Bill McConnell, CEO of Vertex Companies, Inc., has issued his annual “State of the Construction Industry-2021” report that discusses the U.S. economy, the U.S. construction industry and contract surety industry.
As we approach our 20th year, K&F has been through the various cycles in the surety industry. We are here to assist sureties in recovering losses in good times and bad. Our experience, understanding of the surety’s indemnity rights and cutting-edge technology and tools gives the surety the best chance of recovery. Our contingency fee structure also keeps ULAE and ALAE down significantly.
Here are the important takeaways and conclusions of Bill’s report:
“Based on my analysis, 2021 will be a difficult year for the US construction industry, which is often the case in the tail end of a recession and the year that follows a recession, when backlogs shrink, and poor decisions are made as contractors fight for survival.
All things considered, the construction industry performed remarkably well in 2020 but 2021 looks to be a very tough year for contractors as backlogs shrink and the industry awaits an infrastructure bill.
The construction industry realized growth in 2020 because it was deemed an essential industry by the federal government and most states.
- However, 2021 is going to be a challenging year as design and construction backlogs shrink, starts are slowing, and confidence levels remain low.
- Construction inflation has eased with the exception of residential materials.
- Biden’s infrastructure plans should sail through Congress in March or April, which will help public construction spending.
- Workforce shortages, which plagued the industry for the past four years, is no longer a major issue except in certain residential markets.
- The industry will likely improve as the year goes on.
All things considered, the construction industry performed remarkably well in 2020 but 2021 looks to be a very tough year for contractors as backlogs shrink and the industry awaits an infrastructure bill
Surety losses ticked up in 2020 but remain low, which is typical for a recession year.
- Contract surety losses will continue to trend upward for the next two to three years based on historical post-recession loss trends.
- The market share of the Top 10 surety providers is leveling off at ~60%.
- Some benefits of shrinking contractor backlogs:
- Completion contractors will bid relet work.
- Relet pricing will be more competitive.
- Material / labor escalation will ease somewhat.
The US economy rebounded swiftly from the market crash in March and April of 2020; however, will continued shutdowns cause a decrease in spending and a double dip recession?
- The construction industry performed well in 2020 but 2021 will likely be a tough year for contractors due to shrinking backlogs.
- Biden’s infrastructure plan should sail through Congress, which will provide a boost to public construction spending in late 2021.
- Contractor losses will likely trend upwards for the next several years if historical trends hold true.
- The surety market has entered a new loss cycle as the 11-year bull market came to an end in February of 2020.
Market Share of the Top 10 Surety Providers:
- 1980: 21%
- 1990: 42%
- 2004: 67%
- 2008: 68%
- 2014: 63%
- 2016: 62%
- 2017: 61%
- 2019: 61%
- 2020: 60%
The market share of the Top 10 surety providers has not been this low for approximately 20 years.”