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How Md.’s construction industry can deal with a post-pandemic future

feuerman-todd-col-sig_webWhen 2020 began, the construction industry across the Baltimore region was thriving.  After a very robust 2019, most contractors and construction companies were looking forward to more of the same.

But then the COVID-19 pandemic became the biggest disrupter anyone has seen in decades, and the economic impact was felt almost immediately across every industry. In Maryland, however, construction firms benefited from being deemed “essential,” allowing them to keep job sites open, maintain staff, and tackle what were still very healthy backlogs.

As the pandemic wore on and the industry finally began to feel some of the effects, the CARES Act and related Payroll Protection Plan (PPP) loans provided many construction firms some much needed financial support from a liquidity and labor resource retention standpoint.

Maryland’s “best in class” contractors made precise adjustments to operations and took proactive measures to more accurately match new operating costs to the recalibrated construction economy. But for contractors that were not as stable or proactive, things gradually became very difficult to manage. As a result, ongoing capital erosion is a common theme.

Why 2021 could create a rocky foundation

To compound some of these challenges, 2021 is showing signs that the relative neutrality the construction industry enjoyed may not continue. Most regions in Maryland have seen a decrease in construction projects while experiencing an increase in overall competition at bid day. All of this points to construction companies facing a net decline in activity this year.

The slowdown caused in the general economy and lack of project release of work in the region has dramatically reduced the pipeline of new work into 2021. Lagging economic indicators have revealed the two main challenges to the construction industry in Baltimore: less availability of work and longer bid lists. Baltimore contractors must be very careful when considering new projects or when seeking refuge with work in new geographic areas or new market segments.

The bright spots to offset this anticipated decrease will likely be carried by construction segments like residential and health care construction and significant fulfillment-center projects for Amazon and other large public companies. Additionally, we are likely to see infrastructure bills put in place within the region to try and jump-start the heavy civil construction segment.

With uncertainty seemingly everywhere, be ready for anything

While the various stimulus acts and PPP  offerings have provided some relief to the construction industry, it is imperative that owners be prepared for any sudden changes to the 2021 market by maintaining cash reserves and line of credit availability and having cost curtailment lists ready to go at a moment’s notice. Construction company owners should closely monitor and consider: accounts payable management, possible wage freezes, backing off on non-essential expenses, assessing insurance costs like workers’ comp, and if it has not been done already, absolutely look into the opportunity to secure cash support through new programs that may come around with the Biden administration’s stimulus plan.

Owners and contractors should also be having open and frequent discussions with their financial partners, including accountants, banks, and surety firms, all to communicate current operations. They can avoid problems by simply discussing potential changes, negative or positive, that could occur during 2021 and final results from last year.

While 2020 may have finished strong for many local contractors, even with COVID-19 in full force, firms must properly evaluate the economic impact of this crisis and adjust their financial projections and scenarios for 2021.

Lastly, the biggest mistakes local construction business owners and contractors can make right now is not being prepared with multiple contingency plans or being too selective when bidding on jobs. Just one bad job or bad bid could be the difference between survival and financial distress.

As we all know, the COVID-19 crisis is a fluid situation and things seem to change every day. As spring and summer approach and new projects emerge, cautious optimism should be the best way to help one of our most important industries get back on its feet and help fuel Maryland’s post-COVID comeback.

Todd A. Feuerman, CPA, CCA, MBA, is a director in the audit and accounting department of Ellin & Tucker, a leading mid-Atlantic CPA firm. He may be reached by email at tfeuerman@ellinandtucker.com.

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