With social distancing, evolving health protocols and other pandemic-related requirements still impacting the construction contractors’ projects, and economic uncertainty continuing to chip away at backlog opportunities, 2021 is set to bring a myriad of new financial concerns for contractors across the country.
It is important to consider and measure the obvious and not-so-obvious costs brought about by COVID-19 in order to prepare for their impact on current and future operations, as well as cash flow.
Emergency Paid Leave
All contractors with fewer than 500 employers were subject to the paid sick leave and emergency family leave requirements of the Families First Coronavirus Response Act (FFCRA) last year, with some expenses offset by federal employer tax credits.
But in 2021, many contractors continue to face strict COVID-19 paid sick leave requirements. In New York, even after the federal mandate became optional on January 1, this obligation is determined by number of employees:
- 100 or more employees – Employer must provide 10 days (80 hours) of paid sick leave. Fortunately, the federal tax credit is still available through March 31, 2021 for employers who continue to provide the full 80 hours in accordance with the FFCRA.
- 11-99 employees – Employer must provide at least five days (40 hours) of paid sick leave.
- 10 or fewer employees and net income greater than $1 million – Employer must provide five days (40 hours) of paid sick leave.
The paid sick leave must include full wages and benefits. Only after these emergency leave periods end do standard family leave and disability benefits kick in. Employees who have already exhausted the 80 hours under FFCRA are still entitled to the New York sick leave benefits if they can provide either a notice of isolation or quarantine from their local department of health, or a positive test result.
Increased Job Site Expenses
Inherently, contractors and other employers that cannot operate remotely will incur higher levels of expense in keeping their workforce healthy and safe. A good example is on-premise COVID-19 testing. With no precedent to guide this issue, the question of who is responsible to pay for job-site testing will continue to be answered on a job-by-job basis. Even with several cost-effective options available, the construction contractor usually shoulders most of the initial cash outlay.
Another measure some contractors have implemented is to modify their projects’ entry points to become “clean rooms” whereby anyone coming onto the job site is screened by a medical professional. This has led to changes in project design and slowed the pace of individuals accessing the job site. Whether contracting with an outsourced medical team or hiring these professionals full-time, the unanticipated cost in a financial downturn has the potential to erode already thin margins.
Insurance Costs
Rising insurance costs were a top concern for contractors long before the pandemic hit. But the added risks associated with COVID-19 and on-site workforces are sure to exacerbate the issue and create a whole new list of insurance concerns. In other words, the unfavorable market conditions that construction contractors, especially in New York, have experienced to this point are not expected to soften any time soon.
Building Healthily
Contractors are known for their ability to build safely. The emphasis and investment the industry has committed to safety issues is well-documented. But now, contractors have to factor in building healthily as well. Already a major item in any contractor’s budget, safety expenses now have to include health costs and, as a result, have risen during the pandemic to cover everything from extra personal protective equipment (PPE) to new training on COVID-19 awareness procedures.
Office Staff Concerns
The changes brought by COVID-19 on the contractor’s office staff must also be considered. How costly is unused office space as some employees are opting to stay remote rather return to their desks? How will office space be modified to accommodate new social distancing requirements or expectations? Should testing be done in the office like it is on the jobsite? As 2021 moves along, we will answer these questions together, but what will be the impact on the construction contractor’s bottom line for the year?
Technology
One of the vulnerabilities that the COVID-19 pandemic exposed was the construction industry’s widespread lack of investment in new technologies. Limited human interaction called for increased and immediate reliance on remote work, automation and other technologies that were not embraced by most contractors pre-pandemic. The cost of implementing new technologies in record time and planning for more required upgrades this year will be a major area of expense, but one that will save valuable time and money for years to come.
While the outlook for 2021 may sound grim, the new year also poses a fresh start to catch up with your competition and other industries in the areas of technology, cost-effective safety solutions, risk management strategies to mitigate insurance spikes, and an effective cash flow management plan. Take this opportunity to evaluate the deficiencies and areas of improvement in your business plan and take action to strengthen your construction company’s defenses against any crisis it faces.
