ABC Predicts Construction Industry Recovery May Be Two Years Away, Explains 3 Percent Withholding Tax

Before the construction industry can rise tall again, it needs to grow tough roots in the rocky economic market. The Associated Builders and Contractors (an expansive national association of construction firms that’s often just called ABC) noted that the growth process might take at least two years. During a national online news conference in June, ABC chief economist Anirban Basu explained that and more.

“From what we’ve seen so far in 2011, nonresidential construction will likely be further delayed,” said Basu. “Right now, what will happen in 2012 remains unclear. Officially, the country is in a period of economic recovery. Unfortunately, this does not mean that all segments of the economy are doing well. No sector of the economy has been hit harder than the construction industry.

“Employment in the construction industry has expanded over the past four months,” said Basu. “However, I do not expect significant construction employment in the months ahead. The economy has hit a soft spot and the construction job picture is flat. Segments of the construction industry that will likely experience growth in the coming 10 to 12 months will be healthcare, which is the construction of hospitals, health centers and clinics, and the natural resources sector, which is in reaction to the growing cost of energy.”

ABC also issued the following statement on a hearing by the U.S. House of Representatives Small Business Committee Subcommittee on Contracting and Workforce titled “Defer No More: The Need to Repeal the 3 Percent Withholding Provision.”

The committee examined the effect of Section 511 of the Tax Prevention and Reconciliation Act of 2005, which will require federal, state and local governments to withhold 3 percent from all payments for goods and services purchased from small businesses, including construction contractors.

“The time has come and gone to stop using the 3 percent withholding provision as a budget gimmick,” said ABC vice president of Federal Affairs Geoff Burr. “There is still no equitable, practical or cost-effective way to implement this new requirement and it should be repealed immediately.

“A construction contractor facing this mandatory 3 percent withholding on government contract payments would include in their bid an estimated cost of capital to account for this additional cash flow burden,” said Burr. “In effect, this would serve as a levy on taxpayers by increasing the cost of construction of public facilities and services.

“Further, there will be increased costs to federal, state and local governments to implement and regulate the 3 percent withholding provision,” said Burr. “These higher costs will only mean additional budget constraints and potentially additional taxes at all levels of government.”