The future of the construction industry
Gerry Curran gives his thoughts on how the construction industry is performing following the outbreak of Covid-19 and the outlook for construction businesses and projects beyond 2020
How was the industry shaping up at the start of 2020?
Following the general election that provided much-needed political stability, the long-awaited agreement for Brexit and the prospect of a new EU trade deal at the end of 2019, the overall feel in the industry at the start of the year was one of enthusiasm and expectation. Construction was predicted to see a six per cent rise in the value of projects over the next two years, and the outlook for the building of logistics and office spaces was positive.
Significant factors in this included a return in buyer confidence, which prompted a prediction that the value of private property would rise by nine per cent throughout 2020. We also saw the government increase its spending in the sector, particularly in Infrastructure. Large project plans for Thames Tideway, Hinkley Point and HS2 added to the optimistic thinking for the year ahead.
Alongside this, London was set to be a bright spot in the commercial office sector. The value of new office project starts in the capital rose by 16 per cent in 2019 and it was predicted to continue to rise throughout 2020. A high level of detailed planning approvals created a healthy and exciting pipeline in the sector.
In short, the industry was starting to flourish and had all the potential to continue growing throughout 2020.
How difficult was it to manage the immediate crisis following the outbreak of Covid-19?
The outbreak of Covid-19 was a crisis unlike any other in recent times. It placed extraordinary demands on business leaders, not just in construction but across every industry.
As we are an international business, we identified a potential risk and communicated controls to our teams in January, before the World Health Organization (WHO) raising the risk level from low to moderate. The initial humanitarian toll observed in Asia and then in Italy at the start of the outbreak generated anxiety amongst colleagues. The sheer scale and infection rate of the pandemic made it extremely challenging for leadership teams to predict the actual impact that would be realised.
It was vital in those early days and weeks that we mobilised our Business Continuity Team as we recognised the magnitude of the crisis and placed the health and wellbeing of our colleagues at the forefront of our planning and actions. The initial advice coming from the governing bodies and experts was understandably mixed due to the unknown nature of the virus. This meant that as a company we had to be strong and make decisions at pace to future-proof the business and protect the health and wellbeing of everyone involved with blu-3.
Of course, like many of our peers, we were prepared and immediately followed Government guidelines in terms of social distancing and hygiene practices. We moved office staff to home working and then furloughed many staff that were unable to work on closed sites. This has been challenging and fortunately, blu-3 has a culture and teams that are responsive which made it easier for us to safely change working practices rapidly. I am proud that we acted promptly, and we are today now seeing a return to sites.
Throughout the Covid-19 pandemic I have been impressed by the energy, commitment and resilience of our teams, as they adapted to the new Covid-19 Government guidelines and the site operating procedures issued by the Construction Leadership Council (CLC). Their strength of character is exemplary, and I thank them for their noble efforts.
What have been the biggest challenges facing the industry so far during the pandemic?
All members of the industry have been impacted to varying degrees, depending mostly on business or project location. Challenges have presented themselves in the form of goods and materials availability as supply chains came to a halt; labour shortages due to lockdown requirements, people being required to isolate due to limited availability of testing and the termination of entire projects due to a combination of the above and the associated cost increases.
The combination of site closures and reduced productivity significantly reduced revenue during the lockdown period. Along with cost of implementing new site operating procedures and lengthened site programmes, this will inevitably lead to a material reduction in gross margin for almost everybody.
The situation has been, and continues to be, constantly moving. Industry leaders have had to develop both short, medium and long-term responses to the challenges presented, as well as formulate plans for operations that take into account a new global and national working environment which has to remain flexible in light of a potential second spike. These new realities are being felt across every aspect of the construction process, particularly in contract negotiations, project suspension and workplace safety compliance.
Was there much disruption to supply chains during the early weeks of the lockdown?
Whether companies source materials from the UK, Europe or further afield in Asia, Covid-19 has undoubtedly had an impact on supply chains. The uncertainty surrounding Brexit forced many businesses to make their supply chains more sustainable and resilient, and this supported the fight during the early weeks of the pandemic. However, the majority of companies in the industry source materials from China due to the lower costs. With China being the initial epicentre of the virus, this caused significant disruption across the supply chain as the country shut down most of its factories, leading to shortages and price increases for UK businesses.
Around half of the UK’s construction supply chain imports come from China, Italy, Spain, Germany and The Netherlands, emphasising our reliance on other nations to keep the industry here moving. With all five of these nations suffering significantly from the virus, it was inevitable that production would be affected in the UK as supply chains became limited during the start of the pandemic.
Disruption is likely to continue until a successful vaccine is rolled out. Maybe a positive for the UK, is that this ‘unknown’ is expected to force businesses to review their supply chains, possibly shortening them to utilise more UK-based suppliers and give rise to innovation and a more sustainability focused future.
How have operational processes in the industry changed since the outbreak began?
After being classed as a key sector, the construction industry was able to continue operating during lockdown and Government guidelines had to be adhered to. The Construction Leadership Council released its Site Operating Procedures (SOP) on March 23 to ensure firms had the correct advice on how to implement Government policies. Those that could not adapt to the new working new practices, unfortunately, could not remain open.
Social distancing has to be adhered to across sites, meaning a reduction in the number of workers on sites where space is limited. Also, many office-based staff continue to work from home, which has the potential to slow some operational processes down.
Do you think the Covid-19 outbreak will hinder sustainability efforts in the sector?
Despite it feeling that sustainability has been on the back burner during the crisis, it must be noted that we have seen dramatic improvements throughout the industry over the last decade. The pandemic has challenged the status quo and, in some respects, has accelerated innovation and the transition to a low carbon economy as professionals seek to become more productive and have a better work-life balance through remote working and managing projects digitally.
Recently, construction companies have put a great deal of effort into reducing carbon emissions, and the lockdown has provided an insight into what a ‘net-zero’ world could look like. Corporate travel has been significantly reduced due to working from home policies and has proven that we can cut down on travel emissions by carrying out more tasks remotely.
It is encouraging to see that the CLC has included sustainability as a key part in the transition phase of the Roadmap to Recovery, with a low carbon future and long term 2030-2050 net zero plan for construction.
The focus on project site sustainability has, and will continue, as businesses strive to find more innovative production methods and machinery that will reduce the reliance on fossil fuels to deliver projects.
With a global recession looking inevitable, do you think the industry is ready to cope with all the pressures that could potentially arise?
As damaging as the 2008 economic crash was, it has prepared businesses and Government fiscal models for the potential hardship that could come as a result of Covid-19.
Like the outbreak of the virus, the economic recovery will be uncertain. The Construction Products Association has developed three paths of recovery which are aimed at providing companies with varying recession scenarios and how to plan for and manage them. This should go some way to minimising the impact when the recession does hit, enabling the industry to navigate impending adversities successfully.
On a positive note, at the end of June the PM announced a ‘New Deal’ which puts jobs and infrastructure at the centre of the Government’s economic growth strategy. His commitment to ‘build, build, build’ to upgrade Britain’s infrastructure and skills base to fuel economic recovery across the UK will no doubt create opportunities for us all.
Where do you think the industry will be in 12 months’ time?
Until a vaccine is successfully rolled out, it is difficult to predict what the industry will look like in 12 months’ time. It has demonstrated its ability to adapt well to uncertain situations during the past few months and I would hope that this helps to see us through the coming year.
The construction industry, in the main, has continued to operate during the lockdown, something many others have not been able to do. Many planned large-scale projects remain in place and it has been proven that the industry can remain operational during a second lockdown. The industry is changing and has seen the speed of innovation and digital working expediated which in turn can bring efficiency savings. Being flexible, agile and adaptable will be more important than ever for success in the industry.
I don’t believe 2020 will be a write-off for the construction industry; there will be slightly lower growth figures than expected but ultimately, many businesses that will succeed will be those thinking and planning for the longer term.
Gerry Curran is Operations Director at blu-3 (UK) Limited, a leading, fully integrated construction and utility services company. He has a wealth of expertise in the construction industry having worked in the sector for over 30 years. Blu-3 (UK) Limited (blu-3) is a world-class, fully integrated infrastructure provider delivering expertise to the UK and Europe’s largest construction projects. The company operates across the residential, commercial, public, technology, infrastructure and data centre sectors offering civil engineering, utilities and construction services.
For more information, please see: www.blu-3.co.uk