Optimism Wanes for California Construction Contractors

The widespread distribution of the COVID-19 vaccination and lifting of restrictive government orders means many Los Angeles businesses are well on the way to a full recovery. When combined with the various federal economic relief packages, 2021 is projected to be a year of near-record growth for the California economy. In fact, it is estimated that the state’s economy will recover much faster than the U.S. economy. When such positive forecasts are made, it is usually a cause for increased optimism, but construction contractors are not feeling the bliss. A recent Associated General Contractors (AGC) survey found that rising material costs, delayed projects, and staffing issues will prevent the same rapid pace recovery expected in other industries. The AGC Coronavirus California Survey also found few new projects available for businesses to bid. The combination of factors means there is a long road to recovery for the industry. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key survey findings below.

About the Survey

The survey was conducted online between February 19 and March 4, 2021, to 82 participants located in Los Angeles, Orange County, and across California. Respondents include those focused on building, federal and heavy, highway and transportation, and utility infrastructure construction. Over 50% of participants reported revenues of $50M or less in 2020, while 37% reported between $50.1M and $500M, and only 11% reported revenues of over $500M.

Key Survey Findings

• Project Delays/Disruptions – Since project delays have been a common occurrence, in part, due to COVID-19 job site restrictions. The survey wanted to understand the main issues driving delays. It was found that 48% reported shortages of materials and parts, 39% potentially infected person at the job site, 30% shortage of craftworkers/subcontractors, 13% shortage of government employees, and 10% difficulty receiving financing to cover cash flow needs. Conversely, only 26% of participants reported there are no current shortages or delays.
• Material, Equipment and Part Delays – Given the number of projects impacted by these delays, the survey also wanted to identify what is responsible for the disruptions. It was found that 85% of participants identified backlogs or shutdowns at domestic producers, 60% delays at foreign producers, 40% delays at ports, and 28% delivery delays from ports to delivery locations.
• Cost Fluctuations – Maintaining a consistent cost structure is essential to profitability, especially in challenging times. The survey also asked about cost changes over the past year. It was discovered that 80% of participants had experienced increased costs for materials, parts, and supplies, 41% increased delivery costs, 39% equipment purchases or rentals, 38% salaries and benefits, and 39% increased insurance premiums and surety bond costs.
• Headcount – The disruptions are causing projects to be put on hold have affected employee headcount. According to the survey, 46% have fewer employees, 33% have no change and only 21% have added employees. The reasons for the reduction vary but 64% reported project postponement or cancelation, 54% fewer projects to bid on, 46% some employees refuse to work because of exposure potential, and 18% fewer workers are allowed on the job site.
• “Return to Normal” – The survey wanted to determine when a return to normal could be expected. It was found that 28% indicated more than six months, 21% one to six months, and 17% do not know. Conversely, 33% have business volumes that match or exceed levels from one year ago.

Contact Us

It is clear from the survey results that project delays and increasing raw material costs are decelerating the recovery. For this reason, contractors need to continue careful cost management efforts to ensure unnecessary surprises do not present themselves. If you have questions about the information outlined above or need assistance with another tax or accounting issue, JLK Rosenberger can help. For additional information, call us at 949-860-9890 or click here to contact us. We look forward to speaking with you soon.