In this article, we break down the effects COVID-19 has had within the construction industry and list the steps you can take to stay ahead of the changes.
The construction industry is volatile and sensitive to economic cycles. As economic activity decreased due to the coronavirus pandemic, so did construction activity. Material delays, project disruptions, unemployment, and uncertainty, are some of the vast consequences of the pandemic.
As economic activity increases, contractors face a new challenge; managing the effects of COVID-19 within the construction industry. Read on to understand how legal provisions, prompt communication, exposure-response plans, and digitized human interaction can help contractors cope with coronavirus.
Coronavirus Impact on the Construction Industry
Due to the novel nature of the COVID-19 pandemic, construction companies have had to manage the human and economic implications on a day-to-day basis. Businesses must rethink risks, risk allocation, economic resilience, and legal implications. Moving forward, contractors have to take an active role in protecting their businesses against disruption.
Globally, the industry shrunk by 3.1% in 2020, the worst decline since 2008. However, the industry will continue to recover at a projected CAGR of 6.0% between 2020 and 2024. Digitization and collaboration, government initiatives, and awareness will support growth for the coming years.
Pre-Pandemic Signs of Disruption
While the COVID-19 severely impacts the construction industry, the industry showed signs of disruption before the pandemic. Engineering, Construction, and Building (ECB) companies showed signs such as:
- Stalled productivity
- Poor digitization
- Low profitability
- Strict sustainability requirements
- Labor scarcity
With a combination of the COVID-19 pandemic, the disruptions caused a fundamental shift in business strategies for ECB stakeholders.
Supply Chain Management
The coronavirus pandemic disrupted several supply chains, including raw materials, sub-contractors, and labor.
- Supply chains stalled production causing delays and cost increase in the supply of materials on site.
- Travel bans slowed down transportation and consequently project delays
- Equipment owners and manufacturers faced new problems due to equipment stalled on-site
- Contractors experienced project delays and activated contractual provisions for extensions and financial support
Contractor and Labor Impacts
While the COVID-19 pandemic has affected all stakeholders, the degrees of impact varies for each industry member. Some general direct effects are:
- A slowdown in the supply of goods and labor causing project delays
- Termination of projects and teams
- A change in occupational health and safety policies
Due to the unexpected length and effects of the crisis, industry members must consider short-term and long-term business impacts. For instance, the direct impacts affect vital processes in the construction industry.
- Default notices
- Contract scheduling
- Contract suspension and termination
- Claims management and avoidance
- Dispute resolution
- Workforce management
- Contractual partner relationships
Diversification and Innovation
Construction companies adapted several diversification and innovation measures to survive the pandemic in the short term. However, construction companies should consider applying these methods in the long term.
- Increased digitization: Organizations have shifted to hybrid models of working. Construction teams rely heavily on collaboration tools to plan projects, optimize the schedule, manage supply chains, and communicate. Building Information Modeling (BIM) and 3-D plus models and virtual tours are game-changers.
- Off-site construction: Building off-site in controlled environments makes sense, especially to manage human interaction. Off-site assembly helps contractors control quality and speed, which are critical for timely project delivery.
- Sustainable design: The construction industry is likely to experience an increase in demand for sustainable designs. Contractors should look for public stimulus and company collaborations for sustainable building materials and techniques.
- Big data and analytics: The construction industry stands to gain a productivity benefit from investing in data-driven solutions. Adopting analytics tools helps businesses take advantage of data inside and around the business. Predictive analytics can help companies decide how to price projects, analyze subcontractor bids, and predict disruptions.
Global Economic Uncertainty
As global economic activity declined, the construction world faced economic uncertainty. Overall, determining the economic impacts of the pandemic on the construction industry is challenging because revenue losses, shifts in investment patterns, and reduced income for households could have long-lasting implications for the construction industry.
As liquidity reduced, many small-to-medium enterprises (SMEs) struggled to stay afloat. Some of the measures businesses can take to manage the impact include:
- Reviewing contractual provisions that excuse liability for non-performance, such as force majeure and frustration of performance
- Seeking stimulus and relief packages
- Supplier diversity and use or regional suppliers
- Strategic partnerships to mitigate risk
- Use of local materials
A great way to handle business uncertainty is to apply analysis. Fortunately, modern analytics and predictive tools help businesses leverage big data.
If your company has been in operation for 5 to 10 years or longer, you may have suitable data to predict the costs of a project while keeping the complexities of projects in mind. Instead of relying on staff experience to predict project outcomes, companies should embrace data modeling.
The models can eliminate cognitive biases people in your team may have about projects. What’s more, models are better at analyzing chunks of information and generating reliable results in shorter periods. Analytical models are especially beneficial for determining the probabilities of a project outcome and evaluating the attractiveness of a project.
Finding Reliable Subcontractor Bids
Empirical foundations can help contractors analyze sub-contractor bids beyond basic rules of thumb and outdated procurement information. For instance, analytical tools can help contractors analyze factors of past projects and assess the realistic levels of the costs of a future project.
In addition, at the end of the project, contractors can use prices to gauge the accuracy of predictions and add factors they may have ignored or misunderstood in prior analyses.
Often, construction control measures don’t account for the interactivity of different metrics and their impact on the success of a project. Also, while controls are usually adequate for retrospective reporting, they rarely manage disruptions during the project.
Analytical tools can help project managers handle project data and follow key performance indicators. Managers can track events in real-time and identify areas of concern. Companies should focus on reconciling data through data management systems to reap the benefits of analytics.
COVID-19 undoubtedly affected contracts in the construction industry, with many stakeholders rethinking agreements. There is a need for contractors to review:
- Terms of contract that excuse project delays and non-performance such as force majeure and frustration of purpose
- Analyze possible remedies for project delays and termination due to COVID-19
- Claims assessment and insurance coverage
Best Practices and Recommendations
Continuous Communication and Awareness
Immediate and continuous communication will help all contractual parties make informed decisions as a situation evolves. In particular, contractual parties need to review their notice provisions. Team leaders should:
- Document all COVID-19 impacts
- Create timelines and duration of each impact
- Record efforts taken to eliminate or mitigate impacts
- Issue notices to all contractual parties as soon as impacts are suspected
- Update all parties about developing project schedules to ensure
- Ensure a continuous exchange of information to help parties plan for remedies
- Focus on data reconciliation and predictive analytics to inform themselves and other parties.
Exposure Response Plan for COVID-19
COVID-19’s biggest impact was on workers. As the virus spread, human health and safety took a global priority. While rigorous vaccination is underway, contractors should look into their Exposure Response Plans.
An Exposure Response Plan is a document meant to act as a guide for body fluids and pathogens and exposure-related activities to protect workers. COVID-19 is still alive and with us; therefore, operating without a plan makes you non-compliant.
OSHA has a model template, the Model Plans and Programs for the OSHA Bloodborne Pathogens and Hazard Communications Standards. However, since every construction project is different in terms of location, size, and other characteristics, it’s best to alter the model plan to fit your needs.
An Exposure Response Plan should feature:
- Exposure assessment: What are the symptoms of COVID-19 to look out for?
- Response investigation procedure: What are the steps to communicate with the potentially infected person? What are the testing measures?
- Incident Reporting: What steps should an exposed employee take? What are the reporting and isolation plans for a potentially infected person?
- General workplace measures: Social distancing, disinfecting surfaces, hand cleaning, and masks. You also have to create guidelines for sick leaves, meetings, and visitors to curb infection.
Digitized Human Interactions
Arguably, the coronavirus’s highest cost is on human life. As such, employers should be on the frontline to protect workers at all costs. Besides preventing infection at the workplace, employers need to rethink human interactions.
Since time is not on your side, consider accelerating digitization for:
- Remote collaboration to reduce on-site manning
- E-commerce models for handling supply, invoicing, and billing
- Upskill your workforce to work with modern tools
Re-imagining the Future
The world will not return to the pre-pandemic era. As vaccines and health policies continue to fight the virus, contractors and stakeholders in the construction industry should remain alert for any future disruptions.
Construction companies should also embrace technology to collaborate, increase awareness, remain compliant, and access analytical insights. In addition, contractors should understand and review provisions for project scheduling, performance, and delays during a health pandemic. Contact us for more information.