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The Bottom Line is where Klatzkin’s advisors provide analysis and insight into key developments in taxation, accounting, and other issues and how they affect businesses and individual taxpayers.

Challenges Plaguing the Construction Industry

By JOHN BLAKE, CPA

April 26, 2021

While many sectors have started to recover from the devastating blow brought about by the COVID-19 pandemic, it appears that the construction industry is still struggling. The details of how this is happening are outlined in the March 2021 AGC Coronavirus Survey, published by the Associated General Contractors of America.

The survey identifies, among other things, how increased raw material costs, supply chain problems, and the continued delay/cancellation of projects have combined to make growth problematic. This comes after a year filled with project cancellations, significant employee reductions, and restrictive government orders. The combination of the two makes it easy to understand why the construction industry continues to struggle. To help clients, prospects, and others. Klatzkin has provided a summary of the key findings below.

About the Survey

The online survey was conducted between February 19 and March 4, 2021, and includes responses from 114 companies. Participants focus on various construction projects, including commercial building, federal and heavy, utility infrastructure, highway, and transportation. Company revenues varied, but over 65% of respondents generated $50M or less in 2020, and 32% generated between $50.1M and $500M. Only a small percentage of respondents have revenues above $500M.

Key Findings

  • Project Delays/Disruptions – During the pandemic, project delays were expected because of local government orders or concerns about virus transmission. The survey wanted to uncover what, if any, new variables are creating issues. It was discovered that 52% of respondents indicated delays are caused by a shortage of materials, equipment, or parts, 39% potentially infected persons visited job sites, 25% a lack of craft workers/subcontractors, 9% challenges covering cash flow needs, and 8% a shortage of personal protective equipment (PPE).
  • Cost Increases – As costs rise, it creates additional financial burdens on many contractors, which may already be struggling because of the pandemic. The survey wanted to identify whether industry companies are experiencing higher costs over the last year. It was revealed that 88% of respondents are facing increased material, supply, and parts costs, 53% higher transportation costs, 42% increased equipment purchase or rental costs, 31% increased employee wage and salary expenses, 39% increased subcontractor costs, and 32% higher insurance and surety costs.
  • Additional Pandemic Costs – The specific costs arising from the pandemic were also an area of interest. It was reported that 86% of respondents had experienced higher costs due to PPE, 66% extended project timeline, 34% because of jobsite worker limits, and only 7% report no additional pandemic-related costs.
  • Projects Postponed/Canceled – Given the increased costs and adverse impact of extended project timelines, the survey wanted to understand how often projects are postponed or canceled. According to the study, 51% of respondents indicated that 2020 projects were rescheduled, 44% of 2020 projects postponed indefinitely or withdrawn, and 25% indicated that January – June 2021 projects have been delayed or canceled.
  • Return to Normal – Since there are multiple issues impacting projects, the survey wanted to uncover when a “return to normal” is expected. It was found that 43% of respondents indicated it would take more than six months, 13% indicated 1 to 6 months, 18% do not know, and only 1% believe there will never be such a return. It is interesting to note that 26% indicated business volume matches or exceeds pre-pandemic demand.

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The survey report illustrates how deeply the industry has been impacted by combining pandemic and outside issues, such as the increasing cost of raw materials. When combined with the delay of new projects, contractors will need to evaluate their bidding process to ensure they are adequately protected. If you have questions about the survey findings or need assistance with an audit or tax issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.

©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.

About the Author

John focuses on helping with the tax needs of real estate, technology and manufacturing, distribution, and wholesale companies. He works with management and business owners to review their business plan, tax planning process, identify additional saving opportunities, and ensure compliance and reporting deadlines are met. Also, John helps educate clients about the new opportunities available...

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