Construction Backlog Experiences Record Decline
On May 12, 2020, Associated Builders and Contractors (ABC) reported that its Construction Backlog Indicator fell to 7.8 in April, the series’ lowest reading since 2012. The commercial construction backlog is down 0.4 months compared to 1.7 months from a year ago. Although backlog in the infrastructure category has been stable, backlog has declined year-over-year in every other industry classification, region, and company size. In this brief article, a Portland construction attorney with Cotney Attorneys & Consultants discusses what backlog is, how the Construction Backlog Indicator works, what this record drop in construction backlog represents for the construction industry.
What Is Backlog?
Backlog is defined by ABC as the amount of work, measured in dollars, that construction companies are contracted to perform but have not yet completed. Then, based on the annual pace of construction sales, the figure is converted to years/months. The longer the duration of backlog, the more comfortable contractors can be with their economic circumstances. During periods of economic downturn like that caused by the spread of COVID-19, backlog tends to decline as contractors face conflict delivering services and enter into fewer new contracts.
How Does the Construction Backlog Indicator Work?
ABC’s monthly Construction Backlog Indicator is a forward-looking national economic indicator designed to reflect the amount of work that will be performed by commercial, industrial and heavy highway/infrastructure contractors in the months ahead. This assessment of construction backlog is based upon a confidential survey sent to ABC member companies in nonresidential construction segments located through the United States that report their respective revenues for the previous year along with their current level of backlog.
What Does a Record Decline Signify for the Construction Industry?
To examine what a record decline in construction backlog signifies for the construction industry, we must locate the source of the decline. Roughly two in five contractors reported that their work has been interrupted by government mandate, and nearly one in four contractors reported that their firm’s staffing has been reduced due to COVID-19. Other sources of interruption to projects included a lack of personal protective equipment or labor force issues, all of which have been further exacerbated by the spread of COVID-19.
Among other things, these statistics represent the effect of an economic downturn on U.S. businesses, many of which may not survive the public health and economic crisis. It’s very likely that demand for construction services could be reduced for quite some time. However, all hope is not lost. For construction activity to rebound, the federal government needs to provide assistance to state and local governments. Financing emerging projects, such as infrastructure improvements, could be the very push needed for owners to decide to rebid projects in an emerging buyer’s market.
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Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.