The COVID-19 Pandemic has impacted every type of construction industry stakeholder. The main problems include materials and equipment supply chain failure, additional requirements to ensure methods of safe working at job sites and a reduced cash flow. Contractors are working hard to reinforce supply chains, refocus on key skills and adopt new technology. The future of the construction industry is uncertain. Some people are predicting a shift towards increased digitalization, modular off-site construction, and a demand for healthier green living spaces.
In this article we are going to further explore the effects COVID-19 has had on the construction industry. We will also discuss how various stakeholders have reacted to ensure construction projects have been able to continue. Speculation about future prospects may bring some hope at the end of the article.
How the Construction Industry has been Impacted by the Pandemic
The main problems include materials and equipment supply chain failure, additional requirements to ensure methods of safe working at job sites and a reduced cash flow.
Materials and Equipment Supply Chain Failure.
As national and international restrictions in the movement started, pant and materials supply chains began to falter. In a matter of weeks, most contractors had encountered supply chain failure of one form or another. These failures occurred due to a lack of raw materials, transportation issues due to restrictions and a shortage of available haulage operatives. Many contractors had slimmed their stock to a minimum to reduce storage costs. Most contractors had a single route supply chain built on bulk buying at significant discounts. When the stock ran out and the single supplier failed, equipment and materials shortages occurred.
Additional Requirements to Ensure Methods of Safe Working at Jobsites.
At first, there was uncertainty and confusion as to whether the Construction industry would be permitted to carry on operating. Fortunately, CISA published guidance on March 20th, 2020 including construction as an essential activity. The DOL’s Occupational Safety and Health Administration (OSHA) quickly published construction-specific guidance to supplement existing general workers and employers’ guidelines. These guidelines were used by state and local governments to produce further local advice to employers.
The guidelines generally included the need for employers to develop a comprehensive COVID-19 exposure control plan, including control measures, symptom checking, social distancing, hygiene and decontamination procedures, and training. To comply, contractors had to stop work until they had created company policy and systems to ensure they could comply with the requirements. These additional systems cost money and reduced efficiencies.
For employees, this sometimes meant an uncertain time of little to no work followed by returning to work under new job site rules. These rules included wearing facemasks, splitting shifts to reduce the number of people on a job site and maintaining social distancing whilst still trying to do their jobs. On top of this, they also had to deal with potential illness, quarantine, issues with public transportation, lack of available childcare; the general effects of commuting; and the necessity of reduced on-site staffing or additional shift work mandated by new federal or local social distancing requirements. These additional problems increased costs for both the contractor and the employee.
A Reduced Cash Flow
In the construction industry, cash is king. Cash flow is what keeps companies alive. As with almost every other aspect of the industry, COVID-19 also disrupted the cash flow. The government and private sectors all tightened their belts, pulled in the purse strings, and became more concerned with unnecessary spending. Operating costs were growing due to supply chain issues and additional costs of complying with new guidelines. At the same time, government shutdowns had stopped some projects and slowed progress on others. Cash flow from these projects stopped or slowed down. Some projects were canceled completely, others were put on hold indefinitely. The reduction in cash flow had a knock-on trickledown effect through all the contracting and supplier tiers further exacerbating existing problems of increased costs.
How People in The Industry Have Been Adjusting
Fortunately, the construction industry is built on problem-solving. It is strong and resilient. It is also highly competitive. If contractors do not stay in shape, then they are soon overtaken by the competition. Contractors are reinforcing those collapsing supply chains, refocusing on key skills to prioritize cash flow, and adopting new technology to help meet new guidelines and manage operations.
Reinforcing Supply Chains
Previous supply chains were slimmed down to ensure delivery on demand of bulk purchased stock. Buying stock in bulk with a sole supplier lets the supplier offer a huge discount. This gave the contractor a means of cutting costs, remaining competitive and having an efficient purchasing process. If, however, the supplier fails, then so does the contractor’s operations.
Contractors are now reinforcing their supply chains with multiple suppliers in different locations. The focus of the purchasing department has shifted from single supplier low-cost efficiency to multi-supplier (higher cost) resilience. If they cannot get a product from one supplier, they can simply order from another.
Previous fashion was to hold very minimal stock. This reduced storage costs and prevented stock deterioration and shrinkage. Contractors are now once again building stockpiles and securing those hard to get products.
Refocusing on Key Skills
As companies shift the focus of operations to guarantee cashflow there is a natural regression back to key skills. Previous diversification and expansion efforts are sometimes suspended or abandoned. This lets the contractor concentrate on what it is experienced and efficient in. This is not true for all businesses, however. Some of the more risk accepting progressive companies are taking the opportunity to fill gaps left by defunct contractors and use their surplus workforce to expand into new sectors. Others are forced to change their focus by a reduction in their client base and the need to look elsewhere to keep their workforce employed. This is leading to break-even or loss-making tenders.
Adopting New Technology
Many of the government guidelines suggest remote or offsite working. Whilst construction is considered a “hands-on” industry, there is a significant proportion of staff who can work remotely. Many contractors have shifted office operations to home working and have invested in new technology and staff training to use it.
Jobsite activities have also become more automated and digitalized. For example, health records for site workers are often held digitally. Clocking in and out records can be created automatically. Stock and procurement can be app-driven from a mobile phone or tablet.
New software solutions such as building information modeling (BIM) and 4D and 5D simulations are being used by designers and engineers.
As well as new software, hardware and bespoke digital solutions, there is a general increase in the use of normal office applications such as email, video conferencing and cloud-based document sharing.
Expected changes in the industry.
With any economic downturn, there are bound to be changed in almost every industry. Construction is no exception. The changes already happening such as those above will likely continue as the socio-economic environment also continues to change and adapt. There will likely be an increase in legal action as contractors and customers battle overpayments and delayed completions. The digitalization process will also continue. The increased shift to off-site working will possibly lead to an increase in modular construction techniques being used by designers. Customers are less likely to want to live in close quarters with their neighbors so there may be a shift to out of town lower density housing.
Increase in Legal Action
There is already an increase in organizations invoking “termination for convenience” clauses for projects. Suppliers are claiming “force majeure” more often. Those working for the federal, state, and local government may be more protected as canceled or postponed projects are less common. Smaller contractors with private sector clients are more likely to struggle to bear the costs of any legal action.
Guidelines are still changing as governments adapt to ever-changing circumstances. New policies and recommendations are being released. Organizations across the industry will face increased costs associated with producing a new company strategy to ensure they meet any new guidelines. There will be an increased cost to ensure compliance with guidelines. Failure to comply could also lead to increase penalties and stop notices.
Shift Towards Increased Digitalization
The construction industry was lagging behind other sectors in terms of adopting modern technology. COVID-19 may have encouraged the adoption of new technology at a faster rate than before. Some organizations have found unseen benefits from digitization. For example, remote working means lower office space costs. Working from home means lower commuting time and costs. Video conferencing also reduces time and travel costs. On-site, digital employee health recording has also enabled real-time data on project progress. It has also however led to problems with employee record confidentiality. The industry has generally found benefits from the new technology and is likely to explore this avenue further.
Increase in Modular Construction Techniques
As guidelines continue to recommend social distancing, remote working, and reduced numbers of the job site, as the shift to modular construction methods makes a lot of sense. Offsite construction of modules can solve a lot of the practical issues encountered during the early days of the pandemic. It is easier to control the risks to the workforce by limiting the size of the teams working on modules. Different trades can work on different modules separately further controlling the risk of infection. Materials and plants can be delivered and stockpiled easier. Construction of the modules can continue off-site should the job site be suspended due to an outbreak or government shutdown. The same module construction site can be used to supply several different projects reducing the need for site-based personnel.
A Demand for Healthier Green Living Spaces
New social distancing culture may lead to homebuyers demanding more out of town properties. After suffering lockdown in a cramped inner-city apartment with no private outside space, there may be a move towards the more rural, larger, value for money properties. This may have a knock-on demand for better rural infrastructure. The ability to socially distance will probably also need to be considered for future inner-city projects.
COVID-19 was unexpected, and the construction industry was ill-prepared. It was even a little behind technologically compared to other sectors. The industry is however strong, resilient, and resourceful when stressed.
It initially responded in a reactive, but stakeholders became more pro-active and innovative. Adopting new technology and attitudes has paid dividends for some companies. Being slow to react has been the downfall for others.
The future is uncertain. Those able to build a resilient supply chain, protect their workforce, adopt new technology, react to government guidelines and customer demands, may come out in front of the competition to reap the benefits in the future.