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How Small Construction Firms Fared During COVID-19

How Small Construction Firms Fared During COVID-19

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Home Vendor News How Small Construction Firms Fared During COVID-19

These are uncertain times across the board – especially for the $1.3 trillion construction industry. An increasing number of small construction businesses find themselves vulnerable and are facing closure, while others are grappling with cash flow difficulties and constrained labor availability. Across the globe, the pandemic is delaying, extending, and even canceling construction works. For small construction businesses with limited budget flexibility, this often means having to contend with scheduling delays and increased costs during COVID-19. With many of these small construction companies being family-run, the effects have been devastating for both owners and employees. With this in mind, many of them are looking for ways to navigate the pandemic and begin rebuilding again.

The Supply Chain Issue: Scheduling Alternative Labor, Suppliers And Offsite Construction

One of the most noticeable ways COVID-19 has impacted the construction industry has been throughout the shortage of materials and available labor. As a result, construction businesses are seeking extensions of contract time and costs under COVID-19. One way businesses can address the shortage of materials is by introducing vertical integration and remodeled supply chains, according to a recent report by McKinsey. One good example of this has been the shortage of glass in the industry, which can contribute to residential and industrial construction being delayed up to one year. American float glass manufacturers are estimated to have reduced their capacity by 25 percent, while many manufacturers in Europe have also followed suit.

To manage this and other supply chain challenges, smaller businesses are having to rethink their ordering policies by allowing longer lead times for materials and seeking alternative suppliers to keep their projects moving forward. For labor shortage, smaller construction businesses can use temporary workers and offsite construction projects for now. Building offsite reduces contact for construction workers, and with many larger factories budgeting for social distancing, smaller construction businesses can take advantage of that. There are clear guidelines for a production line compared to onsite construction (including distancing and interaction of different trades). Construction businesses can also enjoy cost savings by having the materials manufactured and designed offsite. All smaller construction businesses then need to do is to transport the prefabricated materials onsite for assembly using a suitable small wagon, small truck, or heavy goods vehicle, minimizing risks of onsite contact and labor hours costs.

The Customer-Facing Issue: Shifting To Digitization Where Possible

Another way smaller construction businesses can weather the pandemic storm is by shifting as much of its operations to digital. Remote working is not possible for all of the functions in a construction business. However, ancillary functions such as accounting, marketing, client consultations, and planning meetings can still be done digitally. Digital collaboration and design tools are now the norms for project engineers and designers, allowing them to do their jobs without setting a foot onto a work site. Project management and design software like Spot by Boston Dynamics can be used to walk around worksites. To encourage connectivity within a decentralized and remote team, construction businesses can also turn to mobile reporting.

The Cost Issue: Adopting Adaptability And Agility In Cost Reduction

Even in the best of economic times, cash flow is a challenge for small businesses. In light of the current circumstances, many construction firms are seeing their revenues dwindle. For these small businesses, creating a detailed business cash flow forecast and contingency plan is key to surviving difficult times like these. Smaller construction companies may also want to speak to their suppliers to negotiate more favorable payment terms if they can.

There is also federal aid available to these businesses, in the form of government relief funds and tax programs. Payroll taxes can now be deferred until 2022. However, businesses are still required to pay 50 percent by December 31, 2021. Small construction businesses can also choose to defer FICA taxes. Finally, with labor supply in the construction industry being in short supply, keeping employees on the payroll is a major concern. The Employee Retention Credit can help with this by refunding 50 percent of employee wages (up to $10,000). This scheme applies to businesses that have been impacted by the pandemic and experience revenue loss – perfect for small construction businesses who have delayed or canceled contracts.

The bad news: the ripple effects of COVID-19 are set to be felt in the construction industry for the foreseeable future. The good news: businesses are getting back to business. With the right support and tools like a stringent cost reduction strategy, smaller construction businesses can combat the increased vulnerabilities they are facing, and just maybe, they will be left standing.


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