Disruption in construction: emerging from a pandemic.

All business sectors have faced challenges throughout the Covid-19 pandemic but recently, we have been speaking with a large number of family businesses working within the construction sector. One of our Network Partners, b2B insurance brokers, Marsh Commercial support many family firms within this sector and have put together a useful guide that looks at some of the recent impacts as well as future challenges. They have also published an e-book with further insight, the link for which can be found within the article below;

How can the construction industry survive the impact of a global pandemic and other challenges?

Recent years have presented a series of challenges for the construction industry. There’s been long-term uncertainty around Brexit and trade agreements; the Grenfell Tower tragedy prompted radical changes in quality management and safety, and the collapse of Carillion sent shockwaves through the sector. Here we assess the impact of the coronavirus pandemic and other key challenges facing the UK construction sector.

Construction through a COVID-19 lens

The construction industry responded with resilience and tenacity after the initial national lockdown. As with other sectors, when it came to opening back up for business, construction companies undertook relevant risk assessments and adopted on-site social distancing approaches to protect staff and limit the number of visitors.

However, these new measures have had a knock-on effect on businesses’ productivity and project lead times. Looking at the cost of Coronavirus during the first wave, there has been a significant impact upon the sector:-

  • In April 2020, total construction output in the UK fell by a record 40%.[1]
  • The decline in output was driven by a 41% decrease in new jobs and a 38% decrease in maintenance and repair – the most significant month-on-month reductions recorded since records began. 1
  • 29% of UK construction firms surveyed between 23 March and 5 April 2020 had ‘temporarily closed or paused trading’.[2]
  • Introduced in March 2020, 73% of firms used the government’s Coronavirus Job Retention Scheme (CJRS) to furlough and retain employees during the crisis.[3]

Firms that service sectors severely impacted by the pandemic — such as retail, leisure and hospitality — now face the prospect of identifying and exploring new revenue opportunities and re-aligning their businesses to new markets.

Taking a fresh look at supply chains

The impact of the COVID-19 crisis on supply chain distributions — a matter that was already causing concern throughout the construction industry — has been another challenge from a global and European perspective.

Extended lead times (even for some of the most basic materials), the prolonged closure of supply merchants, and issues receiving goods from overseas suppliers were all factors that resulted in pushing up costs. The pandemic forced firms to source alternative suppliers or suspend operations entirely.

As restrictions are lifted, and the industry looks to recover and rebuild, firms will need to proactively monitor core suppliers’ resilience, adopting innovative procurement methods to ensure potential long-term risks are managed transparently and efficiently. That includes reviewing contract clauses to help lessen short-term risk and move away from traditional global supply chains to evaluate local partnership opportunities.

Skills and workforce management

With a workforce that’s approaching retirement in the next few years, combined with declining interest from young people wanting to learn the specialist skills the industry needs, the UK construction sector is fighting an ongoing skills battle. Combine this with the potential post-Brexit loss of up to 165,000[4] EU nationals presently working in construction roles; if the sector is to maximise opportunities, workforce capacity and having the right skills in place will be crucial.

The financial risks of construction theft

Each year, the UK construction industry faces millions of pounds worth of losses due to vandalism and theft. As well as direct crime-related costs, other financial implications include increased insurance premiums and delayed projects. This means strengthening security is now a key priority.

The problem was particularly critical during the pandemic. Some closed or scaled-down sites reported a 50% increase in theft at the start of the pandemic.[5] Opportunistic thieves aren’t just targeting heavy-duty plant, or construction materials kept on-site. Using sophisticated electronic attack tools to bypass locking systems and carry out ‘keyless theft’ to access or steal commercial vans, today’s tech-savvy criminals can swiftly obtain valuable tools stored in vehicles. Furthermore, 92% of all stolen light commercial vehicles (LCVs) in 2019 were taken without the use of keys. The Ford Transit was the most popular van stolen during the same year.[6]

Cash flow challenges

Where cash flow is concerned, the coronavirus pandemic has had a significant impact on the construction sector. With many projects subject to review, delayed or cancelled, firms now have to deal with a barrage of cash flow issues due to delayed payment plans, potential contractual problems, and increased operating costs.

Many smaller firms with low cash reserves will have had their COVID-19 Business Interruption Loan applications rejected by lenders.[7] At the same time, short-term cash flow situations may impact the ability of businesses of all sizes to maintain supply chains in the event of clients withholding or delaying payment. A critical first line of defence will be to identify and implement measures that can be put in place to preserve cash in the short and medium-term and undertake a scenario analysis that tests all assumptions and identifies potential financing requirements. Trade credit may also be an option.

Laying foundations for future growth

To sustain long-term recovery, the industry must take advantage of immediate opportunities. The pandemic has accelerated a fundamental change in construction approaches, as firms embrace some significant transformational developments that are set to shape innovative and more efficient ways of working. Capitalising successfully on both the short and longer-term opportunities relies on taking steps to lay solid foundations for growth – attracting and nurturing new skills and capabilities, effective risk management and establishing a culture that encourages the long-term change vision.

Marsh Commercial has produced an eBook for the construction sector ‘Building for the Future’. Download the eBook for further insights.

The information contained herein is based on sources we believe reliable and should be understood to be general insurance and risk management information only. The information is not intended to be taken as advice and cannot be relied upon as such. This is a marketing communication.

Marsh Commercial is a trading name of Jelf Insurance Brokers Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA). Not all products and services offered are regulated by the FCA (for details see https://www.marshcommercial.co.uk/info/regulation/) Registered in England and Wales number 0837227. Registered Office: 1 Tower Place West, London EC3R 5BU.

[1] https://www.ons.gov.uk/businessindustryandtrade/constructionindustry/bulletins/constructionoutputingreatbritain/april2020

[2] https://www.ibisworld.com/united-kingdom/market-research-reports/construction-contractors-industry/

[3] https://www.constructionline.co.uk/insights/news/builduk-covid-19-infographic/

[4] https://www.constructionleadershipcouncil.co.uk/wp-content/uploads/2019/02/CLC-Skills-Brexit-Group-Report-and-Recommendations-FINAL.pdf

[5] https://www.pbctoday.co.uk/news/plant-equipment-supplies-news/plant-theft-covid19/74595/

[6] https://www.commercialfleet.org/news/van-news/2020/04/17/stolen-vans-new-data-shows-scale-and-method#:~:text=The%20Ford%20Transit%20was%20again,million%20pounds%20worth%20of%20recoveries

[7] https://www.macegroup.com/perspectives/200513-how-will-covid-19-impact-construction-finances

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