The Effects of COVID-19 on the Construction Industry

Construction

The impact COVID-19 is having on the global economy is unprecedented, perhaps even more impactful than the 2008 economic recession.

With the drastic movements creating volatility in the market, across all financial sectors, investors are continually reacting to the developments concerning the pandemic facing the UK and the world. It is fair to say that COVID-19 is having an impact on every single industry.

Construction is, like almost every other market, not shielded from the impact of the virus. Projects that were pre-approved or in process are now at jeopardy of falling through.

With probable labour shortages, problems with suppliers fulfilling requirements also evident in the supply chain and fear of a lack of funding and overall activity in the construction process is leading those that head these projects to become fearful. With all these factors out of their control, we are in a position of ‘wait and see’ if the projects will persevere.

A need to remain calm

It is essential now more than ever that we attempt to manage the current situation as best possible. The resilience of the construction sector needs to shine through, and we need to reflect on the temporary nature of the impact.

Whilst the health of the nation is undoubtedly a priority, with full support for the measures beginning to be implemented by the Government, it has come at a bad time for the construction sector. 2020 was poised to be a year that the Government prioritised a ‘housing revolution’, providing more housing across the UK to those that need it, including first time buyers.

Chancellor Rishi Sunak’s first budget did show us that the Government have not overlooked the sector. With the needs of the wider property market acknowledged with suitable financial allocation for new build properties, there is hope that should the market begin to return to normality we will see activity and funding in the market.

Support has been confirmed

Not only have we seen Government assurance of support through this, other private organisations within the construction sector have pledged further support and other assistance. Both the Civil Engineering Contractors Association (CECA) and Build UK delivered an outline on how they will help their members with minimal disruption to the industry, as well as clarification to who is eligible for UK Treasury tax relief.

Most of the advice echoed the World Health Organisation’s (WHO) guidelines for organisations. To clarify, this was that active worksites can continue to operate in the current climate, specifying the ratio allowed between employees and hygiene facilities to minimise risk of contagion.

In addition, it was explained how to review safety-critical elements of your project and the importance of separating the team into smaller groups. Should a member of the team become infected, it keeps the spread of the virus to a select few as opposed to the whole team.

Of course, the main concern facing the industry is that of a ‘force majeure’ concerning contractual obligations, whereby all reasonable steps were taken to remain in operation but are not able to continue operating due to the severity of the virus. Considering we still know very little of the virus in the grand scheme of things, there is expected to be great pressures to prepare for the incoming pandemic.

The clarity is welcomed

Looking at the positives, the fact the CECA and Build UK are providing clarity is reassuring. Providing the necessary information surrounding a force majeure in relation to COVID-19 is essentially defining the legal nature of the virus and the construction industry. The contractual obligations set out in the industry are clearer.

In addition, both bodies are positioned as a ‘go between’ for companies that need assistance from the Government, from clarity of public development projects to requesting a delay on taxes for those that have taken a hit with cashflow.

Whilst these are great examples of how efforts are being taken for the construction industry, larger questions arise in how the Government will truly show that they value the construction industry. Their needs to be further evidence that they understand the current conditions facing this massive industry that has almost been brought to a halt as a result of COVID-19.

A long term challenge

The current government truly looked set to tackle the current issues plaguing the market, with commitments to provide more housing that people have cried out for, for many years.

With the commitments naturally being postponed, we must question how the Government can realise stability in the market, not only in the coming months but also the longer term.

Assurances will be needed to those that rely on construction as a livelihood. Not only this, but further business relief measures will need to be introduced to ease pressures on those that have lost income as a result of the pandemic. Examples here include business mortgage ‘holidays’ and tax rate reliefs.

The Government need to introduce real, targeted measures to aid the construction industry and provide some level of assurance to those that ‘fail’ to complete projects and fulfil contractual obligations through no fault of their own shall still be financially compensated. In some cases, this may need to be both parties.

Whilst both the construction market and the UK property market have demonstrated incredible resilience over the years, this current situation, particularly in the short term may be the hardest obstacle yet. Regardless of this, the consensus of both experts and of ‘gut feeling’ by industry leaders is that the market will continue to power on.

With Build UK and CECA setting a good example for the industry by providing support to those that are affected, there is still a reasonable level of confidence that we will see long term growth in the market.

Unlike previous crashes in the market, COVID-19 will pass and normality should return, whether that is in a few months to a year. When it does, the construction industry will go on to play an integral part of tackling the critical lack of homes we still face in the UK.