Early in the COVID-19 crisis, Governors Doug Ducey (R-Ariz.), Steve Sisolak (D-Nev.), and Lisa Lujan Grisham (D-N.M.) designated construction as “essential” to their states, but economic uncertainty has nevertheless delayed some Southwest projects. As a result, contractors continue to adjust their expectations for availability of labor and materials––and their hopes for business as usual in the near future.
“Several larger casino projects were postponed during the business closures, but it is anticipated that those projects will resume in the next several months,” says Craig Madole, CEO of the 300-member Nevada Chapter of the Associated General Contractors in Reno.
In Las Vegas, Sean Stewart, CEO of the Nevada Contractors Association (NCA), adds, “We are seeing delays and cancellations of some public works projects due to state and local funding shortfalls.”
AUI, the Albuquerque-based heavy civil construction contractor, experienced a two-week delay on a treatment plant project because a few electricians tested positive for COVID-19. “We have also had to shut down three projects to date because some of our employees tested positive, but they were able to return to work in a week,” says Patrick Shaw, vice president of operations.
In Phoenix, health care-construction specialist Kitchell experienced significant impacts when elective surgeries were temporarily halted in Arizona.
“With hospital operations focused on addressing the pandemic, the cancellation of these services affected not only people who need procedures but also the profitability and cash flow of the health care system,” says Kitchell CEO Jim Swanson. “The impact on the health care industry today and in the foreseeable future remains to be seen.”
Supply Chain Issues
Some contractors are reporting possible supply chain issues as a result of vendors’ employees contracting the virus. In Phoenix, for example, plumbing contractor Mike Brewer, president of the American Subcontractors Association of Arizona Inc., notes that one wholesaler had to temporarily close because COVID-19 quickly coursed through the building. That, in turn, affected schedules of some of ASA’s 200 commercial and residential members.
Steven J. Hilton, co-founder and CEO of Scottsdale-based Meritage Homes, the country’s seventh largest public homebuilder, notes that during the initial four-to-six-week slowdown because of the pandemic, supplies continued without delays for projects in the nine states where the company builds. “We’re just hearing from some manufacturers about challenges with some products, but it’s not at the level that I am overly concerned about it.”
Materials for highway projects are moving well, says Mike Beck, executive director of Albuquerque-based Associated Contractors of New Mexico. “While there may have been some sporadic disruptions in the delivery of materials to jobsites early on, we’re not hearing of major supply chain issues that are having a significant impact on production.”
In Nevada, Stewart notes supply chain disruption at all levels of construction but considers the delays to be short term. “Supplies normally secured within days are taking weeks to arrive,” he says, adding that most issues concern furnishings ordered from Europe and the Middle East.
Upland Contractors, a small privately owned residential builder in Reno, has had issues with flooring, tile products and Whirlpool dishwashers, says owner Jesse Haw. But, he notes, “Homebuilders have always been good at overcoming obstacles. COVID-19 has simply increased the challenges we face.”
John Garcia, executive vice president of the 740-member Home Builders Association in Albuquerque, says materials concerns were exacerbated by the coronavirus. “Lumber, steel and other commodities were in short supply, and that did cause and continues to cause higher prices for materials,” he says.
However, he notes one good outcome: “The U.S. began efforts to harvest fallen timbers for local construction projects, and that is good for the long-term outlook for lumber.”
AUI’s Shaw says he has not noticed increased labor availability issues in New Mexico following the COVID-19 outbreak. In Arizona, however, “Labor shortages continue as the need for skilled labor has not let up,” explains Tom Dunn, president of the Arizona Builders Alliance, Phoenix.
Rosendin Division Manager Brandon Stephens says that a large Arizona high-tech project had more than 10% to 20% worker reductions because of the state’s shelter-in-place order.
But most companies have adjusted. Josh Umar, the executive director at ASA of AZ, says some slowdowns have resulted from contractors’ hesitancy to add personnel to established crews. “They didn’t want to add that ‘x factor’ to a group that was already working safely without positive cases,” he says.
“Most of the people who have been automatically quarantined remained asymptomatic but unable to return to the workplace,” explains Kitchell’s Swanson. “It is frustrating, but a necessary evil.”
Thinking Short Term
Companies also have adjusted their short-term planning. Infrastructure contractors are concerned with the state’s long-term funding for infrastructure, which they are monitoring closely, Beck says.
Rosendin’s Stephens adds, “With jobs being shut down for short intervals for deep cleaning or stopped completely, we seem to be continually juggling resources while still having a need for more field workers due to the amount of folks that sheltered at home.”
Placitas, N.M.-based Fisher Sand and Gravel Highway has been challenged by its work in San Juan and McKinley counties on the Navajo Nation, which has experienced COVID-19 infection and death rates higher than those of most states.
“When the city of Gallup imposed complete shutdowns, our people were allowed to get through because we are an essential service,” says Mike Moehn, the company’s vice president.
He adds that COVID-19 is making the industry rethink how technology can eliminate traditional work paradigms. “Do we have to drive a few hours for a 45-minute meeting?” he asks. “And we probably don’t need people sitting in the same office. Many can work remotely.”
Pre-COVID-19 Levels Possible?
Additional federal aid to bridge short-term funding shortfalls may be necessary to avoid further delays and cancellations and an overall soft public works market. “Stabilizing those funding sources without federal aid will likely take some time, as tax revenue is generated once again from gaming and other sources,” says NCA’s Stewart.
Revenues for public agencies, funded mainly from gas taxes, are down because of the combination of reduced crude oil costs and fewer miles being driven by people who are working at home.
“Unless the federal government passes legislation to backfill the lost revenue, there will likely be much less work bidding the rest of this year and next,” says Brian Dowd, vice president and regional manager of Nevada Operations for infrastructure contractor Granite Construction.
He adds that the Nevada Dept. of Transportation recently announced it anticipates a $143 million shortfall in its 2020–21 funding and has already taken steps to delay some projects slated for bid. “In response, we have delayed some hiring to see how the impacts from COVID-19 will play out,” he says. “We are also already seeing the bidding environment getting more aggressive due to the concern for what lies ahead.”
Although he says construction levels are normal in New Mexico, AUI’s Shaw believes the additional impacts of the pandemic are coming. “Projects will undoubtedly be cut in the next two to three years,” he says.
A big concern among firms is that if work is not being let four months ahead, keeping employees will be difficult. “Our DOT has understood that and has stayed stable on contracts to keep businesses running,” says Fisher’s Moehn.
In Phoenix, Dunn points out that the commercial construction industry thrives when other industries requiring its services are healthy. “It may take some time for the COVID pandemic aftermath to be truly recognized,” he says.
The commercial office market, in fact, may see changes because of how office space is planned and used in a post-pandemic economy, Umar notes. New configurations will arise that are not part of the collaborative space model that became popular in the recent past.
“I think we will see lots of shifts in the way buildings are built and what tenants will look for inside in terms of how much square footage and the separations they will want,” Umar says. “And this may not occur until 2021 or maybe 2022.”
Kitchell’s Swanson says four to six months may be optimistic for a full recovery, noting, “We are sure construction will return in a big way, but the timeline remains fluid. The bigger concern is how this will impact our pipeline for the next two to three years.”
Residential work in New Mexico is strong relative to last year, but Garcia says his members are concerned that if people continue to lose their jobs, housing will slow down and affordability could become a long-range problem. As a result, firms have adjusted their mid-year planning.
But Haw says that demand for homes has increased in his part of Nevada. “Buyers continue to pour out of California for a variety of factors, and the single-family detached product is being viewed by the market to have added benefits over apartments.”
The residential market in Arizona is probably close to returning to pre-pandemic levels, with a commercial sector recovery possible in the first or second quarters of 2021, says Brewer. “If we can control COVID-19 through the third and fourth quarters of this year, then people should feel even more comfortable.”
“Home-building is extremely strong, particularly in Arizona. We are operating at very high levels,” Hilton says. “Right now, we’ve got both feet on the gas pedal.”