Around the globe, governments, media and industries are currently struggling to prepare for a post COVID-19 economy. Yet, one thing is certain: the coronavirus outbreak is causing major business disruption. The latest pandemic has heavily affected almost every business sector, regardless of whether it caters for local communities or the global economy. Different countries have different capacities to absorb the economic shock caused, due to varying degrees of openness, fiscal capacities and level of dependency on heavily affected sectors, such as hospitality and construction.
COVID-19 Impact on the Construction Business
- Prior to the COVID-19 pandemic, analysts predicted an acceleration in the pace of growth in the global construction industry, from 2.6% in 2019 to 3.1% in 2020.
- Following the outbreak, the 2020 forecast for growth in the construction sector has now been revised down to 0.5%.
- In Europe (EU-27), the construction business dropped by 12.0 % in March 2020 compared with February 2020, with the largest decreases in France (-40.2 %) and Italy (-36.2 %).
- March 2020 compared with February 2020: Largest monthly decreases of production construction of buildings (-11.8 %) and civil engineering (-13.7 %) ever registered for EU-27.
4 things to keep in mind when preparing your construction business for a post-COVID-19 economy
Health, Safety and Employment
Around the world, lockdown and quarantine measures have resulted in a full-stop of construction sites, regardless of their size. As some areas slowly recover, new norms, such as social distancing, have been introduced in a unified effort to limit a further outbreak. These health and safety measures may be hard to adhere to, especially in the construction sector, where workers usually rely on strong, side-by-side teamwork.
Additionally, contractors should closely monitor possible mental health issues among their team; recent reports suggest that construction workers have expressed worries about the risks of mixing with others while commuting to work and working onsite. Conducting regular mental health screenings and allowing staff to raise their concerns through appropriate channels should positively impact the overall team performance.
Takeaway: Be prepared to review and introduce short-term working conditions related to health and safety.
Disruption of supply chain
The production sectors in many countries (such as China and Italy) have drastically slowed or have been temporarily shut down. As the construction business slowly resumes, the demand for materials may soon spike, while the actual production is lagging. This shortage will directly impact the cost of different materials, ranging from cement to steel. Construction businesses that primarily rely on materials made-in-China are those who will most likely see an increase in their overall costs.
Moreover, with the travel bans and limited importations from Asia in place, routing of goods may be significantly delayed. This, combined with the projected shortage of construction materials and increase in costs, will directly lead to slower project completion and possibly more projects being cancelled.
Takeaway: It is essential you review your projects at hand, sort out what your priorities are and communicate your revised turn around time to the concerned parties.
Legal and Administrative
All stakeholders in the construction sector are now facing serious interruptions to the performance of their contractual obligations. In most cases, this will either extend the previously agreed project duration, or lead to a cancellation of infrastructure projects earlier awarded. While smaller construction businesses may be facing bankruptcy, many larger contractors will inevitably be forced into legal disputes over non-delivery of service.
Moreover, as quarantine and lockdown periods in the world will vary in length, cross-border projects may lead to a higher administrative burden. Additionally, leases and licenses periods previously obtained will very likely need to be renewed or updated. New laws and reforms should be expected, but may not necessarily be standardized across the construction industry.
Takeaway: Contractors should turn to their legal team as soon as possible to limit legal implications on their business. It would be wise claim possible time and financial coverage entitlement as early as possible
Distorted Demand and sceptic investors
To curb the COVID-19 impacts, many countries have introduced financial support measures to cover losses of revenue. It should be noted that these financial support measures are not standard across the globe and may significantly differ from one another. For instance, many countries have recently implemented short term export credit insurances to help tackle losses in exports of goods and services.
However, since production output is expected to decrease by 20-40%, investment in the construction sector will most likely not be a priority to most countries and investors. Contractors relying on such projects will potentially be hit the hardest by this aftermath, due to the lack of financing for future projects and ongoing ones. As businesses, investors and clients feel the effects of a reduced cash flow, most of them will very likely want to adjust their payment practices. Altogether, simply adjusting payment terms can have a risky ripple effect on the production and supply chain, as construction businesses may be forced to dig into their financial reserves.
Takeaway: Be prepared to deal with clients asking for payment re-adjustments and tackle your commitments accordingly, as this will directly affect your cash flow. Proactively consider implementing materials fluctuation adjustments to reflect the current situation, since prices will most likely change in the next 6-months.
Off you go
The construction sector is now facing colossal challenges, but with the proper decisions and behaviors, these can be curbed. The post COVID-19 era will see contractors and supply chain partners fail and others shine. Some projects will make it, while others will be abandoned. Expect new laws, reforms and improved technology to manage your construction workforce. After this episode, there is a high probability that sector will have matured into a stronger version that it originally was.
Derek spearheads key initiatives at Deputy, a global workforce management platform for employee scheduling, timesheets and communication. With a focus on Construction, Derek helps business owners and workforce leaders simplify employment law compliance, keep labor cost in line and build award-winning workplaces. Derek has over 16 years’ experience in delivering data-driven sales and marketing strategies to SaaS companies like MarketSource and Griswold Home Care.