2021 Marcum Northeast Ohio Constuction Survey

2021 MARCUM NORTHEAST OHIO CONSTRUCTION SURVEY

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EXECUTIVE SUMMARY 2021 MARCUM NORTHEAST OHIO CONSTRUCTION SURVEY

” Growth is there, but it needs to be more sought after. - Survey Respondent

during the pandemic included sharing and shifting risk, so delays don’t lead to onerous penalties. As the economy reopens, work will likely be more plentiful, leading to fewer bidders for many projects — but price pressure may remain due to high labor and material costs. Many hope that federal infrastructure investment will lead the construction industry out of the pandemic. Some worry COVID-19 drained federal funds, although investment in infrastructure is widely anticipated given recent bipartisan bills. Potential tax increases and funding sources are also on executives’ minds. Over the past year, Marcum helped many companies in Northeast Ohio and nationwide obtain millions in PPP loans and stay up to date on tax incentives. The majority of respondents received PPP loans, and nearly all (but not necessarily in Northeast Ohio) expect full or partial forgiveness. Assistance is out there if you know how to access it. For example, Marcum helped companies obtain employee retention and research & development tax credits. For many companies, the latter is an untapped opportunity to retain more of their income as we emerge from the peak of the pandemic — even as new variants pose new risks. Backlog hasn’t yet returned to pre-pandemic levels for most companies, but many executives said it is improving. Nearly half of respondents in our region and nationwide expect 2021 backlog to be lower than a year ago, while about one- third in the region and in the nation expect it to be higher. As the peak of the pandemic passes, executives are eyeing growth in and beyond their region. Around three quarters in Northeast Ohio and the nation expect to see the same or more opportunities in their region over the next three years, a sign that the construction industry is still strong. Eighty-four percent nationwide anticipate the same or more opportunity outside of their region, compared with 87% in Northeast Ohio. Survival may have been sufficient at the height of the pandemic, but growth is the goal for many today. Even with labor shortages, increased competition, and rising material prices, construction is seeing opportunity with pent-up demand and infrastructure investment. The past year has not been easy in and beyond Northeast Ohio, although it has been profitable for many. However, things could have been very different and far worse for the construction industry. About a year and a half ago, construction entered what could easily have been a lasting recession or depression. Today, things are brighter and for many, an upturn has begun. We hope you find the following report beneficial, and we welcome your feedback.

We are pleased to present the results of the 14th annual Marcum Northeast Ohio Construction Survey. We would like to thank the leaders of the construction industry in Northeast Ohio for their time and thoughtful feedback on everything from priorities and problems to strategies and possible solutions, now that the peak of the pandemic is behind us. We have the added benefit of comparing our Northeast Ohio regional data to the trends revealed in our second annual National Construction Survey. This lets us see how Northeast Ohio reflects and diverges from nationwide trends, and measure performance against national benchmarks. Both Northeast Ohio and national survey responses highlight construction’s comeback. While problems persist in the region and across the nation, optimism is on the rise as GDP increases and unemployment drops. Adversity brought opportunity for some who pointed to a COVID “bump.” The Paycheck Protection Program proved crucial in sustaining companies in Northeast Ohio and beyond. Pent-up demand appears ready to be unleashed and responses reflect a rebound, with certain issues still affecting the construction industry. Only 8% of those surveyed in Ohio cited the pandemic as a top threat to their business. Instead, traditional issues remain a top concern nationwide and in Northeast Ohio. Labor and material costs are the blocking and tackling of the construction industry, and respondents nationwide and in Northeast Ohio are seeing material prices spike and labor shortages linger. Finding skilled labor, managing price volatility, and mitigating the risk that comes with rising prices are top priorities for many. There is an uptick in concern about lack of work, which has not been an issue on this scale for contractors since the post-2008 recession. While lack of workers is a concern in Northeast Ohio, lack of sufficient work is an even bigger focus. Construction professionals shared how they are addressing the dual challenges of a skilled labor shortage and rising material prices. More than half are hiking wages, while others are using worker recognition programs or partnering with trade and high schools to deepen the labor pool. Some executives are building escalators into contracts to better manage rising material costs, which show no signs of abating after COVID-19 challenged supply lines. Some respondents said competition grew more heated over the past year as the average size of jobs decreased and the number of bidders increased. Less work is leading to more bidders. Some companies won bids only to find that they had to work even harder for elusive profit margins. Best practices

TABLE OF CONTENTS

17 19 20 21 23

03 05 06 09 10 12

The War on Labor Growth Opportunities Top Priorities Political Points

Executive Summary Payment Protection Program It’s a Material World Financial Snapshot Heightened Competition Construction Faces Long-Standing Challenges as Economy Recovers

Looking Forward

NORTHEAST OHIO CONSTRUCTION INDUSTRY SERVICE LEADERS

AMY GIBSON amy.gibson@marcumllp.com 440.459.5787

ROGER GINGERICH Midwest Construction Leader roger.gingerich@marcumllp.com 440.459.5725

CHRIS SIVAK chris.sivak@marcumllp.com 330.564.8540

MARIE LENARDUZZI marie.lenarduzzi@marcumllp.com 440.459.5788

KYLE ROHRIG kyle.rohrig@marcumllp.com 330.564.8514

RANDY BOSLEY randy.bosley@marcumllp.com 440.478.6937

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We have clients throughout the country. Some markets were impacted, so they’re eligible and getting it. Others that were necessary and essential aren’t applying and aren’t eligible. -Roger Gingerich regarding the second round of PPP funding ” “

FOR THOSE WHO RECEIVED THE FIRST PPP LOAN, DO YOU ANTICIPATE YOU WILL RECEIVE... 85% - Full Forgiveness 13% - Partial Forgiveness 2% - No Forgiveness WITH THE SECOND ROUND OF PPP LOANS ON THE HORIZON, WILL YOU BE APPLYING TO TAKE ADVANTAGE OF THIS INCENTIVE? 33% - We are eligible and will apply 21% - We are eligible and will not apply

PROGRAM PROTECTION PAYCHECK

While the pandemic impacted the industry, the Paycheck Protection Program shielded it from a bigger economic earthquake. We can’t overstate how much PPP benefited the construction industry. In our 2020 survey, 85% nationwide said they planned to apply for PPP loans. In our latest survey, we checked in to see where things stand on PPP applications and forgiveness. Sixty-seven percent of our Northeast Ohio respondents applied for the first round of funding. Of those who obtained the first PPP loan, 85% anticipate full forgiveness and 13% anticipate partial forgiveness. Meanwhile, 2% expect no forgiveness, likely indicating special circumstances. When the federal government created a second round of PPP, it included provisions requiring companies to document loss of business due to the pandemic. Fifty- four percent of Northeast Ohio respondents remained eligible. Still, 21% of those eligible said they did not apply for the second round. Fourteen percent said they were unaware of a second round.

32% - We are not eligible 14% - There’s a second round?

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The COVID-19 pandemic slowed down the material supply. And costs are up for materials such as lumber. They’re not having three shifts on the production cycle. There’s less supply, so costs are going up. -Joseph Natarelli ” “

IT’S A MATERIAL WORLD

Rising material costs became a huge burden during the pandemic. The percent of companies nationwide that identified material costs as the biggest threat to their business over the next year more than doubled, from 5% a year ago to 12%. In Northeast Ohio, that number rose from 9% last year to 15% in 2021. Nationwide, material price volatility was the number one political issue that most impacted business. In our region, it ranked second for the third consecutive year. One executive listed a key challenge as “trying to pass increased costs of materials and administrative costs along to customers.” Another executive said, “We operate in a region where there are lots of opportunities, but the supply of materials is becoming challenging.” Lumber, diesel fuel, rebar, iron, prefabricated structures, copper, brass, and steel all rocketed.

The price of crude petroleum rose 245.2% year- over-year as of April, according to Associated Builders and Contractors. Softwood lumber prices jumped 121.1%. MITIGATING MATERIAL COST INCREASES A contract is a negotiation, and including clauses for material price increases is a best practice. There are, however, ways beyond escalators to reduce or spread risk. Contractors can make bids valid for shorter times and build wiggle room into pricing, although that may risk losing bids. Relationships help: It’s very difficult to ask owners to assume all risk, but it may be appropriate for them to share it. However you look at it, best-in-class companies need to recognize and manage this risk.

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FINANCIAL SNAPSHOT

FINANCING The pandemic hit companies hard, but many executives said obtaining financing did not become more difficult. Eighty-six percent of Northeast Ohio respondents said their ability to obtain financing remained the same or increased from a year ago, on par with firms across the nation (88%). Still, 14% in Northeast Ohio said their ability decreased, the highest percentage since 2014. Funding could easily have dried up amid uncertainty. Certainly, PPP loans helped banks remain committed to their construction clients. Bank personal guarantee requirements are the norm for many, but not for every company. Nationwide, 70% of respondents who knew reported that owners sign personal guarantee agreements with banks, compared to 72% in Northeast Ohio. Bigger companies with strong financial capital can sometimes waive this requirement as part of negotiations. BONDING Nationwide, 85% of executives said their bonding capacity was the same or better than a year ago, up from 83% the prior year. In Northeast Ohio, 90% (down from 92% a year ago) anticipate it will remain the same or become easier. Northeast Ohio is outperforming the nation with only 10%

anticipating bonding will be more difficult, compared to 15% nationwide. The bonding outlook could have deteriorated significantly. Instead, PPP loans created a bridge during the pandemic, and the outlook shifted slightly positive. It’s also worth noting that in 2011, a few years after the recession, 40% of respondents found it more difficult to obtain bonding. Considering only 10% expressed difficulty today, we are managing fairly well. Meanwhile, in Northeast Ohio, 66% of those who knew said their owners sign personal indemnity agreements, about the same percentage as nationwide. The majority sign on the bottom line, but the bigger a company is, the more likely it can get personal guarantee requirements waived. OVERHEAD SPEND The pandemic impacted survey respondents’ general and administrative expenses. Usually, a decrease in overhead spending is the result of a lack of confidence in future growth and the overall economy. Nationwide, 20% of respondents reported a decreased spend, compared to 19% in Northeast Ohio — both nearly double from a year ago. Conversely, 33% nationwide increased spending, compared to 48% in 2020. This is not surprising given the pandemic. In Northeast Ohio, only 31% said overhead increased, down from 52% a year ago.

86%

74%

Respondents reported their ability to obtain financing remained the same or increased from a year ago.

2020 respondents projected either the same or higher backlogs.

42%

2021 respondents expect their backlog to be down year over year.

19%

Respondents reported a decrease in overhead spend.

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HEIGHTENED COMPETITION Companies reported they’ve faced more bid competition during the pandemic. Forty-five percent of respondents in Northeast Ohio said that on average, they competed against one to four bidders (down from 55% in 2020). Thirty- eight percent (compared to 39% a year ago) said they faced 5-9 bidders in Northeast Ohio on average. Meanwhile, 17% faced 10 or more bidders on average, up from 6% the prior year and the most since 2011. More companies have been bidding on fewer jobs. The national survey responses mirrored the results in our region. The ongoing recovery, WHAT IS THE AVERAGE NUMBER OF BIDDERS THAT YOU ARE COMPETING AGAINST?

along with material supply relief, should lead to more work and fewer bidders — hopefully sooner rather than later. With competition comes pressure to chase jobs with lower margins. We are more than a decade removed from the 2008 recession, but many remember its impact on bidding. One respondent commented, “When the good work comes, grab it, but don’t let your margins get squeezed to the point where the profit disappears.” Another respondent said, “Work is out there, and with declining margins, knowing your cost is more important than ever.”

2020

2021

55%

45%

39%

38%

2% 9% 8%

4%

16 or more bidders

1-4 bidders

5-9 bidders

10-15 bidders

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CONSTRUCTION FACES LONG-STANDING CHALLENGES AS ECONOMY RECOVERS

By Anirban Basu 30.0%

25.0%

June 2021: 24.8%

20.0%

15.0%

Strategies available to deal with the ongoing lack of skilled construction craftspeople in America are limited. One could argue that there is no genuine substitute for a nationwide effort to induce more young people, including women and minorities, into the construction trades. This would not only benefit contractors but would also help to expand the size of the nation’s middle class while creating greater ability for America to invest in her infrastructure backbone. Perhaps unsurprisingly, respondents indicated that the most common response to ongoing labor shortages is to raise compensation (46%). Many employers are also introducing employee recognition and appreciation programs (44%). But a rising proportion of respondents indicates that they are partnering with trade and high schools (34% versus 32% last year), which seems to be an especially promising response.

There is hope. Members of Generation Z represent the youngest segment of the U.S. labor force. Early-stage analysis indicates that members of this generation are especially averse to the notion of taking on student debt. Accordingly, members of this generation may be more open to the types of pathways to the middle class that the construction trades offer. Despite the lingering preoccupation with skilled worker shortages, the proportion of respondents citing skilled labor as their number one threat declined from 34% last year to 26% this year. In other words, something has changed — other threats have become relatively more important. One of the major changes relates to materials prices. Last year, 5% of respondents indicated that materials costs represented the biggest threat to their business. This year, the proportion is up to 12%.

At 2020’s onset, before the pandemic wreaked havoc on the U.S. economy, the construction industry was in an excellent place. Rapid economic growth, favorable interest rates, healthy state and local government balance sheets, and a profusion of rapidly-growing companies in technology and other segments translated into elevated demand for construction services. The leading challenge facing contractors at that time was a dearth of skilled construction workers in America, a problem rendered increasingly severe over time as too few young people entered the skilled trades while retirement steadily removed some of the most productive workers from the board. -10.0% -5.0% 0.0% 5.0% 10.0% Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15

Despite rising vaccination rates and lower case counts, nothing has changed. While that represents a bit of an exaggeration, Marcum’s most recent iteration of its construction trends survey indicates that contractors are busy and that they can’t find enough workers as the economy reopens from pandemic-induced hibernation. Last year, respondents identified the biggest threat to their business as “securing skilled labor.” This year is no different – securing skilled labor remains the leading threat. Jul-18 Jan-21 Jun-21 Apr-17 Sep-17 Feb-18 Dec-18 Oct-19 Mar-20 Aug-20 Nov-16 May-19

Jan-16

Jun-16

Aug-15

AVAILABLE CONSTRUCTION JOB OPENINGS, JANUARY 2005 – MAY 2021

450,000

May 2021: 299,000

400,000

350,000

INPUTS TO CONSTRUCTION, Y-O-Y % CHANGE, JANUARY 2011 – JUNE 2021

300,000

250,000

30.0%

200,000

25.0%

150,000

June 2021: 24.8%

20.0%

100,000

15.0%

50,000

10.0%

0

5.0%

Jan-05

Jan-11

Jan-13

Jan-19

Jan-21

Jan-07

Jan-09

Jan-15

Jan-17

Sep-05

Sep-13

Sep-07

Sep-09

Sep-11

Sep-15

Sep-17

Sep-19

0.0%

May-06

May-08

May-10

May-12

May-14

May-16

May-18

May-20

Source: U.S. Bureau of Labor Statistics

-5.0%

-10.0%

The Bureau of Labor Statistics tracks the number of available job openings via its Job Openings and Labor Turnover Survey (visit Marcumllp.com for our latest JOLTS Analysis.) Prior to the pandemic, the number of available, unfilled construction job openings peaked at 414,000 (April 2019). One year later, that tally had

declined to 220,000 as COVID-19 undid the economy and resulted in millions of jobs lost. By April 2021, the number of available, unfilled construction job openings had risen to 351,000, one of the highest readings in the history of the series.

Jul-13

Jul-18

Jan-21

Jan-11

Jan-16

Jun-21

Jun-11

Jun-16

Oct-14

Oct-19

Apr-12

Apr-17

Sep-12

Feb-13

Sep-17

Feb-18

Dec-13

Dec-18

Aug-20

Aug-15

Nov-11

Nov-16

Mar-20

Mar-15

May-14

May-19

Source: U.S. Bureau of Labor Statistics

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450,000

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Note: All survey statistics are pulled from our 2021 national survey results.

May 2021: 299,000

400,000

350,000

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LOOKING AHEAD Despite generally upbeat assessments of the construction economy by Marcum survey respondents, the level of uncertainty facing the industry is massive. Many questions will be answered over the next several months. Here are a few: 1. Will there be a federal infrastructure package in America, and if so, how large will it be and what will it prioritize? 2. To what extent will state and local governments receiving monies under the American Rescue Plan of 2021 spend newfound resources on construction of schools, roads, bridges, etc.? 3. Will more people reenter the U.S. labor market during the year ahead, helping to diminish staffing challenges?

4. Will the Delta variant or some other viral variant undermine the anticipated rapid recovery of the global and national economies? 5. Will interest rates begin to rise in the context of rising national debt and elevated inflationary pressures? 6. Will the Federal Reserve be induced into tightening monetary policy in an effort to curb inflation, and what impact would that have on project capital costs? This elevated level of uncertainty renders industry surveys especially important. Marcum will continue to conduct its National Construction Survey to determine how contractors are faring and responding to the rapid shifts that will undoubtedly characterize the economy during the year ahead.

During a recent 12-month period, the producer price index for construction inputs rose 25%. Certain categories rose far more than that, including lumber and fuel. Inflationary pressures have been especially sharp in booming markets like Boise and Austin. But materials prices represent a stark exception. For the most part, contractors collectively find themselves in a position very similar to when the pandemic began. A year ago, 6% indicated that tightening credit was the leading challenge facing their business. This year, the proportion is even lower at 3%. That’s remarkable. Despite the seismic shifts that have impacted the broader economy, including particularly hard-hit segments like lodging, restaurants, retail, and air travel, as well as attendant bankruptcies, credit availability for contractors and the projects on which they work appears unimpacted. If anything, credit has become more available as the Federal Reserve has pumped liquidity into the banking system and driven interest rates to unprecedented lows. The shockingly rapid return of normalcy is also reflected in the way construction industry leaders are prioritizing their actions. In 2020, 56% of respondents indicated that strategic planning was a top company priority. This year, the analogous share is 57%. Last year, 38% of respondents indicated that identifying new markets was among their top initiatives. This year, the proportion is 39%. The rapid return of construction to something approaching its pre-pandemic equilibrium has generally rendered contractors upbeat. A year ago,

53% of contractors expected more opportunities to ply their trades in their respective regions over the next three years. This year, the proportion is up to 54%, though it’s also true that the share that expects fewer opportunities has increased (the share that expects the same level of opportunity slipped from 32% to 25%). If one looks deeply enough, the Marcum survey data reveals signs of stress among certain contractors. For instance, in 2020, 48% of respondents indicated that the average job size on which they were bidding had increased over the prior 12 months. This year, that share was down to 32%. Meanwhile, the proportion indicating that the average job size on which they had bid declined was 22%, up from 6% in 2020. There also appears to be more competition for work. In 2020, 56% of respondents said that the average number of bidders on projects for which they were competing was 1-4. This year, the proportion was down to 46%. Meanwhile, the fraction of projects involving 10-15 bidders rose from 1 in 25 to 1 in 10. The fraction involving 16 bidders or more expanded from 1 in 100 to 1 in 20. Many contractors also indicate that their backlog has not been fully restored. 27% of respondents indicated that their backlog would be more than 15% smaller than at 2020’s onset. Another 17% indicated that backlog would be lower this year than last, though the extent of decline would fall short of 15%. By contrast, only 7% indicated that their backlog would be more than 15% above year-ago levels.

Anirban Basu Chief Construction Economist, Marcum LLP Chairman & CEO, Sage Policy Group

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Good labor in the field is very challenging to find. -Survey Respondent ” ”

THE WAR ON LABOR

SURVIVING THE SKILLED LABOR SHORTAGE Finding workers has been an ongoing theme in construction since the end of the 2008 recession. It became a bigger challenge during the pandemic due to everything from health concerns to enhanced unemployment benefits. Finding and paying skilled labor ranked as the second biggest threat overall in Northeast Ohio and the biggest threat nationwide. “We need to find skilled workers to continue to grow in the industry we are in,” one executive said. To combat the labor shortage in Northeast Ohio, 53% are increasing compensation, down from 58% the prior year. Nationwide, 46% of respondents said they are increasing compensation, down from 51% a year ago. In Northeast Ohio, 42% are using employee recognition and appreciation programs in the region, down from 48% in 2020. And 39%, up from 3% a year ago, are partnering with trade and high schools. Many contractors seek to engage young workers. Construction companies can appeal to young people through both union and non-union apprenticeship programs.

WHAT ARE YOU DOING TO ADDRESS THE LACK OF SKILLED LABOR?

“ Other

”

Conducting stay interviews

Performance evaluations

Partnering with trade schools/ high schools

Employee recognition and appreciation programs

Increasing compensation

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“ We operate in a region where there are lots of opportunities but the supply of materials is becoming challenging.

” “ Over the next 12months, I don’t expect to seemuch growth. However, 3-5 years out I thinkwe can expect to seemore growth.

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“ Growth is there, but it needs to be more sought after.

”

The growth opportunity is out there if you’re willing to work for it. ” “

GROWTH OPPORTUNITIES

“

Opportunities for growth are out there and the business needs to continue to be flexible to meet the opportunity when it is identified.

GROWING AT HOME Pandemic or not, some companies recorded a banner year. “2020 was a record year for us,” one executive said. Many, though, are focusing on growth. Nationwide, 79% (and 73% in Northeast Ohio) expect more or the same number of growth opportunities in their region over the upcoming three years. That is down from 91% in Northeast Ohio in 2020. Not everyone is so optimistic. Last year, just 9% of respondents in the region anticipated fewer growth opportunities ahead. This year, that number is 27%. We have to go back to 2010 to find a bigger number, when 43% of Northeast Ohio construction executives surveyed saw fewer opportunities in their region. “Some contractors have been able to pivot and find untapped areas to do business in,” said one executive. Another cited “growth within new service areas such as electrical and system controls.” Other sectors, such as warehouse construction and healthcare, are going strong.

GEOGRAPHIC GROWTH Nationwide, 84% see the same or more opportunities over the next three years outside their region, compared to 87% in Northeast Ohio. Still, the number in Northeast Ohio is down from 92% a year ago, indicating a slight decline in optimism. Those anticipating fewer opportunities outside the region, however, rose from 8% the prior year to 13%. “We must look outside of our region for more opportunities,” one executive said. Another executive’s company is doing “market research in new geographical areas,” warning of a need for careful geographic growth. “You can’t grow to your own demise,” said the executive, noting some companies “grow too big, too fast and they don’t have the internal structure to support it.”

”

” “ If we had more skilled labor, we would be able to grow.

“ I feel that due to COVID-19 and the recent election, it will be harder to follow through with growth opportunities due to the uncertainty of our government.

”

” “ Large-scale projects are becomingmore commonplace. They are a blessing and a curse. The successful bidder wins a large backlog and revenue stream, but the unsuccessful bidders have fewer opportunities at work due to limited projects consuming owner budgets.

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POLITICAL POINTS

TOP PRIORITIES Strategic planning was the top priority in Northeast Ohio, the same as nationwide. Over half of our respondents cited strategic planning as a priority. Finding skilled labor ranked second, with 49% in the region focused on this issue (and 48% nationwide). That’s a big number, but it’s down from 69% in Northeast Ohio in 2017, 57% in 2018, and 62% in 2019. In the region, 41% prioritized seeking new markets, up from 40% the prior year. Organizational planning was the only other priority that was on more than 40% of executives’ minds.

Government always has a big impact on the industry, but that’s especially true amid and emerging from a pandemic. Healthcare ranked as the top political issue in Northeast Ohio for three years in a row, while it ranked No. 2 nationwide. Material price volatility ranked second in the region and first nationwide. Income tax rates ranked third in the region and nationwide, up from fourth in the region the prior year. The change in administrations likely pushed environmental regulation to fourth in the region from sixth a year ago. Still, some issues fell lower in terms of concerns. Availability of credit was less of a concern than in the past. PPP loans probably helped decrease that concern in the region and nationwide.

What political issues will most impact your business in 2021? Ranked 1-9 with 1 having the most impact and 9 having the least impact.

Which of the following actions are among your company’s top priorities?

Healthcare reform and insurance rates (health, liability, etc.)

1st

Material price volatility

2nd

Income tax rates

3rd

Environmental regulation

4th

Availability of credit

5th

Worker’s compensation

6th

Other 4%

Minority Business Enterprise (MBE), Women Business Enterprise (WBE) contract requirements

Managing your material vendors 16%

Seeking M&A opportunities 16%

7th

Getting into new construction trades 19%

Sustainability/energy efficient initiatives

8th

Cutting operational costs 31%

32%

9th Union issues

Restructuring company to position for growth

Seeking new markets 41%

Organizational planning 41%

Finding solutions for skilled labor 49%

Strategic planning 55%

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LOOKING FORWARD

PROJECT SIZE AND THE PANDEMIC Although there was less work overall during the pandemic, project size has been a mixed bag. In Northeast Ohio, 42% of companies said job size increased over the last 12 months, up from 37% a year ago and more than the roughly one-third of respondents who reported the same nationwide. The medical market and other big Northeast Ohio projects strengthened the region’s performance. Nationwide, 22% said job size shrank, compared to 14% in Northeast Ohio. As uncertainty from the pandemic diminishes, expect bigger jobs to go from blueprints to shovels. This could create more pressure on hiring and materials as growth brings challenges and rewards. READY FOR ANOTHER RECESSION While there are many signs of recovery, executives aren’t taking a rebound for granted. Eighty-four percent of respondents in Northeast Ohio and 77% nationwide are managing cash flow to prepare for a possible recession (cash is king). Compared to the 63% of Northeast Ohio respondents who were focused on managing cash flow in 2020, this increase reflects heightened awareness of the overall market and economy. We note that 10% of Ohio respondents are looking to decrease overhead spending in the future. There is some optimism, as 39% expect to increase overhead spending and the remaining 51% will hold spending flat. Meanwhile 58% nationwide and 53% in Northeast Ohio are focusing on planning and 52% nationwide and 54% in the region are focusing on sales and marketing. As the pandemic retreats, companies are preparing for good times and potential turbulence. Only 9% in Northeast Ohio said they are not preparing for a potential recession.

BACKLOG TO THE FUTURE The bigger the backlog, the better positioned a

company feels for the future. A little less than a third of respondents in Northeast Ohio (31%) said backlog was up compared to a year ago. That is the lowest percentage observed since we began measuring backlog in 2018. Northeast Ohio is slightly ahead of the 29% nationwide who said backlog was up. Meanwhile, 42% in Northeast Ohio and 44% nationwide responded that backlog was down from 2020 levels. This is the highest percentage of decline since we began asking the question in 2018. There is growing concern over a lack of work in the back of some contractors’ minds. Lack of work was listed as this year’s top threat for the first time since 2013. As the economy rebounds, backlog is likely to rise as projects resume and other industries recover as well. ONWARD AND UPWARD Only 8% nationwide see COVID-19 as the biggest threat over the next 12 months, a sign that the pandemic’s impact on the industry has lessened. Instead, many executives see securing skilled labor and lack of work as the top threats. Big projects are out there, but it’s important to monitor margins amid volatile material prices and higher labor costs. Adjustments made during the pandemic could have positive impacts. For example e-commerce is likely to remain robust, leading to greater warehouse demands. Virtual as well as in-person meetings will likely remain the norm. Additional infrastructure funding would add another infusion of cash. More than a year after the pandemic arrived, the construction industry in Northeast Ohio, declared essential, is emerging with pent-up demand that could boost business and help relieve some executives’ concerns over lack of work.

More than a year after the pandemic arrived, the construction industry, declared essential, is emerging with pent-up energy that could boost demand and help relieve some companies’ concerns over lack of work. “ ”

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15| Which of the following actions are among your company’s top priorities?

6| Please indicate your company’s annual revenue. Under $1 million

1| If you applied for the first-round PPP loan in 2020, have you received forgiveness? Yes, we applied and our approval has been accepted by the bank and SBA 37% Yes, we applied and our approval is pending 26% We applied and did not receive approval 4% We did not apply 33% 2| For those who received the first PPP loan, do you anticipate you will receive...

11| In what region of the United States are you located? New England (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut) 0% Middle Atlantic (New York, New Jersey, Pennsylvania) 0% East North Central (Ohio, Indiana, Illinois, Michigan, Wisconsin) 100% West North Central (Minnesota, Iowa, Missouri, North Dakota, South Dakota, Nebraska, Kansas) 0% South Atlantic (Delaware, Maryland, District of Columbia, Virginia, West Virginia, North Carolina, South Carolina, Georgia, Florida) East South Central (Kentucky, Tennessee, Alabama, Mississippi) West South Central (Arkansas, Louisiana, Oklahoma, Texas) Mountain (Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona, Utah, Nevada) 0% Pacific (Washington, Oregon, California, Alaska, Hawaii) 0% 12| Are you located in Northeast Ohio? Yes 100% 13| In the next 3 years in your region, do you see your 0% 0% 0%

14% 62%

Cutting operational costs

31%

$1 million - $50 million

Getting into new construction trades

19%

$50 million - $100 million $100 million - $500 million

7%

Organizational planning

41%

11%

Managing your material vendors

16%

$500 million - $1 billion

1% 5%

Restructuring company to position for growth

Over $1 billion

32% 16% 41% 55% 49% 4%

Seeking M&A opportunities

7| Please indicate the number of employees at your company

Seeking new markets

Strategic planning

Full forgiveness

85% 13%

Finding solutions for skilled labor

0 - 50

59% 14% 17%

Partial forgiveness

Other

50 - 100

No forgiveness

2%

100 - 500

16| Over the past 12 months has the average size job that you bid on:

500 - 1,000

3% 7%

3| If you received the PPP loan in 2020, did you report it as income in your year-end GAAP basis financial statement?

More than 1,000

Increased Decreased

42% 14% 44%

8| Do you use Union or non-Union Labor? Union

Yes

27% 31% 42%

Stayed the same

20% 53% 27%

No

Non-Union

I don’t know

17| What is the average number of bidders that you are competing against?

Both

business having: More opportunities Fewer opportunities

4| With the second round of PPP loans on the horizon, will you be applying to take advantage of this incentive?

9| Do the owners of your firm personally sign the personal indemnity agreement with their surety?

45% 27% 28%

1-4 bidders 5-9 bidders

45%

38%

Same amount of opportunities

10-15 bidders

9% 8%

We are eligible and will apply We are eligible and will not apply

33% 21% 32% 14%

Yes

52% 27% 21%

16 or more bidders

No

14| In the next 3 years outside of your region, do you see your business having:

We are not eligible

I don’t know

18| What do you see as the biggest threat to your business over the next 12 months?

There’s a second round?

10| What is the current outlook on your bonding capacity?

More opportunities outside my region Fewer opportunities outside my region

49% 13% 38%

5| Please classify the type of construction work that you perform.

Banking (tightened credit)

1% 1% 3%

Same amount of opportunities

Increase difficulty in securing bonding

It will be significantly more difficult to obtain bonding It will be somewhat more difficult to obtain bonding It will be neither more nor less to obtain bonding It will be somewhat less difficult to obtain bonding It will be significantly less difficult to obtain bonding

Labor costs

0%

General contractor

39% 48%

Securing skilled labor

24% 29% 15% 0% 12%

Subcontractor

10%

Lack of work Material costs

Construction management

0%

Design/build

26%

86%

Unfunded pension liability

Federal government contractor Service provider (Banks, insurance, attorney, accountant, etc.) Construction and materials supplier

0%

The recent election

4%

14%

COVID-19

8% 7%

7%

0%

Other

Other

10%

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2021 MARCUM NORTHEAST OHIO CONSTRUCTION SURVEY

23| Have you explored the Research and Development tax credit?

19| What are you doing to address the lack of skilled labor?

Yes, we are taking advantage of the credit Yes, but we do not plan to take advantage of the credit

15%

Increasing compensation Conducting stay interviews Performance evaluations

53% 16% 34% 39%

21% 64%

No

Partnering with trade schools/high schools Employee recognition and appreciation programs

24| Over the past year, your company’s general and administrative overhead expenditures have:

42% 11%

Other

Increased

31% 50% 19%

20| What political issues will most impact your business in 2021? Please rank 1-9 with 1 the most impact and 9 the least impact.

Stayed about the same

Decreased

25| In the future (next 12 months), your company’s budget for general and administrative overhead expenditures will:

Healthcare Reform and Insurance rates (health, liability, etc.)

1st

Material price volatility

2nd

Income tax rates

3th 4th 5th 6th

Increase

39% 51% 10%

Environmental regulation

Stayed about the same

Availability of credit

Decrease

Worker’s compensation

Minority Business Enterprise (MBE), Women Business Enterprise (WBE) contract requirements Sustainability/energy efficient initiatives

26| Do you feel that over the past year the ability to obtain financing has:

7th 8th 9th

Union issues

Increased

12% 74% 14%

Stayed about the same

21| Do you expect your construction backlog at the beginning of 2021 to be:

Decreased

27| Do the owners sign a personal guarantee agreement with their bank?

Lower than the beginning of 2020 by more than 15% Lower than the beginning of 2020 by less than 15% About the same as the beginning of 2020 Higher than the beginning of 2020 but by less than 15% Higher than the beginning of 2020 by more than 15%

22%

I don’t know

17% 60% 23%

20% 27%

Yes

No

23%

28| What actions are you taking to prepare for a potential recession?

8%

22| Have you explored ESOPS?: Yes, we are looking into it

Planning

53% 84% 50% 47% 36% 54%

Managing cash flow Managing capital Attending to clients Attending to staff

14%

Yes, we are structured as an ESOP Yes, but we do not plan to explore any further

9%

13% 49% 15%

Focusing on sales and marketing Utilizing a dashboard to track early warning indicators

No

15%

What’s an ESOP?

We are not preparing

9% 3%

Other

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