Over the past fortnight we have been observing the reports coming into us and noting the trends and reports of what is actually happening in our market place. The following points are therefore not original but a collection of what is reported to us and how we perceive or have interpreted our work with those reports.
Site closures and work stoppages differ by sector, but all sectors are seeing projects being delayed or put on hold as industry uncertainty spreads. Project delays and cancellations have broad ripple effects throughout the professional sector of construction, with design, engineering and surveying employment taking an immediate hit, whilst at the site level many fit out firms have put their workforces on lay off.
Demand for construction and fit out projects has in the short term been negatively affected, as project owners become more risk adverse and reconsider their space& investment requirements, generally seeking to protect cashflow. We have seen this especially in the hospitality but also institutional sectors.
Site Labour & Workforce
The majority of our sites are closed where safe working can not be enforced (we have one site where works are ongoing for laying of a 3G football pitch, workforce spacing can be applied more easily here) but we are receiving report that the pandemic is impacting site labour:
- Workforce shortages due to illness & preventative isolations.
- Increased health and safety requirements on projects where work progresses means fewer people onsite and office staff at home, with projects invariably facing delays.
- Labour mobility issues (no working away from home due to lack of lodgings).
We expect procurement to become more difficult for specialist products and equipment, especially where sourced from other countries under a more severe lockdown. For contractors with vulnerable supply chains this is likely to lead to longer lead times and possibly higher material costs. We are also noting:
- Lower manufacturing / production output causing some building material shortages generally.
- Contractors looking at specification compliant alternatives as materials such as plasterboard, bricks, and M&E kit is not always available.
- Most builders merchants only partially open due to lack of available supplies and fewer staff due to social distancing and furloughing (due to general demand).
- The supply chain resilience is critical for any recovery.
As workflows slow, sites are being closed and business cash flows dwindle, lenders and clients will become more cautious about financing construction projects because of the uncertainty surrounding the solvency of companies and the completion of projects.
Some project owners may be exercising their contractual rights to terminate or suspend projects (partially or fully) in light of the work at home procedures and isolation policies, whilst contractors and subcontractors reserve their rights for preliminaries claims for added costs and time of performance, liquidated damages etc etc under force majeure and other claim related clauses of their contracts. Industry generally to take special note of any force majeure provisions that would allow work to be suspended or terminated when certain extenuating circumstances arise. Whilst the pandemic was unforeseen it may not constitute a force majeure even under contract and will be subject to an amount of negotiation.
Contracts and Up & coming workload
Some work in preconstruction is pausing or stopping at the end of a work phase
Planning approvals made virtually at highest level in march compared to any of previous 12 months
Short term project pipeline affected but contractors bidding for longer term work
We at JCA secured one project last week and are in leading discussions over another for works to be onsite later this year. We are making immediate start on the precontact stage of these works.