The construction industry has had a challenging and disruptive few years with the coronavirus pandemic, ongoing concerns related to Brexit and trade agreements, the Grenfell Tower tragedy and the Carillion liquidation. Facing these challenges and grappling with a number of transformational trends, from innovative processes and materials to increased digitisation, the industry is facing many new emerging risks, but some opportunities also.
Keeping up to date on the latest trends and risks confronting the construction industry, and understanding the issues facing our clients and future partners, is a continued priority for us. That's why we've produced latest insights guide for the construction sector: Building for the Future.
In this article, taken from chapter one of the guide, we assess the impact of coronavirus, the challenges around the supply chain, the rising cost of construction theft, skills shortages, and cash flows. Be sure to download the eBook for the full insights.
The coronavirus impact on UK construction
The construction industry bounced back relatively quickly following the first nationwide lockdown. When it came to re-opening sites, companies were confronted with having to undertake risk assessments, review on-site operations, and implement newly mandated social distancing measures that limit the number of people allowed on-site. All of which has a knock-on effect on productivity and project lead times. Counting the cost of coronavirus:
- Total construction output in the UK fell by a record 40.1% in April 2020.1
- The fall in output was driven by a 41.2% decrease in new work and a 38.1% decrease in repair and maintenance – the largest month-on-month falls recorded since records began.1
- 29.1% of UK construction sector firms surveyed between 23 March and 5 April 2020 had ‘temporarily closed or temporarily paused trading.2
- 73% of firms used the government’s Coronavirus Job Retention Scheme (CJRS), introduced in March, to furlough and retain employees during the crisis.3
Looking ahead, those firms that specialised in serving sectors badly impacted by the crisis — like retail or leisure and hospitality — also face the challenge of re-targeting their revenue generation efforts at new markets.
Coping with construction supply chain challenges
Across the construction industry, concerns about global and European supply chain disruptions were already running high. Overnight, however, the global pandemic resulted in extended lead times for even the most basic construction materials. The prolonged closure of supply merchants combined with problems receiving goods from overseas suppliers, all helped to push up costs. Forcing firms to hunt down alternative suppliers or suspend operations in the face of materials shortages.
As the industry moves towards recovery, firms will need to proactively monitor the resilience of core suppliers and adopt innovative approaches to procurement to ensure potential long-term risks are managed in a transparent and efficient way. That includes reviewing contract clauses to help mitigate short term risk, and moving away from traditional global supply chains to evaluate local partnership opportunities.
The rising cost of construction theft
Theft and vandalism costs the UK construction industry millions of pounds worth of losses every year. In addition to the direct cost associated with a crime, the resulting financial penalties – increased insurance premiums and project delays – mean that bolstering security is now a pressing priority for the sector.
The problem was particularly acute during the COVID-19 crisis, with some closed or scaled down sites reporting a 50% increase in theft at the start of the pandemic.4 Opportunistic thieves aren’t just targeting heavy duty plant or on-site construction materials. Today’s tech savvy criminals are using sophisticated electronic attack tools to circumvent locking systems and perpetrate ‘keyless theft’ to access or steal commercial vans – and make off with the tools contained within. In 2019, 92% of all stolen light commercial vehicles (LCVs) were taken without keys, with the Ford Transit the most popular van stolen during the same year.5
Dealing with UK construction skills shortages
The coronavirus crisis has only served to exacerbate a long-standing challenge where manpower and skills are concerned. For years, the UK construction sector has been facing a perfect storm when it comes to addressing a looming skills crisis. This is thanks to an ageing workforce that’s set to retire in the next few years, a lack of interest among young people in acquiring the specialist trades skills the industry needs, and the potential post-Brexit loss of up to 165,000 EU nationals currently working in UK construction roles.6 Gearing up with the right skills and workforce capacity will be critical if the sector is to take advantage of new opportunities on the horizon.
The construction's industry cash flow conundrum
The coronavirus pandemic has had significant repercussions where cash flow is concerned. With many projects delayed, subject to review or cancelled, construction firms are now having to deal with a raft of cash flow issues – thanks to delayed payment schedules, potential contractual issues and heightened operating costs.
Without strong cash reserves and balance sheets, many smaller firms will have been impacted by lenders rejecting their COVID-19 Business Interruption Loan applications.7 And short term cash flow challenges could impact the ability of businesses of all sizes to keep supply chains intact should clients withhold or delay payments. Identifying what mitigating actions can be taken to preserve cash in the short and medium term will be a critical first step. As well as undertaking a scenario analysis to test all assumptions and identify potential financing needs. Trade credit may be an option for some.
Dealing with the disruption in the construction sector
Sustaining a long-term rebound to the disruption depends on the industry taking full advantage of the immediate opportunities on the horizon. The COVID-19 crisis has accelerated a radical shift in the way construction is done, as firms adopt some major transformational trends that are set to drive innovative and more productive ways of working. Capitalising on both the short and longer term opportunities on the horizon depends on taking steps to lay the foundations for growth – nurturing new skills and capabilities, effective risk management and creating a culture that supports the long-term change vision. We explore this in more detail in our eBook, download your copy here.
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