The Impact of COVID19 on the AEC Industry

Posted by Deltek on May 8, 2020

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As the nation continues pandemic mitigation and lays the groundwork for recovery, major efforts are underway at the federal, state and local levels. The impact on the architecture, engineering and construction (AEC) industry is significant. In the public sector, some projects are delayed or cancelled, but at the federal level, AEC contracting has increased.

Deltek works hand-in-hand with AEC firms that are on the front line of this pandemic as they provide services to essential businesses, discover new innovations, and build the medical facilities needed to keep our communities safe. As businesses adjust their strategies to the evolving landscape, some AEC firms are shifting their focus towards government projects. The overall impact of COVID-19 on the AEC industry is significant and here’s a few ways your firm can stay informed while keeping teams connected and productive.


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Impact on Federal AEC Contracting

In March 2020, Congress passed three major bills providing more than $2.2 trillion in supplemental funding to expand the scope of the federal government’s COVID-19 medical and economic response. These include: Coronavirus Preparedness and Response Supplemental Appropriations Act ($8.3 billion); Families First Coronavirus Response Act ($2.5 billion); and Coronavirus Aid, Relief and Economic Security Act (CARES) ($2.2 trillion).

The CARES stimulus bill provides funding and policy directives for COVID-19 response. While a significant portion of the response-related funding is directed towards medical and scientific equipment, there is a fair amount for the AEC industry including medical research, health worker training, and cyber and operational support, as well as a significant investment in medical facilities, many which require contractor support.

COVID-19 related federal contracting added $451 million in projects for March. Federal contracting was already trending up, increasing year-over-year from $694 million in March 2018, to $745 million in March 2019, to $881 million in March 2020 without the additional COVID-19 related projects. Similar to the 2008 recession, the federal market is staying strong with AEC contracting primarily focused on medical facility retrofits and field hospitals.

Additional findings regarding AEC contracting include:

  • Agency contracting officers have leeway to adjust contracts to include “equitable adjustment” clauses to cover contractor costs incurred by protecting employees or performance disruptions due to COVID-19 actions.
  • If contractors miss milestones due to exposure to the virus, agencies can extend contracts.
  • Agencies are encouraged to consider modifying contracts that do not currently allow telework while offering flexibility regarding deadlines for work that cannot be done remotely.
  • Agencies must identify mission essential functions and prioritize resources to slow COVID-19 and maintain critical activities.
  • Agencies are likely reassessing procurements in light of changing requirements, contract terms, and acquisition strategies.


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Impact on State, Local and Education (SLED) AEC Contracting

Nearly every state is operating under a major disaster declaration and those states that are under a major disaster declaration can access the $25 billion in Stafford Act funding. The only states that have not sought this designation include: Alaska, Idaho, Minnesota, Vermont and Wyoming.

The impact on the AEC contracting market includes:

  • Procurement/gift rules might be suspended for pandemic response.
  • The primary goal is to facilitate the acquisition of temporary/modified facilities, supplies, and services for COVID response.
  • Bidding is expected to proceed under the usual rules in all other areas.
  • Coops have been revising/updating their contracts into dedicated COVID-response catalogs. Operations and maintenance services are common on statewide/coop contracts.

The Three Types of SLED Stimulus Impacting the AEC Industry

Federal aid to states, localities and educational entities fall into three broad categories. These include: costs related to COVID-19 response, continuation of business, and supplemental support for social services. The bulk of the money was put into the response to COVID-19, which includes medical response, personal protective equipment (PPE), National Guard deployment, communications, logistics, telehealth, ventilators, vaccines, diagnostics, and medical supplies.

The top SLED-specific categories for COVID-19 include direct relief, FEMA, education, mass transit, airports, CDC/PHEP, justice, and elections. There are several areas where the CARES Act is anticipated to support infrastructure and facilities that will positively impact the AEC industry.

In most states, construction, design, suppliers and maintenance have been identified as essential workers and we anticipate business as usual for projects launched before the pandemic. In 35 states existing construction projects are still on. Twenty-eight states are allowing all construction projects issued prior to the pandemic and seven states have taken no action. In Florida, infrastructure projects are being accelerated due to low traffic volumes.

Allowable construction projects

Additional highlights include:

  • In transit, the combined FY20 and CARES Act funding are expected to keep some major projects on track.
  • Health care is receiving $100 billion in reimbursements for fee-for-service, which should keep planned facilities projects on track.
  • HUD, child care, and CDBG funding to help keep planned shelter, affordable housing, and community facilities projects moving forward.

During this time of rapid change, it’s important to stay in contact with clients to understand their mindset and the challenges they are facing to gain insight into the viability of current projects and potential new requirements. AEC firms will also want to stay in touch with subcontractors and sub-consultants to understand their plans. Expect more sole source awards as a result of the need for speed, as well as disruption and delays in non-COVID-19 procurements, especially for non-essential projects. If your firm is waiting for a project award, re-examine the proposal to determine if it is still relevant or needs to be adjusted to better align with the current environment.

Tools to Stay Informed and Keep Teams Productive

As you continue to evolve your firm’s strategy, Deltek is here to help. Deltek provides software solutions that power project success to thousands of architecture and engineering (A&E) firms. This includes 90% of the Engineering News-Record (ENR) Top 10 Design Firms and more than 80% of the top 500. We’ve pulled together resources to help you stay informed and keep your teams productive and connected.

GovWin IQ: Find and Win Government Contracts

GovWin provides businesses with visibility into upcoming, active and awarded contracts at the federal, state and local levels, as well as analysis and insight into government spending connected to the COVID-19 outbreak. Through the Coronavirus Government Response Resource Center AEC firms can find the latest information and implications for contracting at all levels of government free of charge.

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About the Author

As the Vice President of Information Solutions at Deltek, Kevin manages the delivery of Deltek's industry leading government market research and information solutions providing essential information and insights to over 3,400 clients. Kevin has responsibility for leading the industry's largest team of analysts focused on the government contracting industry. He also provides thought leadership and expert opinion to industry executives and is a recognized expert on the public sector market.