2022 Marcum National Construction Survey

2022 MARCUM NATIONAL CONSTRUCTION SURVEY marcumllp.com/construction

TABLE OF CONTENTS

2022 MARCUM NATIONAL CONSTRUCTION SURVEY

Executive Summary Financial Snapshot We Can Work It Out Construction M&A Activity Has Spiked – What Does This Mean? JOE NATARELLI Positioning for Growth The Competitive Landscape Despite Headwinds, Contractors Remain Upbeat ANIRBAN BASU Concerns Remain Retain Top Talent by Providing the Right Motivation

1 3 7 9

13 15 19

29 31

ROGER GINGERICH Political Priorities Looking Ahead Survey Results

34 36 37

marcumllp.com/construction

LEADERSHIP MARCUM CONSTRUCTION INDUSTRY SERVICE LEADERS

JOSEPH NATARELLI NATIONAL LEADER

WARREN HENNAGIN CALIFORNIA

ROGER GINGERICH MIDWEST

ROBERT MERCADO NEW ENGLAND

IRA KANTOR NEW YORK

MICHAEL BALTER SOUTHEAST

ASHLIE FORUM SOUTHEAST

BILL CLARK TENNESSEE

SAMER MEKHAIL TEXAS

EXECUTIVE SUMMARY

Looking at the responses from scores of construction industry leaders, we see an overall theme of cautious optimism in the industry, buoyed by the federal infrastructure bill, growing backlogs, and other tailwinds. A few figures really stood out:

• Close to 60% of respondents expect to see more opportunity this year, marking the highest optimism for regional opportunities in the last three years. • More than half of respondents expect to see a positive financial impact from the Infrastructure Investment and Jobs Act. • Backlog took a significant leap, with 48% of respondents reporting higher backlog. That’s up from 29% last year. Broadly speaking, the industry is finally returning to pre-pandemic levels of activity but is still hampered by three familiar bugaboos: labor challenges, material costs and availability, and supply chain issues. Survey results suggest more construction companies are facing material shortages and delays even as well over half anticipate expanding opportunities given high overall demand in the space. It’s worth noting that we compiled responses prior to the Fed beginning its aggressive fight against inflation with two consecutive rate hikes (with more likely this year), and before the Russian invasion of Ukraine, which has shaken international geopolitics and significantly affected prices of many key commodities — particularly oil and gas. It was also before public markets began a months-long retreat. Even accounting for these seismic events,

most experts still forecast growth in the U.S. construction industry, with one analysis pegging it at around 8%. To get there, construction companies will have to overcome considerable hurdles in a very competitive landscape. Looking at the most pressing issues cited by survey respondents, some themes begin to take shape: • Labor: Finding and retaining talent is a huge problem for most industries, and construction seems especially hard-hit. Securing skilled labor was the biggest threat respondents cited. We explore this more later in the report, and we offer some ideas on retention and compensation. • Material costs and availability were the second major threats to construction businesses. Respondents cited both volatility in pricing and sometimes lack of availability as roadblocks to growth, with material shortages causing delays for well over half of the respondents. • More than two years since the start of the pandemic, supply chain issues continued to haunt many construction companies, with one respondent summing up a common frustration by saying, “Supply chain delays are making growth difficult.”

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Despite these ongoing and persistent headwinds, most respondents are positioning for growth and looking for ways to thrive in a very dynamic space. Other interesting findings this year include an uptick in companies considering or participating in joint ventures, something we think makes sense given the difficulties in securing skilled labor and materials in a sector with high demand and deep competition.

We hope you find this report insightful, and that learning how your peers are responding to opportunities and challenges sparks some ideas for solutions that will help your company thrive. We welcome any feedback on the report and wish you and the construction industry an outstanding year.

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FINANCIAL SNAPSHOT FINANCING Although pandemic resources like the Paycheck Protection Program have ended, ongoing historically low interest rates in 2021 and underlying macroeconomic strength meant finances remained solid among construction companies. Respondents’ opinions on the ability to obtain financing were roughly on par with prior years, with only 13% saying it had become more difficult and the majority feeling it was the same or improved. And while 19% of respondents believed it will be more difficult to obtain bonding this year, that is only a 4% uptick from the prior year. Similarly, the 81% of respondents who expect no change or think it will be easier to obtain bonding is just 4% lower than the prior year.

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81%

79% Respondents expect the ability to obtain financing to remain the same or become easier Respondents sign personal guarantee/ indemnity agreements 60% Respondents said general and administrative overhead expenses were higher than the previous year 55% Respondents are planning for general and administrative budget increases in 2022

BONDING For respondents who act as contractors, personal indemnity agreements remain a major consideration when it comes to getting capital for their business. A combined 79% sign personal indemnity agreements with the surety, personal guarantee agreements with banks, or both surety and bank personal guarantee agreements. This tends to only affect smaller and mid- sized companies, as larger ones can get personal guarantee requirements waived. If you’re struggling to find favorable financing options to grow your company, contact Marcum for expert advice. EXPENSES Although construction activity is returning to pre- pandemic levels, the costs of doing business are skyrocketing, with breathtaking price increases for certain materials, rising labor costs, and general inflation taking a toll on the bottom line. Sixty percent of respondents said general and administrative (G&A) overhead expenses were higher over the past year, and 55% are budgeting for further increases in 2022. In our 2021 survey, only 33% of respondents reported increased spending on G&A expenses. The jump reflects contractors’ plans for future growth.

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39%

28%

Over the past 12 months, what percentage, on average, have you increased the pay for your skilled labor force?

15%

13%

5%

We have not increased pay 1-3%

4-5%

6-8%

>8%

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Our company has a lot of room for growth, but I am hesitant because of global supply issues and uncertainty

of the future.” – SURVEY RESPONDENT

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WE CAN WORK IT OUT

As labor costs increase and skilled labor becomes a precious commodity, construction companies are attacking the problem with multiple tactics, starting with compensation. A whopping 95% of respondents have increased pay. Of those increasing pay, 67% offered raises of 4% or higher, and 13% increased compensation by more than 8%. Keeping up with labor costs concerns some executives, with one noting, “Our greatest challenge is being able to hire qualified individuals at a rate that is sustainable for the long term. We interview a lot of individuals with limited experience that have salary expectations way beyond their qualifications. This is a challenge because we need good, qualified individuals, but we also need the pay rates to be sustainable for long-term company growth.”

Twenty-seven percent of respondents are filling skills gaps when they bid for jobs by forming or considering joint ventures with complementary companies. Others are implementing programs with local trade schools and working to retain employees with not only raises but also stay interviews and other programs. To ensure you’re as competitive as possible on salary, view the Marcum compensation report . Finally, more construction companies are turning to employee stock ownership plans (ESOPs), which provide built-in incentives for loyalty. The number of respondents considering an ESOP more than doubled since last year’s survey, and the number of ESOP companies increased by 5%.

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of respondents are filling skills gaps when they bid for jobs by forming or considering joint ventures with complementary companies 27%

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Increase in M&A deal value in the global construction sector since 2020 43%

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CONSTRUCTION M&A ACTIVITY HAS SPIKED—WHAT DOES THIS MEAN? By Joseph Natarelli, Marcum Office Managing Partner / National Construction Industry Leader

Macro trends in the industry also make construction attractive for investment. These include: • Ongoing high backlogs for construction companies across the sector. This is driven by the federal infrastructure bill, local and regional programs, and prior project delays. • Supply chain issues and material cost increases are motivating bigger players to compete for bids and pool purchasing power. • Shortages of skilled labor are driving some companies to secure talent through acquisition, driving consolidation within trades. In parallel, increasing specialization within construction is increasing demand for highly skilled workers, which is also driving M&A activity. • Many construction companies are emerging from the pandemic without a succession plan, and M&A is an option.

ResearchAndMarkets.com reported that mergers and acquisitions (M&A) deal value in the global construction sector grew from $354 billion in 2020 to $505 billion in 2021, a 43% increase. That data mirrors the uptick in questions about M&A-related issues we are getting from our clients at Marcum. We’re also seeing better structure around those deals, indicating increased sophistication in these transactions. While activity slowed somewhat in the first quarter of 2022, we think the underlying conditions driving this uptick in activity remain in place. Much of this trend is driven by the increasing interest in construction from the financial industry, particularly private equity. In January 2022, private equity had an all-time high of $1.8 trillion in “dry powder” (money available to invest). When private equity firms put that money to work for their investors, it creates a competitive M&A landscape in many industries — including construction.

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Which of the following actions are among your company’s top priorities? (select all that apply)

2022 2021

37% 37%

Cutting operational costs

21%

Getting into new construction trades

13%

43%

Organizational planning

39%

36%

Managing your material vendors

14%

Restructuring company to position for growth

40%

28%

23%

Seeking M&A opportunities

13%

38%

Seeking new markets

39%

46%

Strategic planning

57%

42%

Finding solutions for skilled labor

41%

4%

Other (please specify)

3%

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Increase in managing your material vendors in 2022 22% Increase in restructuring company to position for growth in 2022 12%

Decrease in strategic planning in 2022 11%

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We feel there is a great opportunity for growth due to effects of the pandemic on small and mid-size competitors.” – SURVEY RESPONDENT

of respondents are seeking M&A opportunities 23% of respondents are getting into new construction trades 21%

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POSITIONING FOR GROWTH

Looking at a company’s top priorities is a useful way to understand how it intends to position itself for success. The survey has asked this question three years in a row. Seeing how priorities have shifted over time reveals some stubborn problems with skilled labor and the need to plan and control costs. Companies across the nation are shifting some of their goals, with significant bumps in certain areas. For example, the number of companies more closely managing material vendors leaped from 14% in 2021 to 36% this year. Companies restructuring for growth went from 28% in 2021 to 40% this year. We’re also seeing more companies rethinking their approach to growth, with 21% getting into new construction trades, up from 13% the prior year. And 23% of respondents are

seeking M&A opportunities, up from 13% the prior year. Between the fight for skilled labor, the need to bid on more jobs, and opportunities presented by the COVID-19 era, M&A is likely to increase. “We feel there is a great opportunity for growth due to effects of the pandemic on small and mid- size competitors, specifically those with aging ownership with little to no succession planning,” said one executive. Our M&A sidebar on page 10 has more information on this trend. The Great Recession of 2008 provides a cautionary tale about sticking to your knitting. Diversifying is great, but in construction it must be done carefully. Ensure you’re partnering with people who really know what they’re doing because in this increasingly specialized space, it’s only possible to do a handful of things really well.

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THE COMPETITIVE LANDSCAPE

Given favorable market conditions, it’s not surprising to see an increase in the average size of jobs, with 49% of respondents working on larger projects in 2021 and just 11% reporting that the average job size had decreased. Those projects, however, were often constrained by labor and material limitations. In fact, 89% of respondents said jobs were delayed by either material shortages, labor shortages, or both at some point during the year. Capturing all that work remains as competitive as ever, if not more so, with 38% of respondents saying they bid against 1-4 competitors, 43% bidding against 5-9, and 19% bidding against 10 or more — an uptick of 5% for 10 or more bidders from last year’s report. “Construction opportunities seem to be on [the] rise but there seems to be more competition than five years ago,” said one respondent. “It’s been [a] bit challenging to obtain projects due to the competition.” Adding to the complexity are the ongoing cost increases affecting labor and materials. This often leads to jobs being rebid due to expense changes. This heavy level of competition is somewhat surprising given the high demand for construction work, but in some ways it makes sense. What we’re seeing in the industry is that while smaller contractors are being selective, large companies are going after just about every job. This is increasing joint ventures because large companies need them for capacity. It’s also increasing M&A activity as companies seek to fill gaps in capacity and capability.

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of respondents say they bid against 1-4 competitors 38% of respondents say material shortages have caused job delays or cancellations 25%

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In the past year, which of the following have caused job delays or cancellations for your company?

Material shortages

25%

Labor shortages

8%

Both material an labor shortages

56%

We did not have delays or cancellations

11%

of respondents experienced delays from labor or material shortages 89%

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

1-4 bidders

38%

5-9 bidders

43%

10-15 bidders

14%

16 or more bidders

5%

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DESPITE HEADWINDS, CONTRACTORS REMAIN UPBEAT By Anirban Basu, Chief Construction Economist

There are certainly many items about which to complain. Inflation runs rampant. Supply chain issues, equipment shortages, and expanding construction materials prices remain pervasive. War in Eastern Europe and economic lockdowns in the Far East continue to keep oil and natural gas prices elevated while also hammering away at global food supply. Meanwhile, COVID variants continue to circulate, with periods of low infection followed by spikes. Masks come off, only to be yanked out of drawers to be slapped on once again. Remarkably, against this backdrop, responses from Marcum’s latest Construction Trends Survey indicate that contractors remain upbeat regarding their collective future. Certain pre-pandemic issues remain firmly in place, especially with respect to a shortage of skilled craftspeople. Other issues are more novel, including astonishing increases in steel, concrete, and diesel fuel prices. The result is that the cost of delivering construction services has raced higher in America.

The risk would be that these higher costs would drive prospective purchasers of construction services to the hills. Instead, many contractors report healthy backlog, many bidding opportunities, and operating at capacity. Amidst the supply chain and public health clutter, there is a broader economic recovery that persists. Through 2022’s initial four months, the U.S. has added an average of 519,000 jobs/month. The unemployment rate has dipped to 3.6 percent (April 2022), and is lower than 3 percent in a number of major metropolitan areas (e.g., Phoenix, Tampa, Miami). The labor force participation rate has generally been edging higher, with 62.2 percent of adult Americans either working or looking for work as of April. One could make the argument that normalcy is emerging from the wreckage that accompanied the initial months of the pandemic.

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There is no shortage of growth opportunities and demand. It’s a matter of overcoming labor and material shortages that stand in the way of success.”

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While the overall economy has recovered 94.6% of the jobs lost at pandemic outset, construction achieved 100% recovery in April.” – ANIRBAN BASU

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Despite Headwinds, Contractors Remain Upbeat continued By Anirban Basu, Chief Construction Economist

True, America’s gross domestic product declined during the year’s initial three months. The latest estimate from the Commerce Department indicates that the U.S. economy shrank at a 1.5 percent annualized rate during 2022’s first quarter. But this was more statistical than revealing. Consumer spending on goods and services and business spending on equipment remained strong. The dip in output was primarily attributable to diminished federal spending, a relative dearth of inventory accumulation, and surging imports, which subtract from growth in the context of GDP accounting.

As has been the case for much of the pandemic period, the construction industry has fared better than the balance of the economy. While the overall economy has recovered 94.6 percent of the jobs lost at pandemic outset, construction achieved 100 percent recovery in April. Workers are returning to a very different set of circumstances. While they were in high demand prior to the pandemic, demand for them these days is simply extraordinary. As of March, there were 11.5 million available, unfilled jobs in America. Construction was associated with 396,000 of those unfilled positions, remarkably high by industry standards. Wages are accordingly racing higher along with other forms of compensation as employers chase for incredibly scarce human capital. Recently, construction wages have been rising at their fastest pace in 40 years. In short, workers are scarce, precious, empowered, and some might add, spoiled. They are also quitting their jobs at a near- record pace, bouncing from job to job in search of higher pay, greater flexibility, or both. Roughly 3 percent of workers voluntarily quit their jobs in March, which translates into 4.5 million people. That’s a record. Fewer than 1 percent were laid off or discharged. Since the Bureau of Labor Statistics began tracking such things in 2000, the rate at which workers were laid off/discharged had never dipped below 1 percent prior to March 2021.

In short, workers are scarce, precious, empowered, and some might add, spoiled.” – ANIRBAN BASU

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Despite Headwinds, Contractors Remain Upbeat continued By Anirban Basu, Chief Construction Economist

It has stayed below that threshold for each of the past 12 months as employers cling to their workforce, even members who are underperforming. Enormous efforts being undertaken to retain and recruit staff are among the numerous factors contributing to inflation. According to the Consumer Price Index, prices rose another 0.3 percent in April and are up 8.3 percent over the past year. But the 8.3 percent figure was a bit below the year-over-year peak achieved the prior month, and there are a growing number of economists who believe that inflation has peaked. A separate measure of inflation, the personal consumption expenditures price index, produced its first slowdown since November 2020, another indication that inflation is moderating. While that’s good news, early signs of moderating inflation have yet to alter the Federal Reserve’s attitude toward near-term policymaking. In March, the Federal Reserve raised key short-term rates that it controls for the first time since 2018. That increase was a quarter percentage point, and put the federal funds rate in a range between 0.25-0.50%. In early May, the Federal

Reserve raised rates by another half a percentage point. Similar increases are anticipated for both June and July. In short, the cost of capital is rising at a time when consumers and other economic actors are still wrestling with shortages and rising prices. The Federal Reserve is attempting to engineer a soft landing. They seek to slow the economy to wring inflation and inflation expectations out of the system without driving the economy into recession. But the Federal Reserve’s record of engineering soft landings is far from stellar. Since the early 1980s, there have been eight rate- tightening cycles. Six have ended in recession.

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MONTHLY JOB GROWTH (000’S) Exhibit 1. Net Change in U.S. Construction Jobs (000’s), April 2010 – April 2022

150,000

600,000

100,000

400,000

50,000

200,000

0

0

-200,000

-50,000

-400,000

-100,000

APRIL 2022: 2,000

MARCH – JUNE 2020

-600,000

-150,000

-800,000

-200,000

-1,000,000

APR 10

OCT 10

APRI 11

OCT 11

APR 12

OCT 12

APR 13

OCT 13

APR 14

OCT 14

APR 15

OCT 15

APR 16

OCT 16

APR 17

OCT 17

APR 18

OCT 18

APR 19

OCT 19

APR 20

OCT 20

APR 21

OCT 21

APR 22

Source: U.S. Bureau of Labor Statistics

Roughly 3% of workers voluntarily quit their jobs in March, which translates into 4.5 million people.

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AVERAGE HOURLY EARNINGS Exhibit 2. April 2012 – April 2022

$36.00

0.07

APRIL 2022: $34.34

$34.00

0.06

$32.00

0.05

$30.00

0.04

$28.00

0.03

$26.00

0.02

$24.00

0.01

$22.00

$20.00

0

SEP 17

JUL 13

JUL 18

FEB 13

SEP 12

FEB 18

APR 17

JAN 16

JAN 21

APR 12

DEC 13

JUN 16

JUN 21

DEC 18

OCT 14

OCT 19

MAY 14

AUG 15

MAY 19

NOV 16

NOV 21

APR 22

MAR 15

AUG 20

MAR 20

Average Hourly Earnings

YoY% Change

Source: U.S. Bureau of Labor Statistics

of respondents noted that they have increased pay somewhere between 4 and 5 percent in an effort to recruit skilled workers over the past year NEARLY

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Despite Headwinds, Contractors Remain Upbeat continued By Anirban Basu, Chief Construction Economist

Securing skilled labor continues to top the list of concerns...

NEW SURVEY, SAME CONCERNS One word neatly summarizes current contractor concerns: scarcity. This concern takes numerous firms, including a dearth of skilled workers, equipment and materials shortages, and an occasional lack of funding and financial conditions tighten. For now, contractors are not especially concerned by prospects for securing work. Demand is strong. Supplying construction services to meet contractual obligations is what has many construction industry leaders unnerved. Securing skilled labor continues to top the list of concerns, with 27 percent of respondents citing it as the biggest threat to their enterprise. Though this was up slightly from last year’s survey, it is still below what it was pre-pandemic when one in three respondents ranked it first.

Attendant with skills/labor shortages are rising compensation levels. Nearly 40 percent of respondents noted that they have increased pay somewhere between 4 and 5 percent in an effort to recruit skilled workers over the past year. A meaty 28 percent have increased pay by 6 percent or more. In terms of identifying principal concerns, the biggest change from last year was growing and acute dismay regarding rising material prices. In early-2021, when the threat of inflation had not yet materialized, only 12 percent of respondents listed material costs as their biggest concern. Prior to COVID, only 5 percent were seriously concerned. The latest survey indicates that 23 percent of respondents listed material costs as the biggest threat. Additionally, when asked what political issue would most impact their business operations, material price volatility was at the top of their list.

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Despite Headwinds, Contractors Remain Upbeat continued By Anirban Basu, Chief Construction Economist

Nonetheless, hope springs eternal. Approximately 60percent of respondents expect business to expand over the next three years. Not only was this higher than last year when only 54 percent of respondents believed that, but it was higher than pre-pandemic levels when the economy was red hot and thoughts of a pandemic were largely reserved for Hollywood blockbusters and scientists who fretted about such things seemingly without reason. In another remarkable twist of fate, despite rising costs, average project sizes are on the rise for nearly half of respondents. Contractors report, however, that the number of competitors has also been on the rise, another indication of normalcy being restored. In 2020, 56 percent of respondents indicated that the average number of competing bids for a project was between one to four, while 39 percent said it was between five to nine. In 2022, the rates were 38 and 43 percent, respectively. Among available categories, projects with ten or more bidders rose fastest, from roughly 5 percent in 2020 to 19 percent in 2022. LOOKING AHEAD Despite tightening monetary policy, the flow of capital through the veins of the U.S. economy remains abundant. While interest rates are not as low as they had been, they remain low by historic standards. Accordingly, investors are still on the hunt for yield, which often brings them into the realm of real estate and construction. For now, that translates into abundant private work. Public contractors also remain upbeat as America positions itself to vastly expand infrastructure investment over the next five years and perhaps beyond. But the emergence of storm clouds is apparent. While 2022 stands to be a year of economic growth, 2023 may not be as the Federal Reserve seeks to remove much of the fuel that has been catalyzing inflationary pressures. The distance from 8 percent inflation to 2 percent is vast. Should the economy buckle in 2023, history suggests that could portend fewer opportunities for contractors, particularly ones focused on private work, in 2024 and/or 2025.

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INPUTS TO CONSTRUCTION Exhibit 3. Inputs to Construction, Y-o-Y % Change, April 2011 – April 2022

25.0%

APRIL 2021: 23.7%

20.0%

15.0%

10.0%

5.0%

0.0%

-5.0%

-10.0%

APR 11

SEP 11

FEB 12

JUL 12

DEC 12

MAY 13

OCT 13

MAR 14

AUG 14

JAN 15

JUN 15

NOV 15

APR 16

SEP 16

FEB 17

JUL 17

DEC 17

MAY 18

OCT 18

MAR 19

AUG 19

JAN 20

JUN 20

NOV 20

APR 21

SEP21

FEB 21

Source: U.S. Bureau of Labor Statistics

of respondents indicated that the average number of competing bids for a project was between one to four in 2020 56%

of respondents expect business to expand over the next three years 60%

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CONCERNS REMAIN Despite a healthy and growing backlog that shows companies have much more work on their plates than in prior years (only 8% of respondents are worried foremost about lack of work, down from 22% in the prior year), construction executives continue to see threats to growth, with securing skilled labor and material costs as the top two cited issues by far.

Material price and delivery volatility makes it difficult to plan.” – SURVEY RESPONDENT

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Said one leader on the cascading effect of material challenges, “Material price and delivery volatility makes it difficult to plan. We spend significant time and resources reacting to missed delivery dates, often working out of sequence, which affects the bottom line.” Dozens of other executives viewed the lack of skilled labor in the market as a particular threat, with one noting, “We can sell, finance and manage more work than we can staff due to skilled labor shortages.” One notable increase from last year was a 4% year-over-year uptick — to 14% — of respondents who see COVID-19 as the biggest threat to their business. This change might be because the pandemic remains a macroeconomic threat, as evidenced by the severe lockdowns in China in early 2022 and the subsequent significant effect on global supply chains.

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RETAIN TOP TALENT BY PROVIDING THE RIGHT MOTIVATION By Roger Gingerich, Partner, Tax & Business / Leader of Marcum’s Midwest Construction Group For more than two years, a strong labor market has challenged many companies striving to hold onto their best workers. This is particularly true when it comes to retaining high-performing executives. Understanding that there are limits to obvious levers like increased wages and improved benefits, many employers are struggling to find effective tools for keeping their best executives.

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The recruitment of technical talents is our biggest obstacle.” – SURVEY RESPONDENT

A deferred compensation plan can help solve this challenge. These plans are only offered to key executives (direct reports to the CEO and other important decision-makers like project managers, superintendents, and estimators) who play a vital role in keeping your business running. Deferred compensation plans are designed to motivate leaders to hit certain targets, with compensation beginning upon achieving the goals. Here’s roughly how it works: • If the company hits a goal (i.e., certain revenue targets, profitability levels, and/ or completion of key projects on time and on budget), the executive will be entitled to payment. • The payment is made after the goal is met — but the payment is deferred for a period, or is paid out over a number of years. • The executive must be on the payroll on the date the payment is scheduled to be made.

This plan motivates executives to help your company reach long-term goals and incentivizes them to stay after completion. The retention effect comes from losing the deferred payments if the executive is no longer working for the employer. If the executive is interviewing for a new job, they might ask the prospective employer to compensate them for any potential forfeited program amounts. That could make the executive too expensive for the prospective employer to hire. This type of program is flexible (you don’t have to use the same goals or reward amounts for all executives), and the employer receives a tax deduction when the executive is paid. It’s important to build a plan based on your company’s specific needs, goals, and executive staff. Marcum has deep expertise and experience in executive compensation and can help create a plan that not only retains key personnel, but also drives results by matching company goals to compensation. Contact us to get started.

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

Banking (tightened credit)

4%

Increased difficulty in securing bonding

4%

Labor costs

7%

Securing skilled labor

27%

Lack of work

8%

Material costs

23%

Unfunded pension liability

1%

Current political climate

8%

COVID-19

14%

Other, please list

4%

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POLITICAL PRIORITIES

Unsurprisingly, material price volatility remained the top political issue for construction company executives, followed by healthcare and insurance costs, which mirrors the prior year. Workers’ compensation issues jumped to number three, edging out income taxes. This change could be geographically driven, as certain regions like New York City have particularly onerous workers’ compensation regulations. Taxes have been a top three or four pick for every year of the survey, with one executive saying, “Our greatest challenge is to manage our profit with optimum tax savings.” Marcum has deep expertise in tax advisory services and can help ameliorate tax challenges.

Our greatest challenge is to manage our profit with optimum tax savings.” – SURVEY RESPONDENT

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What political issues will most impact your business in 2022? Please rank 1-9 with 1 the most impact and 9 the least impact.

1 2 3 4 5 6 7 8 9

Material price volatility

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

Worker’s compensation

Income tax rates

Environmental regulation

Sustainability/energy efficient initiatives

Availability of credit

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

Union issues

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We’ve all learned in the last several years that the world can change in an instant, whether that’s from a microscopic virus, tanks rolling across a Ukrainian steppe, or something as banal as a meeting of the Federal Reserve Board. The good news is that macroeconomic drivers that strengthen the construction industry remain in place. The tempered and prudent optimism in these survey results seems well-placed and reasonable. We are hoping for and expecting a year of growth in construction. We wish you all the best in achieving it. LOOKING AHEAD

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1. Did you apply for and get accepted for the Employee Retention Tax Credit (ERTC) for 2020 and/or 2021 tax years? Yes 50% No 33% I'm not aware of the ERTC 17% 2. Do you feel that over the past year the ability to obtain financing has: Decreased 13% CONSTRUCTION SURVEY 2022 MARCUM NATIONAL

Stayed about the same

68% 19%

Increased

3.

What is the current outlook on your bonding capacity? It will be significantly more difficult to obtain bonding

5%

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

14% 71%

7% 3%

4. For contractors, which of the agreements below do your owners sign personally? Personal indemnity agreement with the surety

8%

Personal guarantee agreement with bank

22% 49% 21%

Both surety and bank personal guarantee agreements Owners do not sign personally on either agreement

5. In the next 3 years in your region, do you see your business having: More opportunities

59% 13% 28%

Fewer opportunities

Same amount of opportunities

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6. In the next 3 years outside outside of your region, do you see your business having: More opportunities outside my region 53% Fewer opportunities outside my region 16% Same amount of opportunities 31%

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

(select all that apply) Cutting operational costs

37% 21% 43% 36% 40% 23% 38% 46% 42%

Getting into new construction trades

Organizational planning

Managing your material vendors

Restructuring company to position for growth

Seeking M&A opportunities

Seeking new markets Strategic planning

Finding solutions for skilled labor

Other (please specify)

4%

8. Over the past 12 months has the average size job that you bid on: Increased

49%

Decreased

11%

Stayed the same

40%

9. In the past year, which of the following have caused job delays or cancellations for your company? Material shortages 25% Labor shortages 8% Both material and labor shortages 56% We did not have delays or cancellations 11% 10. What is the average number of bidders that you are competing against? 1-4 bidders 38% 5-9 bidders 43% 10-15 bidders 14% 16 or more bidders 5%

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11. What do you see as the biggest threat to your business over the next 12 months? Banking (tightened credit) 4% Increase difficulty in securing bonding 4% Labor costs 7% Securing skilled labor 27% Lack of work 8% Material costs 23% Unfunded pension liability 1% The currrent political climate 8% COVID-19 14% Other, please list 4% 12. Over the past 12 months, what percentage, on average, have you increased the pay for your skilled labor force? We have not increased pay 5% 1-3% 28% 4-5% 39% 6-8% 15% >8% 13% 13. What are you doing to address the lack of skilled labor? (check all that apply) Increasing compensation 62% Conducting stay interviews 24% Performance evaluations 42% Partnering with trade schools/high schools 39% Employee recognition and appreciation programs 42% Other, please specify 12%

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14. What political issues will most impact your business in 2022? Please rank 1-9 with 1 the most impact and 9 the least impact. Worker's compensation 3rd Healthcare Reform and Insurance rates (health, liability, etc.) 2nd Environmental regulation 5th Minority Business Enterprise (MBE), Women Business Enterprise (WBE) contract requirements 8th Material price volatility 1st Union issues 9th Availability of credit 7th Income tax rates 4th Sustainability/energy efficient initiatives 6th 15. Do you expect your construction backlog at the beginning of 2022 to be: Lower than the beginning of 2021 by more than 15% 11% Lower than the beginning of 2021 by less than 15% 12% About the same as the beginning of 2021 29% Higher than the beginning of 2021 but by less than 15% 27% Higher than the beginning of 2021 by more than 15% 21%

16. Have you explored ESOPS? Yes, we are looking into it

25% 14% 16% 36%

Yes, we are structured as an ESOP

Yes, but we do not plan to explore any further

No

What's an ESOP?

9%

17. Have you explored the Research and Development tax credit? Yes, we are taking advantage of the credit

37% 17% 46%

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

No

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18. Over the past year, your company’s general and administrative overhead expenditures have: Decreased 9% Stayed about the same 31% Increased 60% 19. In the future (next 12 months), your company’s budget for general and administrative overhead expenditures will: Increase 55% Stay about the same 36% Decrease 9% 20. What actions are you taking to prepare for a potential recession? (Select all that apply) Planning 49%

Managing cash flow Managing capital Attending to clients Attending to staff

67% 54% 53% 42% 53% 24%

Focusing on sales and marketing

Utilizing a dashboard to track early warning indicators

We are not preparing Other (please specify)

6%

1%

21. What impact will the recently signed Infrastructure Investment and Jobs Act have on your revenues for the foreseeable future? No impact 26% Slightly positive impact 27% Moderately positive impact 24% Substantially positive impact 18% Negative impact 5%

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22. If you are considering a joint venture, why are you considering it? (check all that apply) We are not considering a joint venture

33% 27% 19% 22% 13%

To address labor shortages To address supply chain issues

To reduce competition

To address bonding capacity issues

To enter new geographical markets and/or trades/skills To offset financing and working capital resource limitations

17%

7%

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2022 MARCUM NATIONAL CONSTRUCTION SURVEY marcumllp.com/construction