ENR 2020 Top 400 Contractors: Coping With COVID-19 Chaos
The construction industry is cyclical, riding the ups and downs of economic trends. When 2020 began, the industry was on the upswing. Many large contractors were confident that they could ride out any possible downturn that may come along, using large backlogs to get them through possible future tough times.
But the current COVID-19 pandemic is unlike anything the industry has experienced in generations. There was no warning. Rather than markets tapering off due to economic troubles or even natural or man-made disasters, the epidemic hit hard and fast, leaving a heretofore healthy industry in chaos.
The ENR Top 400 Contractors list shows just how healthy the market was before COVID-19 hit. As a group, those firms generated a new record of $414.38 billion in contracting revenue in 2019, an increase of 2.3% from the 2018 total of $405.0 billion. Contracting revenue from U.S. projects rose a strong 5.1%, to $387.85 billion, over last year’s mark of $369.15 billion. Contracting revenue from projects outside the U.S. fell 26.0% last year, to $26.53 billion.
However, the 2019 figures don’t tell the whole story. Both Fluor Corp., Irving, Texas, and Watsonville, Calif.-based Granite Construction Inc. missed the ENR survey for the first time in decades. The U.S. Securities and Exchange Commission questioned their financial reporting and both agreed to do internal audits.
Since both firms are publicly traded, they are barred by law from disclosing their financials before they are released to the general public, so they were unable to file surveys. Fluor ranked No. 2 on last year’s Top 400 with $15.59 billion in contracting revenue, and Granite ranked No. 24 last year with $3.32 billion.
On top of that, Primoris Services Corp., Dallas, did not file a survey. It has been evolving its business model for several years and now is primarily a utility contractor, deciding it would be better placed on the ENR Top 600 Specialty Contractors list. “We compete primarily with firms like Quanta Services and Mastec Inc. on the Top 600, rather than firms like Granite on the Top 400,” says a company spokesperson. Primoris ranked No. 28 on last year’s Top 400 with $2.94 billion in contracting revenue.
Disregarding the combined $21.85 billion from Fluor, Granite and Primoris from last year, the participating firms on this year’s Top 400 showed an 8.2% increase in contracting revenue from 2018 to 2019.
As bright as market prospects looked at the beginning of 2020, those prospects faded quickly as the COVID-19 virus made its presence felt.
Construction in many parts of the country ground to a halt as state and local governments stepped in and ordered nonessential work be put on pause to stop the spread of the disease. Bob Mullen, CEO of STO Building Group, sums up the feelings of many contractors across the country: “We came into the year with the expectation of growth in several sectors. We’re still expecting that growth to resume at some point, but, of course, the COVID-19 pandemic put our growth plans into pause mode.”
Although the industry has been hit hard across the country, some jurisdictions have felt it more heavily than others. For example, in the New York City metropolitan area, most projects went on pause during the statewide stay-at-home order.
Michigan has had one of the nation’s more stringent shelter-in-place orders in that it doesn’t classify all construction as an essential service. “While our projects in the medical, infrastructure and, to some extent, energy markets have continued in the state, construction on the majority of our projects was suspended during the shelter-in-place period,” says Chuck Binkowski, COO of state-based Barton Malow.
Many firms believe the COVID-19 crash will take a bite out of their revenue. “In general, we are seeing about a 20% reduction in revenue caused by both work restrictions from the government or clients, as well as from quarantine requirements of labor resources with symptoms or in contact with COVID-19,” says Andrew Wood, executive vice president of J. Fletcher Creamer & Son Inc., which works primarily in New Jersey, one of the hardest hit states.
Dome Construction works in the six Bay Area counties of California, so the shelter-in-place public health orders issued in March posed the most significant challenge in the company’s history. “How do we support our 250+ strong team in the most uncertain time any of us has known?” asks Rob Lynch, Dome CEO. But the firm is treating this situation as an opportunity. It developed a training program for all employees to improve their knowledge and skill sets through daily Zoom learning sessions.
The Fear Factor
Another major issue for contractors whose work is continuing is how to keep their workers safe and healthy. Almost all contractors are imposing new guidelines for workers on job sites, mostly following those issued by the U.S. Centers for Disease Control.
Many contractors have expanded on requirements beyond the basics. HITT Contracting developed its own set of guidelines. “To make our jobsites safe, we also need our subcontractors and partners to increase their safety requirements. To help our industry partners and colleagues, we’re sharing our protocols and processes on our website,” says Kim Roy, CEO.
HITT also established the “HITT Site Marshal role,” which is dedicated solely to ensuring COVID-19 standards are enforced. “Every HITT project has one of these marshals assigned, and it has proven to be the key to implementing new protocols quickly and effectively,” Roy says.
One of the most extensive sets of guidelines was established by Clayco. It details a broad range of safe practices, guidelines, protocols, checklists and forms, all available to the public on its website. “We co-wrote the construction guidelines with the help of the CDC and our larger clients and shared those guidelines widely with the industry for their use,” says Bob Clark, Clayco’s executive chairman.
GLY Construction is another contractor that is being very careful. On a new inpatient tower that was under construction in Washington state, it suspended work for one week, restarting only after implementing enhanced COVID-19 safety and health screening protocols (see photo, top of page), says Tyler Tonkin, a GLY principal.
While the total workforce was 300, “we intentionally reduced the workforce down to 80 workers in the first week back to work after the pause. With each subsequent week after the restart, we added 20 to 40 workers and coordinated closely with all the trades on site to adhere to social distancing measures and comply with proper [personal protective equipment],” Tonkin says.
Some contractors have reported worker shortages at the outset of the pandemic. “In New York City, some subcontractors are finding that workers are reluctant to go back onto jobsites that have been shut down and are reopening, especially when there were verified infections on site,” says Maurice Regan, CEO of J.T. Magen.
“Craftworker availability has been somewhat of a challenge. Some workers are staying home for various reasons, whether due to fears associated with COVID-19 or due to unemployment incentives provided by the government,” adds Mark Luegering, COO of Messer Construction.
Clayco also has seen a few examples of people who don’t want to work due to the virus. “However, with significant layoffs [by other contractors], there will be a pool of people that are healthy and not at risk that will work on our safe jobsites,” says Executive Chairman Clark.
Many contractors say craftworkers generally are happy to have a paycheck when so many other Americans are out of work. “Almost without exception, our employees are grateful that we are able to keep them working, as many are two-income households where their spouse has been furloughed from their positions with other companies,” says Tom Murphy Jr., CEO of Coastal Construction.
Productivity declines because of the health precautions also worry contractors. “We are seeing an overall drop in labor productivity and increased cost due to COVID-19 procedures, training, cleaning and other requirements necessary to keep the workforce safe,” says Wood of J. Fletcher Creamer. “Overall, our projects have had a slight decrease in productivity due to slowing down to address increased safety and hygiene measures such as social distancing, temperature checks and staggered work schedules,” adds Deron Brown, president of PCL’s U.S. Operations.
Meeting the Challenge
Contractors also have shown they can step up to the plate and deliver in a crisis. For example, Gilbane Building Co. was the construction manager for the temporary re-occupancy of the Newton (Mass.) Pavilion health care facility, providing up to 304 non-acute patient beds for surge capacity for Greater Boston’s homeless population in response to the COVID-19 emergency, a feat it accomplished in 11 days, reports Michael McKelvy, CEO.
Balfour Beatty is another contractor that stepped up. Washington’s King County asked it to deliver 2,500 beds for multiple quarantine facilities in the county in a project that originally was intended to build housing for the homeless population. The firm developed “a rapid-response solution to transform 12 sites into facilities equipped to quarantine patients who are incapable of self-quarantine, including the homeless,” says Eric Stenman, Balfour Beatty US buildings president.
At the Penn Medicine Pavilion in Philadelphia, STO Building Group subsidiary L.F. Driscoll and the PennFirst team, which includes Balfour Beatty, “were asked to accelerate the schedule to deliver 120 beds within three weeks—almost a full year ahead of schedule,” says Mullen of STO. The team accomplished their mission, and then construction was temporarily halted on the overall project so the hospital could focus on treating COVID-19 patients, he notes.
And at the SUNY Old Westbury campus on Long Island, N.Y., AECOM constructed a 104-bed non-COVID-19 patient care facility inside of the Clark Athletic Center gym, as well as four freestanding temporary structures able to accommodate 920 patients. “From receiving the notice to proceed to close out, the entire project was complete in just a few weeks, requiring swift problem solving and collaboration among all project team members,” says Jay Badame, president of construction management.
Supply Chain Concerns
Contractors worry about materials suppliers that are also being hit by the pandemic. Many firms have run into some disruptions in obtaining materials and supplies. This has been a particular problem for contractors relying on materials from abroad. Some reported supply chain problems from China at the outset of the crisis, and a few contractors worry that European suppliers may also become a problem for such items as Italian marble.
Some contractors are taking precautions by specifying alternative materials and equipment. “As our supply chains are strained and/or impacted by the pandemic’s impact on global manufacturing and shipping, we are working to identify domestic suppliers and alternate options for construction materials,” says Roy of HITT Contracting.
Contractors sourcing their materials locally has become a significant trend being accelerated by the pandemic. “In procurement, the biggest market changes right now flow from tariffs and trade restrictions,” says Steve Edwards, CEO of Black & Veatch. He says these trade disputes have led to wild price swings that have made bidding and forecasting costs a challenge.
Many suppliers have felt the impacts of COVID-19. “We’ve been staying in close communication with our suppliers to better understand their situation and develop mitigation strategies. Logistics also have taken a hit, given restrictions on air and inland trucking,” Edwards says.
This has led many contractors to actively seek out domestic materials producers. “COVID-19 has taught us all that we cannot rely on other countries for critical items in our supply chain, which will result in an increase in manufacturing capacity within the U.S. in months and years ahead,” says Brown of PCL.
Some contractors have found their existing programs of domestic sourcing of materials have helped during the pandemic. “Material sourcing has mitigated potential delays largely through DEPCOM’s Buy American First procurement program, with nearly 80% of the dollars we spend staying within the U.S.,” says Johnnie Taul, president of DEPCOM Power.
Rising material prices have not yet been an issue. Most contractors say that they’ve seen little evidence of rising materials costs during the outbreak. For example, Jacobsen Construction Co. has been using regular surveys to actively monitor the Utah market in an effort to quickly detect what kinds of trends have been put into motion as the result of the pandemic. As of April 17, “more than 90% of respondents said they had not been notified by suppliers of a price increase for new projects. About two-thirds said they still didn’t know how the pandemic would affect their own pricing in project proposals going forward,” says Doug Welling, CEO.
Subcontractors have also been significantly impacted by the virus. In many cases, they are more vulnerable to disruption than general contractors because of their smaller size and reliance on a continuing cash flow to pay for labor and supplies. This has caused many general contractors to focus on their subs to help them through the crisis. “We are watching areas such as financial stability of trades and focusing on keeping the workforce healthy while limiting the spread of COVID-19,” says McKelvy of Gilbane.
STO Building Group is also looking out for its subs. “We’ve also developed some ways to help our subs remain solvent, including connecting them to information on the federal CARES Act, hosting webinars and talking through their challenges with them so we can find ways to support them,” says Jim Donaghy, executive chairman.
Many contractors say the biggest risk to the subcontractor community is getting paid in a timely manner. “The industry needs to focus on the entire invoicing process and making sure it functions in an efficient and timely manner,” says George Pfeffer a member of DPR’s management committee. “While we bring projects online, we all need to make sure everyone feels invested in the health of the entire construction community and takes steps to be diligent in keeping committed money moving.”
Looking for a ‘New’ New Deal
The entire nation has been looking to Washington, D.C., for relief from the economic downturn caused by the pandemic. And the construction industry, which has been pleading for a transportation and infrastructure funding package for years, is no exception.
Most contractors believe that an infusion of federal funds to pay for infrastructure would go a long way to mitigate the economic damage caused by COVID-19. “A federal stimulus could lessen the impacts from this needed infrastructure replacement, and be an expeditious way to stimulate our economy,” says Scott Parrish, president of Garney Holding Co.
Many contractors are worried that construction has gotten little in previous COVID-19 stimulus funds. “It’s my belief that something does need to happen to help our nation’s infrastructure. However, I’m not confident that it will happen fast enough to address current concerns,” says Brown of PCL. “I truly find it unlikely for a major federal infrastructure [bill] to be passed this year due to the volatile and corrosive political environment and the split party control of the House and Senate,” adds Wood of J. Fletcher Creamer.
But some say the time is now for a major infrastructure bill. Such a bill “has the potential to stimulate the economy, as we’ve see in past downturns. Creating jobs for the millions of unemployed Americans while improving our infrastructure? That’s a win-win. It’s time for a ‘New’ New Deal,” says Badame of AECOM.
Finding enough workers to staff jobs was a major issue for contractors prior to the COVID-19 crisis. Now, the sudden strains caused by the virus, including project delays and cancellations, have put pressure on many contractors’ bottom lines. Several firms noted they have begun layoffs to help them cope.
However, many other contractors are doing their best to hang on to their existing staff, knowing that the COVID-19 pandemic will eventually end. “We took the position that we wanted to ride out this storm and protect our people, so we didn’t do furloughs and layoffs as an immediate reaction to the crisis. We’re seeing some opportunities to attract talent from firms who did not handle it well,” says Donaghy of STO Building Group.
Many large contractors understand that their reactions to the crisis aren’t being done in a vacuum. “Employees are watching how companies treat their workforce through the crisis. This may open opportunities for career movement that didn’t exist two months ago,” says McKelvy of Gilbane.
Much of the protective attitudes about the workforce stem from lessons learned about staffing from previous market downturns. “The industry never rebuilt its craft workforce after the 2008 financial crisis. We know that when paused jobs come back online, there is going to be a rush on labor, and that will affect existing jobs and new ones coming online,” says Pfeffer of DPR.
Planning for an End
The COVID-19 crisis has disrupted the industry, the markets and the economy. But contractors know that it will come to an end eventually. Many are already focusing on the future.
“In my 45-year career with W. M. Jordan Co., I’ve personally been through six recessions, all caused by different reasons. Each one eventually ended,” says John R. Lawson II, executive chairman. He says now is the time to plan ahead. W.M. Jordan has not laid off a single employee to ensure the firm comes out of this recession stronger, Lawson says.
Firms also are looking at how they are handling the crisis now and how they can improve their processes going forward.
“We will perform a lessons-learned after-action report to identify things we did well and things we did not. We will look to make adjustments to our business continuity plans, inventories and facilities to be more prepared for pandemic risk,” says Wood of J. Fletcher Creamer. The firm also will look at more telecommuting and its need for office space after the crisis ends.
Moss is another contractor shoring itself up for a market turnaround.
“Moss took actions to secure our liquidity such as extending our line of credit even though we have not used it, accelerated collections from insurance claims, developed contingency plans that would allow us to reduce our monthly spending without layoffs or furloughs and reaffirmed commitments to support the firm through communications with our business partners and insurance and bonding companies,” says Scott Moss, CEO.
The entire industry has been impacted by COVID-19. “But we’re a tight-knit community and we’re rallying together to learn from each other and provide a united front in dealing with the crisis,” says AECOM’s Badame, who warns firms not to go it alone in addressing COVID-19 problems in the times ahead. “We can’t be islands in implementing solutions to help minimize the impacts of the crisis—it doesn’t serve ourselves or the industry well.”