 85% of respondents said they were applying for loans under the Paycheck Protection Program (PPP) to mitigate impact of the virus on their businesses
  • 56% of respondents said their top priority going forward is strategic planning

Marcum has characterized the phase we are entering as the “New Construction Environment.” According to the survey, the pre-pandemic economy was seemingly as good as it has been for many contractors; however, The New Construction Environment, or post-pandemic construction environment, is explained as the “mirror opposite.” Ultimately, in light of current economic trends, the second quarter of 2020 is projected to be the worst economic quarter in modern history.

While the long-term effects of the pandemic have not been fully realized, the pre vs. post-pandemic survey responses shed light on the industry’s perceived risk factors influencing the post-pandemic environment. Some of the identified risk factors include:

Shift and Lack of Construction Work: Lack of construction work climbed the list as one of the top concerns in the post-pandemic construction environment.  In the short term, it is foreseeable that private sector building activity may decrease. There may be a reduced demand in construction for commercial office space, hospitality, and residential living space. Similarly, healthcare construction may see a decline as hospitals and healthcare systems experience lower revenue due to cancellation and deferral of elective procedures during the pandemic. Similarly, a decline in tax revenues may lead to a similar reduction in state and municipal public building activity.

 Infrastructure Funding: Many states, including Ohio, are planning for infrastructure budget shortfalls. Record unemployment, extended tax deadlines and decreased economic activity, including a decrease in gas consumption, will likely contribute to reductions in future public construction budgets. While there has been bi-partisan interest in a significant federal infrastructure bill, it is less than certain whether relief is on the way.

 Skilled Labor Shortage: Although historically a hot issue, the survey indicates that many contractors have become less alarmed by shortages in skilled laborers. Initially, 41% of pre-pandemic respondents listed “securing labor” as the leading threat to their business. But that percentage fell to 23% among post-pandemic respondents, with “lack of work” frequently taking the top spot.

 Industry Competition: According to the survey respondents from both groups, the number of bidders per project remained relatively low. However, as new work slows, competition for projects will undoubtedly rise.

 Increased General and Administrative Overhead: 36% of respondents overall predict they will increase expenditures in the next year.

Given the uncertainty that lies ahead, there is a newfound emphasis being placed on strategic and organizational planning within construction firms, as evidenced by the more than 10% increase in the number of post-pandemic respondents who selected strategic and organizational planning as the top priority for their upcoming year.  

 So how can you protect yourself in this post-pandemic construction environment?  

  1. Protect your employees. Now, more than ever, it is imperative that employers review their employee manuals, safety programs/trainings, and emergency plans. Be sure to follow the CDC’s Interim Guidance for Businesses, including best practices for cleaning and disinfecting areas in the workplace, social distancing, and quarantining employees who have confirmed their exposure to COVID-19. If and when an employee has a confirmed case of COVID-19, work to quickly determine all other employees and/or third parties who might have been exposed to the COVID-19 positive employee. The CDC Contact Tracing Guidelines provide that in order to best determine other employees who were at highest risk to COVID-19 exposure, employers should ask the following question: Who worked within 6 feet of the sick employee, for 15 minutes or more, within the 48 hours prior to the sick employee showing symptoms? This has been referred to as the “6-15-48” Rule. Once identified, the CDC recommends that the “6-15-48 employees” of non-critical business self-quarantine for 14 days after their last potential exposure, maintain social distance, and self-monitor symptoms.
  2. Learn from the past. The construction industry was heavily impacted by economic slowdowns as a result of the 2008 recession, and many of the lessons learned then remain true in this post-pandemic construction environment. During this time, contractors should consider, among other things: (1) implementing flexible work arrangements (and therefore potentially reducing costs for physical space) when possible; (2) reassessing both business and strategic plans; (3) being hypervigilant when reviewing contractual risk; and (4) operating cost-consciously, and exercising disciplined spending when possible.
  3. Familiarize yourself with your contractual rights. Check the force majeure provision to determine terms governing, for example, time extensions and/or additional compensation. It will be especially helpful to know this information in advance should a project of yours face COVID-19 related impacts. For future projects, remember that COVID-19 is no longer an “unforeseeable condition”, and must be dealt with in future contracts accordingly.
  4. Promptly provide notice. If your project is impacted by COVID-19, promptly provide notice to any party with whom you are contracted in accordance with the notice provision in the contract documents. In your notice, you should reserve all rights to seek an extension of time (if contractually applicable), and also state with specificity: (1) the scope of the impact; and (2) the date on which the impact began.
  5. Be particularly mindful of profitability. At the risk of stating the obvious, when deciding what projects to undertake, focus on the work that will not overextend your company, and has the potential to yield a higher than average profit. In an environment where lending requirements may tighten, the number of new construction starts may decrease, and the ability to control schedule may be in flux contractors should resist the temptation to accept work that is below their target profit margin thresholds.  This especially rings true for contractors with high overhead costs.

Please contact a BMD Construction attorney if you have any questions regarding the guidance above, or any other construction related questions.

A New Formation Solution – is the SSLC Right for Your Business?

In early January 2021, Ohio adopted Senate Bill 276 which established a Revised Limited Liability Company Act (“ORLLCA”) as Ohio Revised Code Chapter 1706, which effectively replaces the current Ohio Limited Liability Company Act (Ohio Revised Code Chapter 1706). The ORLLCA will become effective on January 1, 2022. One of the principal changes within the ORLLCA is the ability to establish “series LLCs”. Ohio becomes the 15th state to adopt a “series LLC” (“SLLC”). The below FAQs will help you better understand the mechanics and nuances of a series LLC.

Surprise! A Cautionary Tale for Out-Of-Network Billing: The No Surprises Act and the Impact on Healthcare Providers

SURPRISE! Congress passed The No Surprises Act at the end of 2020. Providers, particularly those billing as out-of-network providers, should start thinking about strategies to comply with this new law, set to take effect on January 1, 2022. In its most basic sense, the new law prohibits providers from billing patients for more than the in-network cost-sharing amount in most situations where surprise bills happen. It specifically applies to non-government payers and the amounts will be set through a process described in the new law. In particular, the established in-network cost-sharing amount must be billed for the following services:

Ohio Enacts Substantial Changes to Employment Discrimination Laws

In January, Governor Mike DeWine signed into law the Employment Law Uniformity Act, amending the employment protections in the Ohio Civil Rights Act in several significant ways. Such changes to the state’s anti-discrimination and anti-harassment laws have been considered and debated for years and finally made their way into Ohio law. What has changed for employment claims under the amended Ohio Civil Rights Act?

OHIO ADOPTS THE SERIES LLC: Implementation of Ohio’s Revised Limited Liability Company Act is Coming

On January 7, 2021, Ohio adopted S.B. 276. The new legislation establishes the Ohio Revised Limited Liability Company Act (“ORLLCA”) which effectively replaces the current Ohio LLC Act. ORLLCA will be fully effective as of January 2022. While the new law contains numerous changes to the existing LLC landscape, below is an overview of some of the key differences under the ORLLCA.

Will Federal Legislation Open Cannabis Acquisition Floodgate?

Are potential buyers quietly lobbying at federal and state levels to kick open the door to launch a new round of strategic acquisitions? Will presently pending federal legislation, the SAFE and MORE Acts, providing safe harbor for banks and re- or de-scheduling marijuana, be sufficient to mobilize into action major non-cannabis companies that previously shunned the cannabis industry due to the unknown implications of owning businesses whose activities are illegal under federal law?