Coronavirus’ impact on the A/E industry, April 6, 2020
Morrissey Goodale is providing A/E leaders with news on the coronavirus and its impact on the industry. Highlights this week include the tough times ahead for the country and the economy and seven highlights from A/E firms.
Morrissey Goodale is providing A/E leaders with news and perspective on the coronavirus and its impact on the industry.
A tough two weeks ahead
Coronavirus cases and fatalities expected to spike
Over the weekend, major news outlets reported that President Trump warned the next week or two would bring a spike in new cases and fatalities caused by the coronavirus. In areas that have not instituted stay-at-home orders, the spike could be as late as May. Vital healthcare supplies and hospital beds are and will remain in short supply. Patchwork efforts are evident in the US and around the world as desperation mounts to care for the critically ill. The US could need over 800,000 ventilators as domestic manufacturers such as GM and Ford attempt to ramp up as quickly as possible to meet the demand— but it will take time.
Economy taking succession of body blows
The impact on the economy is and will continue to be profound. According to the US Bureau of Labor Statistics, more than 700,000 jobs were lost in March. But the historic drop may only be the tip of the iceberg since numbers were reported before many states issued stay-at-home orders. Food service, hospitality, manufacturing, and construction are among the hardest-hit industries. The energy sector is also expected to be significantly impacted given the global recession and Saudi Arabia’s flooding of the market with discounted crude, after talks with Russia to reduce output collapsed. A 4% decline in GDP (a steeper drop than the Great Recession) may be optimistic with any hope of a sharp rebound coming in the second half of the year.
A/E industry hanging tough, but feeling the impact
Many infrastructure design firms, particularly in the interior states, report being at or near full-tilt, with the main challenge continuing to be the shift from an office to a remote working environment. Nevertheless, slowdowns are being felt. According to an ACEC survey, an increasing number of consulting engineering firms are reporting delays in RFP/RFQ awards (40%, up from 24%) and project delays or cancellations due to COVID-19 (58%, up from 44%). A recent survey published by the American Institute of Architects found that 50% of architecture firms reported fewer new design projects for March as compared to their expectations entering the month. This situation is anticipated to worsen in April, with 94% of firms expecting revenue declines, and over half of firms (57%) anticipating that the revenue falloff will exceed 10%.
Paycheck protection program
Ready, set… go?
The emergency $349 billion Paycheck Protection Program was created by the Federal government to help small businesses, like the vast majority of A/E firms, cover their payroll costs. But the program got off to a rocky start Friday. Bank of America announced they would only process applications for existing customers who had a loan product (a business credit card would do) until public backlash resulted in a change in policy on who would be allowed to apply. Chase was unable to turn on their portal until Friday afternoon.
Bank of America received more than 10,000 applications in the first hour and by mid-afternoon reported it had granted over 58,000 client loans, and received an estimated $6 billion in applications. Many banks have yet to begin accepting applications. As of Saturday, April 4, Wells Fargo reports, “We are not yet accepting applications, but we have launched a tool to start the process. You must have Wells Fargo Business Online Banking in order to apply.” Likewise, Citi reports, “Citi is working with the Small Business Administration to provide relief to Small Business owners. While we are working as quickly as we can, we are not yet able to accept applications for the Paycheck Protection Program.” According to NBC, some community banks reported being able to make loans. Connecticut One Bank of New Jersey said they had processed a loan and deposited it into a customer’s account. In any event, we expect many more banks will have their systems up and running this week.
PPP application details were changing right up until Thursday night when the Treasury posted a “final” application and the Small Business Association posted the same document to its web site.
Contact your local community or commercial bank, credit union, or ask your bank for the loan officer who deals with “SBA 7(a)” loans and the PPP program. At this point, your best bet is to stay with your bank (assuming they are participating in the PPP program), even if they have yet to begin accepting applications. Many banks have made it clear they are only working with existing customers at this time.
Next, gather payroll information. According to the SBA, the required information includes the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following the loan must be provided to the firm’s lender.
It is unclear how quickly loans will find their way into the bank accounts of small business owners; some experts believe the end of May might be the best-case scenario.
Seven highlights from A/E leaders
Below are highlights of what the Morrissey Goodale team is hearing from A/E leaders around the country:
- A/E firms with healthcare experience are seeing a surge of demand for repurposing of hotels and convention centers to hospitals.
- Public sector remains strong – transportation officials are accelerating projects in some states (for example, PennDOT has unfrozen 60 critical highway bridge projects).
- Firms see a strong increase in federal work while also hearing “pencils down” from owners with hospitality, entertainment and workplace projects.
- In the field operations are a mixed bag – firms doing “essential services” work in California can’t keep up with the work and are concerned about employee safety.
- We hear reports of some Northeast states suspending some transportation field work.
- More and more of the industry is moving to a remote working posture. The biggest challenges are the soft skills and getting clients to embrace virtual meetings.
- Firms outside of the “hotspot” states continue to see a normal-course business climate by and large.