In Summary
- Despite rising optimism in other sectors, a significant majority of Colorado construction companies are facing project delays due to material shortages (62%) and are grappling with extensive cost increases, with 89% reporting higher expenses for materials, parts, and supplies over the prior year.
- Recovery faces headwinds as 76% of companies reported receiving no new projects in the two months leading up to the survey, alongside persistent operational difficulties such as additional pandemic-related costs (e.g., PPE) and a substantial percentage (44%) expecting it will take more than six months to return to pre-pandemic business levels.
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As the number of new COVID infections drops while the distribution of the vaccine continues, optimism is rising in many industries. The “return to normal” seems inevitable as demand continues to increase and restrictive government orders continue to fade. Unfortunately, not everyone is experiencing a high level of optimism as evidenced by the findings of a recent Associated General Contractors of America (ACG) survey. It was found in the ACG Coronavirus Survey of Colorado that continued project delays, increasing cost of raw materials, and supply chain delays are significant roadblocks to recovery. Given these issues, many companies have not been able to resume hiring because of lackluster demand. The combination of these means that Denver construction companies have additional obstacles to navigate on the return to profitability. To learn more about the survey findings and their impact on businesses, Hanson & Co has provided a summary of key findings below.
About the Survey
The survey was conducted online between February 19 and March 4, 2021, to 55 participants located in Denver and across Colorado. Respondents include those focused on building, federal and heavy, highway and transportation, and utility infrastructure construction. Over 70% of participants reported revenues of $50M or less in 2020, while 27% reported between $50.1M and $500M and only 4% reported revenues of over $500M.
Key Survey Findings
- Project Delays/Disruptions – Since the start of the pandemic projects have been delayed or disrupted for several reasons including restrictive government orders, concern about job site safety, and lack of financing. The survey wanted to determine if delays are occurring and for what reasons. It was found that 62% are experiencing delays because of a shortage of materials, parts, or equipment, 31% worker shortage, 31% potentially infected person at the job site, 13% shortage of government workers, and 7% due to financing issues. Only 15% of respondents are not experiencing any issues.
- Cost Increases Over Prior Year – Cost management plays an important role in maintaining profitability on a project. As a result, the survey wanted to understand if there have been any cost increases over the past year. It was discovered that 89% of respondents reported increased costs for materials, parts, and supplies, 51% on trucking and deliveries, 56% on wages and benefits, 38% on subcontractor costs, and 30% on insurance and surety bonds. In sharp contrast, less than 14% reported a cost reduction of any kind over the past year.
- Additional Pandemic Costs – The survey also wanted to understand if the pandemic has resulted in additional costs for Denver construction companies. It was found that 76% reported additional costs related to PPE, 69% because projects are taking far longer than originally estimated to complete and 29% due to fewer workers permitted to be on the job site. Only 5% of participants reported no additional pandemic-related costs.
- Headcount Changes – Project delays combined with job site restrictions mean many companies have to reduce utilization. The survey was interested in discovering if participants have reduced headcount in the last year. It was reported that 46% have fewer employees, 22% have no change and 32% have added employees. The reasons some companies reduced headcount is due to project delays, cancellations, job site restrictions and some employees have quit because of exposure concerns.
- Future Demand – To fuel a recovery more projects will need to be resumed or start in 2021. The survey inquired about the number of new projects awarded in the past two months. It was found that 76% reported no new projects against 24% which have received new contracts. When asked about project types, 7% identified medical including hospital remodels, 7% other building types such as manufacturing and distribution facilities, 4% utility repair, and 2% highway construction.
- Return to Normal – It is also important to understand when industry companies can expect to return to normal. It was found that 44% indicated it will take more than six months, 9% between one to six months, 11% do not know and 36% reported business levels that match or exceeded previous demand.