Construction industry has been hit hard by lockdown but can rebuild with the right plan

Colm O'Callaghan

Sites: Measures will need to be put in place to ensure worker safety. Stock image: Chris Ratcliffe/Bloomberg

May 04 2020 02:30 AM

Covid-19 and its effect on markets and commercial activity has presented a range of challenges to the Irish construction sector. Some projects are delayed or have been cancelled as a result of the impacts of the pandemic. Supply chain bottlenecks affecting equipment, materials and people are likely to cause delays in funded projects, or reduce spending on future ones.

As a result of the crisis, Irish companies in the construction industry have been hit on numerous fronts. How fast construction companies recover will depend to a large extent on what segments of the sector they serve and where the business sits in the industry's value chain.

For example, businesses with State contracts may experience some level of contract and cash-flow protection. That protection could extend to a lesser degree to companies holding semi-State contracts.

However, projects commissioned by private enterprises may be a little more precarious, especially if those contracts are with the parts of the economy hardest hit by the volatility of the markets and the severity of Covid-19.

How the subcontractor market fares and emerges from this crisis will also dictate how the construction sector may fare in the long term.

It is hoped that the various Government supports being offered to support employees will have helped keep subcontractor firms healthy. This is critical for the overall recovery of the industry.

Large construction groups will also need to look beyond their own economic viability. They need to co-ordinate closely with the public sector on large national infrastructure projects. They also need to connect with their subcontractor network to ensure they are supported, and their supply chains to ensure all aspects come together when business resumes.

While many construction companies may be compelled to make cuts during this volatile period, it will be necessary to consider how those measures may impact the wider business, while balancing both short- and long-term needs.

Five Key Actions:

There are five key actions which construction companies can take now as they respond to the impact of the crisis on their businesses and ensure that they are in a position to reopen and recover as quickly as possible.

1. Assess your supply chain

Examine your supply chain and the likelihood of equipment and materials delays or shortages when the market starts to open again. Identify any potentially weak links now to enable you to pivot your supply chain if necessary, and engage with alternative suppliers.

2. Look at your operations

Talk to your subcontractors to understand whether they are in a position to reopen and operate once construction activity is authorised to recommence. Consider what measures you may need to put in place to ensure worker safety. Do you and your subcontractors have the ability to work with smaller crews, or to operate longer, staggered shifts? What will this mean for project budgets and timelines?

3. Consider legal and financial implications

Is the disruption likely to qualify as a force majeure event or be seen as something that should have been planned for?

Will there be legal implications if your company isn't able to deliver against a contract? What will be the impact of supply chain disruption on your margins, cash flow, loan repayments and terms? For example, the cost of materials may increase due to paying a premium for expedited freight or for buying up supply to maintain capacity.

4. Look at potential tax and other supports

Plan for and assess potential taxation supports, employment supports and other stimulus measures you can avail of. Find out what effect they will have on your business.

5. Put in place a clear communication strategy

Disruption brings the risk of reputational damage. A clear strategy for transparent communication with all stakeholders, including employees and every party along the supply chain, will be critical.

Bear in mind that effective communication can boost reputations, morale and trust among all stakeholders.

Colm O'Callaghan is Partner, Entrepreneurial & Private Business Practice at PwC Ireland.

Construction industry has been hit hard by lockdown but can rebuild with the right plan

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