What Will the Future Hold for the Construction Industry?

As we enter into the last week of April, many are wondering if the shelter in place orders issued by Bay Area counties (Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara, Santa Cruz and Sonoma) and the City of Berkeley, many of which went into effect six weeks ago on March 16, 2020, will be extended past their stated end date of next Monday, May 3, 2020.

When Will California Reopen?

On Friday, San Francisco Mayor London Breed said that San Francisco’s shelter in place order will “likely” be extended but did not indicate when that decision would be made or how long the extension would likely be. Other California counties already have shelter in placed orders extending past May 3rd  including Colusa (May 8, 2020), Los Angeles (May 15, 2020), Mendocino (May 10, 2020), San Luis Obispo (May 16, 2020), Solano (May 17, 2020) and Ventura (May 15, 2020), and several counties have shelter in place orders which remain in effect “until further notice.”

But it’s a decision that’s not just up to California counties, since the State of California also has jurisdiction over public health issues, and Governor Newsom’s statewide shelter in place order currently has no end date. While many states with shelter in place orders began loosen restrictions this past week, during a press conference this past Wednesday, Governor Newsom said that while he understood that people were anxious to know when the state will reopen, “[w]e are not prepared to do that today.” Instead, he said that California would be looking at “six parameters” including: (1) adequate testing; (2) protecting the most vulnerable; (3) the ability of hospitals to handle surges; (4) the development of therapeutic drugs; (5) the ability of businesses, schools and child care facilities to allow for physical distancing; and (6) and the ability to determine when to reinstitute more restrictive measures.

In the meantime, researchers at the University of Washington’s Institute of Health Metrics and Evaluation have projected that California may be able to begin easing restrictions after May 18, 2020. However, it’s only a projection, and the decision when to reopen California will also need to be coordinated with its neighboring states of Washington and Oregon with whom California has entered into a Western States Pact to share information and coordinate the reopening of each state.

Impact on Construction

Under the shelter in place orders, most construction projects in California have been shut down with the exception of construction of healthcare facilities related to responding to the coronavirus, public and private construction projects deemed to be “essential,” work necessary to secure and protect existing construction sites, and affordable housing.

Nationally, a survey conducted by the Associated General Contractors of America, indicates that 53% of construction firms reported having projects stopped, 23% reported having shortages of construction materials, equipment, or parts, and 40% reported having furloughed or laid off workers both in the field and in home offices.

On Friday, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act which injects an additional $310 billion into the Paycheck Protection Program (“PPP”) and an additional $60 billion into the Economic Injury Disaster Loan Program (“EIDL”). The first round of funding under the Coronavirus Aid, Relief and Economic Security (CARES) Act enacted this past month, which had allocated $349 billion to PPP and $10 billion to EIDL, ran out of funds within 14 days. The U.S. Small Business Administration reports that, of the industries receiving funds under the PPP, the construction industry fared the best, receiving roughly 13% of PPP funds, or just under $45 billion.

What the Construction Industry Can Expect

According to major trade associations, contractors are expecting a significant slow down in the construction industry. In a report issued this past week by the American Institute of Architects, March saw the biggest monthly decline in billings by architecture firms in 25 years, which portends future impacts on construction projects. Regionally, the Northeast was saw the biggest declines, followed by the Midwest and South, and finally the West. Within sectors, institutional projects saw the biggest decline, followed by residential, and finally commercial/industrial.

According to a report issued on Thursday by the Associated Builders and Contractors, fewer than 30% of contractors expect their sales to increase over the next six months, less than 20% of contractors expect their profit margins to increase, one in five contractors expect a significant decrease in profit margins, and one in four contractors expect a significant decline in sales volumes. ABC Chief Economist Anirban Basu explained that the anticipated impacts on the construction industry of the coronavirus are different than what was seen in previous downturns:

Normally, construction activity is partially shielded from the initial stages of down turn due to the presence of backlog . . . . But this time is at least somewhat different, with certain construction activities halted in California, Pennsylvania, Massachusetts and elsewhere. While construction will hold up better in the near-term than retail, restaurants, airlines, auto manufacturing, lodging and a number of other key industries, its recovery is also likely to be less profound than in these other segments absent a federal infrastructure-oriented stimulus package.

On that front, President Trump and Democrats have restarted discussions on a multi-trillion dollar infrastructure plan, with the President tweeting this past week that “With interest rates for the United States being at ZERO, this is the time do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding that once great infrastructure of our Country! Phase 4.” “Phase 4” refers to the next phase of Congressional funding. However, House Speaker Nancy Pelosi has stated that she wants to focus first on further stimulus funding for small businesses. Senate Majority Mitch McConnell, on the other hand, who had not been supportive of earlier efforts to craft an infrastructure bill, has said that he wants any further stimulus packages to be directly related to addressing the coronavirus.

In the meantime, construction companies are looking at various technologies to employ in the new “normal” that is expected after states reopen, including technologies to ensure that social-distancing requirements are complied with.

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