Published in National Insulation Association’s October 2020 issue of Insulation Outlook magazine.
Authored by Laura Cataldo
The impact of COVID-19 has been far-reaching to the construction industry. Project delays and cancellations have impacted nearly every contractor, making diminishing backlog 1 of the most common concerns the construction industry is facing today. Many contractors are faring well thus far in 2020 because they are working on projects booked prior to the pandemic, and many received Paycheck Protection Program (PPP) loans that have supplied necessary cash flow during the economic slowdown.
A rebound by the fourth quarter appears unlikely, especially given the election that historically causes businesses to “wait and see” regarding capital expenditures. Without having a reliable crystal ball, the most accurate predictions are rooted in data. The Dodge Momentum Index, which measures nonresidential building projects in planning, has shown minimal gains in commercial building and drops in institutional building. Since March 2020, the Architectural Billing Index, which tracks increases in design firm billings, has shown that architecture firm billings continue to decline. Associated Builders and Contractors’ (ABC’s) Construction Backlog Indicator declined to 7.8 months in July, a full month lower than in July 2019.
The disruption of the pandemic has had a huge impact on how we do business and get work done. Based on the data, the pandemic will disrupt contractor backlog, at least for the short term. While we hope this disruption in backlog will be temporary, organizations must begin to evaluate permanent changes to their business models. At Baker Tilly, we believe that opportunities can emerge from this disruption. In order to slow the decline in backlog and emerge stronger, contractors need to develop a focused and prepared strategy and adjust business practices.