Hit by BREXIT and COVID-19, how will our supply chains and contractors survive the next 12 months?
12 months from now, Ireland’s construction supply chain landscape could look very different. Already a fragmented sector - according to the Construction Industry Federation (CIF), 97% of construction businesses are made up of 10 people or less [https://constructionnews.ie/construction-smes-face-liquidation-due-to-procurement-issues-and-insurance-costs/], this SME model that is surely difficult to sustain when a crisis like COVID19 hits.
SMEs are likely to be the most severely hit by COVID19, suffering from cashflow challenges, reduced productivity and labour shortages. All financial downfalls bring with them increased risks to construction from increased material costs to potential insolvencies. In a sector that is reliant on mitigating many risks, not least the quality of design and construction output, the most common concern developers and clients will have is around their contractor’s performance and their liquidity. Whilst securities like Performance Bonds can protect clients, there is a need to provide ongoing support to SMEs.
“There is no doubt that lockdown and social distancing is likely to continue to have a negative impact on project programmes and costs, to levels that we will probably not see the true extent of until 12 months from now.” says Kevin Duke, Director of Quantity Surveying at Duke McCaffrey
“Many contractors have not only faced the challenges of reduced labour on site but everyday activity, like collecting supplies, has been a real challenge – sometimes waiting for 3+ hours to adhere by the social distancing rules and restrictions imposed to achieve compliance. This together with the long lockdown period, could have a negative long term impact. We are already seeing many extension of time requests.”
What can government do to boost the construction pipeline for 2020/2021?
Push forward with vital planning applications:
In a recent report from KPMG Economic Analysis of Productivity in the Irish Construction Sector [ https://www.gov.ie/en/publication/94929-pre-covid-19-productivity-research-in-construction-sector/ ], one of the sticking points for productivity is our complex planning system which can be lengthy and require significant time and resource to manage the admin effort involved. Government must continue to provide the resources needed to inject new projects into the system.
Another area for concern is around what will happen to those sectors that have been most affected – for example Hotels and Retail. Whilst there may be some temptation in slowing these applications, coupled with current market sentiment these cannot be allowed to impact on decisions; schemes like these take many years to come to full fruition and will be strategically important in evidencing a forward thinking planning process. With Ireland now home to some of the world’s leading tech companies and the fact that tourism in Ireland from the US, UK and Europe is bound to bounce back, forward planning needs to be at the forefront of peoples minds. Unfortunately this has not always been a strong point at a macro level and we need to show that we have learned from past mistakes.
Normalise the supply chain quickly:
Continued support from government and the latest announcements from the EU on investing billions into European businesses [https://www.irishtimes.com/business/economy/eu-promises-billions-to-help-companies-weather-the-impact-of-covid-19-1.4265974] is a welcome relief but there is so much more to do to help our critical supply chain become sustainable.
- Continued financial support: With extensions of time inevitable, let’s continue with state support to protect contractors and their supply chain.
- COVID19 antibody testing: Make COVID19 antibody testing available for all construction workers, quickly and effectively; same day results should be the target.
- Government to subsidise the rising cost of materials: Some cost certainty in uncertain markets is something our contractors will need. According to industry sources the vast majority of building materials used in the Irish construction sector are either sourced in the UK or enter Ireland through international distributors in Britain. Unfortunately, rising materials costs are an inevitability, due to COVID19, and this is liable to be impacted even more by the ongoing Brexit negotiations. These macro issues cannot be permitted to impact on the long term viability of projects and the delivery parties.